Wealth

What's Your Legacy?



Is there a private foundation or donor-advised fund in your future? That’s a question more and more people with wealth are addressing. Listen to Renata Rafferty of Palm Desert-based Rafferty Consulting and author of Don’t Just Give it Away: How to Make the Most of Your Charitable Giving with a foreword by Paul Newman.

“As Rockefeller said, ‘Giving away lots of money is not easy. To do it well is really hard.’” Rafferty points out that charitable giving is like investing. “Your return is social change and progress.”

Both private foundations and donor-advised funds make a difference, create a legacy, teach philanthropic values to your children and grandchildren, and provide significant tax advantages and savings.

A private foundation fund provides an income tax-free home for assets like cash, securities, real estate, mutual funds, and retirement-plan assets. Most experts agree you need a minimum net worth of $5 million to $7 million to create an effective private foundation. Remember, choices you make today will count for generations to come.

“I have sat on a number of foundation boards and have clients with foundations. It’s so important to make decisions considering the lasting impact they will have,” says Michael Smith, regional president of Northern Trust Corp.

Defining your foundation’s mission clearly and concisely is key to its long-term effectiveness. That’s exactly what Irene Anderson of Palm Springs did when she created the Anderson Children’s Foundation in 1970 with assets of $18 million. Today the foundation distributes about $1 million annually for children in the Coachella Valley. 

 “Mrs. Anderson left our grant-making ability open-ended as long as each grant was for an unmet need of local children,” explains Bill Schlesinger, foundation trustee. A distribution committee determines which organizations are the most deserving. “We try and keep our grant decision-making process simple, which isn’t hard to do since Mrs. Anderson had a specific mission in mind,” he adds. “Clarity is key. Because when you have clear goals, then you don’t have power struggles among your board.”

Michael Casey, foundation attorney and CEO of The Whittier Trust, a Pasadena-based wealth management firm with 150 clients, couldn’t agree more. “Define your particular interests and make your grant program a vision of how you want to make a difference. Don’t begin with a shotgun approach, because people will come out of the woodwork asking you for money.”    

Mission, Training, Expertise
Earl Greenburg of Palm Springs established The Greenburg Family Foundation. From the start, he knew his foundation’s mission. Ten years ago, he began raising funds to build an apartment house in Santa Monica for people living healthy with HIV. The Rick Weiss Apartments, named after Greenburg’s life partner who died from AIDS, opened seven years ago.

“We decided to create an award which would allow us to continue raising money for both the Rick Weiss house and other projects,” Greenburg says. “As the event grew and moved to Palm Springs, we decided to institutionalize and structure our activity through a foundation.

I believed this was a way to keep our mission very pure. I also envisioned having a foundation as a way to channel my charitable activities, along with those of my family. It offers another learning lesson for my two kids.”

“Getting your children involved with your foundation makes a difference in their lives. It’s a great social training ground, and they learn how to give responsibly,” says Jim Lintott, chairman of Beverly Hills-based Sterling Foundation Management and co-author of Creating a Private Foundation.

Like any successful business, a private foundation needs professional asset management. All Anderson Foundation’s grants are funded with the interest its assets generate, while the principal remains intact. The federal government requires a minimum 5 percent annual distribution of a private foundation’s assets to avoid penalty taxes. Private foundations have an inherent fiduciary responsibility to all those involved and a reporting and accountability standard mandated by law.

It’s important to ask yourself how active you plan to be in your foundation and how much time you are willing to invest. Even with professional foundation management, which is essential, you and your board of trustees will be responsible for major decisions. Also, a full-time staff person and office are necessary for a professionally run foundation.

Of course, in addition to a private foundation’s altruistic benefits are the tax advantages. Federal and state tax laws are very complex and require expert advice. Basically, a private foundation allows you a tax break today while maintaining control over the money in your foundation. Tax incentives include immediate income tax deductions for your contributions, income tax-free growth, and exemption from estate and gift taxes.

“Consult with an attorney who is experienced in the nonprofit/foundation world, because a general attorney or even one who specializes in estate planning may not know all there is to know and doesn’t understand the very complex federal and state taxation laws,” cautions Chris McQuire of the H.N. and Frances C. Berger Foundation.

Donor-Advised Funds
If a private foundation doesn’t work for you, consider a donor-advised fund. It’s an efficient and cost-effective alternative to private foundations. Initial contributions can be as low as $10,000. The donor-advised fund handles all administrative responsibilities as well as grant management, distribution, and state and federal tax-reporting requirements. There are hundreds of diverse donor-advised funds available. Investment giants like Fidelity and Vanguard also offer them.

Donor-advised funds are designated public charities by the Internal Revenue Service, so contributions qualify donors for the maximum deductibility for income, gift, and estate tax purposes. Your individual fund is pooled with those from other donors creating the charity or foundation, which in turn makes individual charitable grants. 

Donors to The Desert Community Foundation, a four-year-old local donor-advised foundation, may recommend distributions from its funds to specific charities. It can also designate a successor advisor as a way to get family members involved.

“If you don’t have the commitment or the money to properly fund a private foundation, then a community foundation is a nifty alternative because your money goes back right into the community,” says Ron Gother, Desert Community Foundation’s president. The Desert Community Foundation has $10 million under management and distributed $1.5 million last year. Typically, donors pay about a 1 to 1.5 percent management fee.

As with any major fiscal move, research any donor-advised fund that interests you. A cautionary note: Congress is “looking at” donor-advised funds’ federal tax status.

If a private foundation is right for you, it might change your life. “I see people start foundations for all different reasons,” Casey says. “Eventually it takes on a life of its own by adding tremendous fulfillment to your personal wealth.”

Palm Springs Life

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