We offer effective alternatives to private foundations.
Weighing the benefits of private and public charity
Establishing a private foundation is like having a child… giving birth is just the first step. Running a successful, mission-driven foundation requires steadfast vision, strong leadership, and hard work. It also takes time. While the investment of time begins with the startup, it will continue for years to come. And of course, it takes money as well. Theoretically, any amount is possible. But practically, many underestimate the amount needed to operate efficiently, both in terms of the charitable asset and ongoing operating costs. Many private foundations are established without thorough assessment of all the costs involved and the alternatives available. Often prompted by year-end tax planning or the influence of peers, a quick decision can result in a costly and long-term responsibility.
Surprised by demands
In fact, after the first year or two of operations, some private foundation founders express mild regret, saying they didn’t anticipate the magnitude of demands on their time, energy, and resources. They wish that someone had helped them consider the costs, the benefits, and the options… before they signed up for the responsibilities of a private foundation.
For philanthropists considering options, as well as private foundation trustees interested in simpler solutions, practical alternatives are available through the Henderson Community Foundation.
Assets of a private foundation may be used to establish a Donor Advised Fund, Unrestricted Fund, Field of Interest Fund, Scholarship Fund or Designated Fund. Depending on the type of fund that is established, the private foundation’s board of directors often stays involved in setting grantmaking priorities, advising on grant awards and assessing grant success.
Private foundation and donor advised fund
Philanthropists may choose to maintain their private foundations while establishing a Donor Advised Fund at Henderson Community Foundation. In doing so, they can earmark just a portion of their assets to suit a special interest.
Compare approaches with a tool that defines the distinctions between donor advised funds and private foundations.
Donor Advised Fund
Donor Advised Funds offer a simple, powerful, and highly personal approach to giving. While Henderson Community Foundation retains the assets given in this way, donors—and even successive generations—can stay involved in recommending uses for the fund.
- Learn more about Donor Advised Funds, an easy way for donors and their families to give back and stay involved.
Benefits of public charity
Section 507 of the Internal Revenue Code permits termination of a private foundation in either trust or corporate form with distribution of its assets to a public charity. The two primary requirements for the termination of a private foundation are that the private foundation must distribute all of its net assets to one or more tax-exempt organizations and that each organization has been in existence for a continuous period of at least five years preceding the distribution. The Foundation fulfills both of these requirements and the private foundation’s assets typically form a permanent Donor Advised Fund under a similar name.
