Community Foundation vs. Private Foundation

If you or your client are thinking about establishing a private foundation, consider a Donor Advised Fund at the Martin County Community Foundation (MCCF) . It is an easy, less expensive alternative to a private foundation. Advantages include greater tax benefits , fewer administrative requirements, no minimum annual required payout, and the potential for anonymity, as well as grantmaking assistance from our professional staff. With a donor advised fund, we handle the administrative, accounting, legal, and reporting requirements so your clients can focus on giving back. This comparison chart may help you determine which makes better sense for you or your client.

PRIVATE FOUNDATIONMARTIN COUNTY COMMUNITY FOUNDATION DONOR ADVISED FUND
Start-up CostLegal and accounting incorporation costsNone
Ease of EstablishmentFormation of corporation or trust required; Must apply for IRS tax exempt status (IRS may take six months or longer to process).One signed document (Fund Agreement); Automatically covered by the Community Foundation’s tax exempt status
Recommended SizeVaries – $10 million recommended to justify operating expenses. (Generally, private foundations of under $1 million have average costs of 4.8% of assets and those of $1-10 million have average costs of 3% of assets.)$10,000 minimum
Time FrameGenerally 2-3 months depending on the IRS turnaround timeImmediate – within 24 hours
Tax Status501 (c)(3) private foundationThe Community Foundation is a 501 (c)(3) and 509(a)(1) public charity.
Excise Tax on Investment IncomeUp to 2% – various taxes imposed if payout requirement is not met, or if engaging in certain prohibited transactions.None
Separate Annual IRS Tax Return RequiredYesNo
Tax Treatment of Cash GiftsUp to 30% AGIUp to 50% of AGI
Tax Treatment of Publicly Traded SecuritiesFMV of up to 20% AGIFMV of up to 30% AGI
Tax Treatment of Real Estate & Closely Held StockLimited to cost basis of FMV or up to 20% of AGI, whichever is lowerFMV of up to 30% AGI
Administrative ServicesResponsible for accounting, all record keeping, tax returns, grant programs and costs thereof.All services are covered by low annual fee, most often 1% of FMV of fund assets.
Investment ManagementResponsibility of trustees, professional advisors and hired staff – Must divest closely held stock within 5 years or investment will be taxedProfessional investment management and oversight follows an Investment Policy
Grant SupportTrustees or hired staff operate grant programsIf donor wishes and dependent on fund size, the Community Foundation staff will help to identify, assess, investigate, distribute and monitor grants.
Liability and InsuranceAny directors’ and officers’ liability insurance, employee bonding, and office insurance must be purchased separately.Automatically covered by Community Foundation’s liability and office insurance policies.
Payout RequirementsRequired annual payout of at least 5% of assetsNone
Donor InvolvementDonor appoints board, which controls investments and grant-makingFollows the Community Foundation fund agreement as set up by the donor to meet their customized needs.
Donor Scope of ResponsibilityLegal accountabilityAdvisory
Possibility of Family InvolvementYesYes
AnonymityDonors are named publicly on the private foundation’s tax return.Donors may remain anonymous if they choose to do so.
Primary AdvantagesControl, independenceDeductibility, nonprofit knowledge, flexibility, permanence, simplicity

[1] A donor advised fund is just one type of fund offered by the Community Foundation. We would welcome the opportunity to meet with you and your client to be sure we structure their fund to best meet their philanthropic goals.

[2] The Community Foundation always encourages clients to discuss deductibility with their financial advisor.

Questions?

Please call Elizabeth A. Barbella, Executive Director, at (772) 288-3795.