As a family foundation donor or trustee, you have a variety of important responsibilities as well as prohibited activities. If you are connected to a family with multiple giving vehicles, it may be tempting to view a foundation’s assets as yet another source of philanthropic dollars, especially when it’s all benefiting charity. But as John Edie, former Director of Exempt Organizations Tax Services at PriceWaterhouseCoopers writes:

Whether the donor to a private foundation is an individual, a family, or a for-profit company, it is important to understand that once cash or other assets are gifted (or bequeathed) to a private foundation, those assets then belong to a separate legal entity that is subject to many restrictions. Said as plainly as possible: “It’s not your money anymore.”

That said, foundation law is no more stringent than other laws that regulate areas where the public trust is involved, but board members need to know the basic rules for governing a family foundation, outlined in the slideshow below. A few additional details to keep in mind:

  • Family foundation board activities are subject to state and federal laws and regulations. State law covers the trust and corporate activities of the board and establishes the fiduciary duties of board members. Exact regulations differ from state to state, and legal counsel should brief new board members on their responsibilities.
  • Federal law, principally the Internal Revenue Code, sets the requirements for obtaining tax-exempt status, determines what donations qualify as charitable deductions for tax purposes and specifies annual reporting requirements, again for tax purposes.
  • Donor-advised funds and supporting organizations have their own set of regulations, and guidelines for these legal structures have underwent significant changes with the passage of the Pension Protection Act in 2006. Find additional information here on the effects of the PPA on charitable organizations.

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Legal Considerations of Trust-Based Philanthropy

Posted on October 2, 2020 by Trust-Based Philanthropy Project

Oftentimes in philanthropy, we tend to think of legal considerations in the context of compliance and risk mitigation — i.e., preventing things from going wrong and protecting funders from liability or harm. As a result, foundations that are curious about trust-based philanthropy may have questions about its legal compliance and legitimacy. Is trust-based philanthropy consistent with a foundation’s legal requirements?… Read More

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