Complement a Private Foundation
If a client wants to donate non-publicly traded assets, a donor-advised fund can be a great complement to their private foundation. Generally, when a client donates these assets to a public charity with a donor-advised fund program, they’re able to take a tax deduction for the full market value of the donated asset* and potentially eliminate capital gains taxes. Typically these contributions made to a private foundation are only deductible at the lesser of fair market value or basis.
Collapse a Private Foundation
Different factors could lead to wanting to collapse a private foundation, ranging from the death of the original founder to a need for greater privacy in charitable affairs to a desire to reduce costs and complexity. A popular solution is to dissolve the foundation and distribute its assets to a public charity, such as a donor-advised account at Fidelity Charitable. This strategy provides a way for individuals to meet their philanthropic goals, possibly achieve even greater tax benefits, and continue to support charities during their lifetime and beyond.
Inform your client about the tax benefits of using both donor-advised funds and private foundations. Donating assets to a donor-advised fund provides a potential immediate tax deduction—up to 60% of adjusted gross income for cash gifts and 30% for long-term appreciated publicly traded assets, as compared to 30% and 20% limits, respectively, for gifts to private foundations.
Ask clients about the administrative tasks associated with a private foundation.
Look at their portfolio. Is there a non-publicly traded asset or appreciated security that they would want to contribute? If so, it may be most beneficial to complement their current charitable vehicle with a donor-advised fund—so they give more to charity while minimizing tax implications.