Private Foundation or Community Foundation?*
Donors thinking of creating a private foundation are encouraged to consider the alternative of establishing a named fund within the Community Foundation of Utah. The Foundation is encumbered with far fewer regulations and tax liabilities than are private foundations. The rationale for this favored treatment is that the Foundation is controlled by representatives of the public it serves.
Legal Liabilities and Tax Consequences
Unlike a private foundation, the Community Foundation is classified as a public charity. Its 501(c)(3) status has the following consequences:
- Its funds are exempt from federal excise tax on income. Funds are not subject to the 5% payout requirement and other restrictions and penalties that apply to private foundations.
- Gifts to the Foundation are deductible to a greater extent than gifts to a private foundation.
- Trustee and officer liability insurance is provided.
Establishment Costs
There is no set-up fee to establish a fund within the Community Foundation. It can be done simply and efficiently while still meeting the full range of a donor's charitable goals.
Privacy
A private foundation must make its tax return available to the public, but the Community Foundation of Utah, while publicly accountable, need not disclose financial information on individual funds. If desired, a donor's request for anonymity is honored.
Grantmaking
Donors who wish to benefit from the tax-favored status and cost-saving services of the Community Foundation but also wish to participate in the grantmaking process can establish a Donor Advised Fund. The donor (and their heirs, if desired) makes distribution recommendations to the Board of Trustees who ultimately approve all qualifying grants. If preferred, donors may elect a Donor Designated Fund, naming specific recipient organization(s) to receive grants in perpetuity.
Stable and Cost Effective Management
Management is provided in perpetuity. This includes not only investment services, preparation of tax returns, reports, and audits, but also dealing with the public, responding to proposals, making and monitoring grants, and disbursing funds. The cost of administering a fund in the Community Foundation is just a fraction of the cost of managing a private foundation. The charge for the Foundation's services ranges between 1% and 2% annually depending on the type of fund established. In addition, fees charged by investment managers to the Foundation are prorated based on the size of each fund.
Economies of scale in terms of management enable the Community Foundation to establish a named fund with a modest sum. The Foundation currently requires a minimum of $5,000 to establish a Designated or Donor-Advised Fund.
Finally, if in the future unforeseen changes have made it difficult or impossible to honor the donor's designation, the Community Foundation's Board of Trustees has variance power to modify the original guidelines. For example, if an organization designated by the donor to receive grants goes out of existence, the Board of the Community Foundation of Utah will make grant disbursements to eligible charities that most nearly meet the donor's original intent.
Public Recognition
The Community Foundation of Utah gives public recognition to the fund and to the programs it supports as the donor desires.
Tool to compare options This overview is a helpful tool for professionals and donors alike.
Wells Fargo Charitable Vehicles Overview.pdf
* Thanks to the Community Foundation of Michigan and Wells Fargo for these simple comparisons.
