Setting Up a Family Foundation

A family foundation, also known as a private family foundation, is a type of private foundation that is set up by a family, funded with family assets, and usually has family members on the Board of Directors. Family members also participate in the foundation’s charitable grantmaking.

In California, a foundation is set up either as a charitable trust or as a nonprofit. Both need to file for the IRS 501 (c) (3) status.

Considerations for setting up a private family foundation include:
Why do you want to form a private family foundation?
Do you prefer a charitable trust or a nonprofit? A consultation with a trust attorney at San Luis Obispo’s Toews Law Group, Inc. will help you decide which is best for your goals.
Who are the family members involved in the decision to form a private family foundation?
Do you know what charities and causes you would like to support?
What assets will be used to fund the donations?
Who are the family members who are making the decisions about the charities and causes to support?
Can the family members involved in any aspect of the foundation reach reasonable agreements?
Are you open to learning about the alternatives to a private family foundation?

When you are ready to get started, a trust attorney, such as San Luis Obispo’s Toews Law Group, Inc., is going to have more questions to ask and advice about:

What assets are being donated to the foundation? Once donated, those assets become the property of the foundation. State and federal laws apply to matters such as investments, business holdings, and self-dealing transactions. There are also exceptions that might apply so having the right legal counsel is critical.
What is the value of the assets being donated to the foundation? The assets and their value might have some influence on the type of organization you form.
What is the appropriate way to donate the assets?
Who currently has possession of the assets that are being donated?
What is the tax benefit, if any, to the person or entity donating the assets?
What is the source of operating capital for the newly formed foundation?
What is the organization’s funding cycle? Some organizations fund annually, some on other schedules. Some have an open funding cycle and charities can apply for grants at any time.
What are the funding criteria? Do applicants have to meet certain requirements, such as geographic location, or a specific mission? Other criteria can include whether funds are granted to individuals or only organizations, the type of activities to be funded such as education grants, public works projects such as a park, or food for animals.
Is the foundation being formed to disperse a specific amount of cash or discrete assets to charities? If so, how long is this expected to take and what are the plans for dissolving the foundation when all donations have been made?
Is the foundation going to be receiving ongoing donations from family assets?
How is succession on the Board of Directors or for the trustee going to be managed?
Who is going to perform the daily administrative duties of the foundation, including all required tax filings, and acquiring and maintaining any licenses and permits? The Board of Directors has a responsibility to oversee the operation of the foundation, but there may be a need to hire an administrator. Because of laws that restrict private benefit and self-dealing, a family member may not be the best choice for a paid administrative position.

As trust attorneys and attorneys for nonprofits in San Luis Obispo, part of the Toews Law Group, Inc., estate planning practice is to counsel families on setting up family foundations, both for income tax planning and as a way to provide ongoing family management of assets devoted to charitable purposes. We also counsel clients on alternatives to a family foundation, including donor-advised funds with the local community foundation, grant agreements with existing charitable organizations and other arrangements.

Contact Toews Law Group Inc., today to get your foundation started.