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• Increased income tax rates
  • Individuals to 39.6% (ordinary) and long-term capital gains (LTCG) and dividends for taxpayers with adjusted gross income (AGI) of more than $1 million
  • Increase in corporate tax rate from 21% to 28%
• Gifts, bequests, trust distributions as capital gains realization events
  • Loss of capital gains“step-up”
  • Gifts and certain trust distributions as realization events
  • 90-year trust realization event
  • $1 million exclusion

THE POTENTIAL IMPACT ON CHARITABLE GIVING

• The top marginal individual income tax rate would increase from 37% to 39.6% for taxable income in excess of the top bracket threshold—as tax rates rise, the value of itemized deductions also rises.
• For taxpayers with AGI of more than $1 million, long-term capital gains and qualified dividends tax rate would increase to match the proposed ordinary income tax rate. For a taxpayer with income in excess of $1 million, rates would jump from 20% (or really 23.8%, including the net investment income tax) to 39.6% (or really 43.4%, including the net investment income tax).

2. The House Ways and Means Proposal

• Return of proposed estate tax changes instead of capital gains tax
  • Accelerate “sunset” of current estate tax levels (effectively dropping in half from $11.7 million to about $5.5 million)
  • No mention of loss of “step-up” or gifts/distributions as realization events
• Income tax changes
  • Highest personal rate to 39.6%; capital gains rate to 25% – 3% surcharge for in come over $5 million
  • Corporate rate to 26.5%
  • Changes to certain cross-border tax rates and rules
• Changes to grantor trusts (pulled into taxable estate)
• IRA changes
  • Increased required minimum distribution for high-income taxpayers with large balances ($10 million plus, and can never stay over $20 million)
• In terms of charitable giving, like with the Green Book proposals, higher taxes lead to a more valuable deduction
• Estate taxes
  • Brings a lot more people into the estate tax net
  • Eliminates a lot of common planning for reducing estates (e.g. grant or trust planning) – Eliminates valuation discounts
  • Makes gifts to charity and certain charitable lead trusts far more valuable

3. The ACE Act

Co-sponsored by Senators Angus King (I-ME) and Chuck Grassley (R-IA)

• Private foundations would no longer be allowed to count grants to DAFs towards meeting the annual minimum distribution of income requirement (MDR) if the private foundation retains advisory privileges.
  • Note: This is not a concern for a terminating foundation or for a foundation that grants to a DAF account over which the foundation has not retained advisory privileges.
• Private foundations would no longer be able to count administrative expenses (for example, payroll, travel, and other similar expenses) of certain insiders towards meeting the MDR.
  • Note: This limitation is targeted only at insiders who are family members of a foundation’s substantial contributors. The payroll and expenses of non-family members would still count towards satisfying the MDR.
  • Note: This rule would still allow foundations to pay salary to and cover the expenses of the targeted insiders—these expenditures would not be taxable expenditures. However, such expenditures would not count towards satisfying the MDR.
• Private foundations that choose to sunset within 25 years would pay no excise tax. However, if such a foundation makes prohibited grants to related foundations, or it opts not to sunset at the point in the future when it is required to do so (after not paying excise taxes for 25 years), the foundation would have to pay the IRS any taxes it saved because of this tax break.
• Private foundations would pay no excise tax in any year in which it satisfies a voluntary 7% payout requirement determined by reference to the value of the foundation’s assets on the first day of the tax year.
• A private foundation that uses DAFs to avoid “tipping” of the public charity status of a donee may no longer be able to do so, as distributions from DAFs will be treated effectively as distributions from the private foundation.

THE POTENTIAL IMPACT ON DAFS

• For non-community foundation DAFs, generally, the legislation would allow a current charitable deduction for cash or marketable security gifts to a DAF only if such gifts are distributed by the DAF to charities within 15 years of the first contribution to the fund and all advisory privileges terminate.
• There are narrow exceptions to these rules for DAFs that are set up at community foundations, but the exceptions apply only for amounts donated up to $1 million or there is a 5% MDR on the individual qualifying community foundation donor-advised fund.

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Your designated staff person serves as the liaison between the family and our foundation management services. Your office gets a dedicated Private Client Advisor who is always just a phone call away to answer questions, resolve issues, and implement special requests. Our foundation professionals are also available to connect directly with the family upon occasion, as you deem appropriate.

THE FAMILY’S FOUNDATION

The family governs their foundation, sets strategy, and makes all granting and investment decisions. They will relate to you, as family office staff, for foundation matters.

FOUNDATION SOURCE

Working in the background, we provide all the services that are required to keep the foundation running smoothly and compliantly on a day-to-day basis. We will coordinate with you on administrative matters for the foundation.

Foundation Source Services Include:

ADMINISTRATIVE SUPPORT

Our professional staff handles the details that keep the foundation running smoothly, relieving the family office of the administrative burden while mitigating risk exposure. We take care of the following:

• Grant processing and disbursements
• Expense processing
• Active compliance monitoring of foundation activities
• Tracking the foundation’s progress toward meeting its annual 5% minimum distribution requirement
• Foundation accounting and reconciliation
• Tax work (990-PF and related filings) plus state filings

SPECIALIZED ONLINE TOOLS

You and the family have access to Impactfully, a secure, customized, web-based “command center” that centralizes the foundation’s activities. Developed specifically for the needs of private foundations, this award-winning technology simplifies foundation control, communication, and collaboration. Designated family members and family office staff get instant access and total transparency into foundation activities. Features include:

• Individually customized viewing rights and granting permissions
• An integrated database and specialized tools for charity research and grantmaking
• Online tracking and reporting, including investment balances across all accounts

PHILANTHROPIC ADVISORY SERVICES

Foundation Source Philanthropic Directors are experienced professionals who are available to provide philanthropic advice to your staff or directly to the family via occasional phone consultations. When the foundation requires more extensive support, our Philanthropic Directors can provide in-depth, custom engagements. These could include:

• Defining–or revisiting–the foundation’s goals and priorities
• Translating a general interest (e.g., homelessness or clean water) into a concrete grantmaking strategy
• Increasing family engagement, including bringing the next generation on board
• Planning for change, such as leadership succession or a major change in assets

FOUNDATION CREATION

If the family doesn’t already have a foundation, but is thinking about establishing one, we are happy to work with the family’s attorney to coordinate services. Alternatively, we can provide the foundation entity and file IRS Form 1023 for recognition of exempt status. We’ll also provide articles of incorporation, bylaws, and investment, expense, and conflict of interest policies, which can be modified by the foundation.

In Summary

We have decades of experience supporting private foundations. We know that foundations and their needs come in all shapes and sizes. Our goal is to take the time to understand your office and your family, so we can help forge the best path forward. In the end, the family wants to make a difference with their philanthropy…and it’s our mission to help them do just that.

The post Your Family Office and Foundation Source appeared first on Foundation Source.

While some clients might want to assemble a team of talent for their foundation, from attorneys and accountants to philanthropic consultants, the time and effort required to oversee and coordinate a team of advisors can outweigh the benefits. And if those advisors do not have the expertise required to properly handle private foundation business, it can lead to errors and problems.

With Foundation Source, you can provide your clients with an entire team of foundation experts, all coordinated by a Private Client Advisor who knows you, the foundation, and, if you wish, the client. You and your clients get all the sophistication, resources, and experience of a billion-dollar foundation, for a fraction of the cost. And because all foundation needs are managed under one roof, important tasks don’t “fall between the cracks.”

2. You Can Manage Your Client’s Foundations Conveniently, Giving Them Full Transparency

We’ve seen lots of do-it-yourself systems for managing foundation expenses and tracking activities, from Excel spreadsheets and QuickBooks to manila folders crammed with paper. None of them can compare to Impactfully, our exclusive, online platform created from the ground up for the unique needs of private foundations.

Family offices use this award-winning web platform to provide full transparency to foundation members regarding foundation activity, records, and investment balances. They can use Impactfully from any device, and it’s fully customizable.

YOU AND YOUR CLIENTS GET ALL THE SOPHISTICATION, RESOURCES, AND EXPERIENCE OF A BILLION- DOLLAR FOUNDATION, FOR A FRACTION OF THE COST.

3. You or Your Clients Can Make Grants Whenever and Wherever It’s Convenient

With Impactfully, making transactions on behalf of your client’s foundation is simple and convenient. Use the web platform to research charities and make grants, keep tabs on the foundation’s philanthropic activity, and track progress toward the foundation’s five percent minimum distribution requirement. The flexible reports library enables you to drill down into foundation details to clearly understand foundation activities, and if your client wants to make a grant themselves, they can do so at any time, from any location. Should you want to permit other family members to do so, powerful security features enable you to custom-tailor access and granting rights. And because all of these capabilities are online, the foundation is open for business at any time, from anywhere you or your clients happen to be.

4. Get Top-Flight Foundation Support on Call, Not on Staff

With Foundation Source, you don’t have to hire in-house philanthropic experts because we become your virtual staff. Working with private foundations is our only business, and we’ve assembled a team of private foundation specialists you can’t find anywhere else or in one place: foundation administrators, compliance experts, foundation tax preparers, and technology support.

Our philanthropic advisors, veterans in the philanthropic field, have experience in large foundations, small foundations, and nonprofits. They give you or your clients top-tier philanthropic advice when it’s needed.

5. We Keep Your Clients Out of the News

It can be difficult for a family office to keep up with all the rules and regulations pertaining to private foundations, which are always changing. But “ignorance of the law is no excuse,” and your clients don’t want the type of publicity associated with penalties for violations. With Foundation Source providing active compliance monitoring, there’s no need to worry.

Your clients get the most experienced specialists in the country watching over the foundation. Our outstanding tax and legal staff monitor the foundation’s transactions, flagging potential problems before they rise to the level of compliance violations. And they are just a phone call away to answer any questions.

6. Your Clients Can Unleash the Full Power of Their Foundation

The IRS allows private foundations wide latitude to do a host of things that aren’t possible with any other charitable vehicle. And while writing grant checks to nonprofits will always be the cornerstone of foundation giving, many of today’s philanthropists want to go beyond the simple transfer of funds to 501(c)(3) organizations. This is especially true of younger clients who are inspired by entrepreneurial philanthropists, such as Bill Gates and Sean Parker.

With Foundation Source, we make it easy for your clients to engage and employ every IRS-sanctioned option available to accomplish their charitable goals: grants to individuals, program-related investments, direct charitable activities, etc. Whether they want to support an orphanage in India that’s never heard of an IRS 501(c) (3) designation, or make an equity investment in a for-profit drug company that’s developing a cure for a rare disease, Foundation Source can help them leverage their foundation’s extraordinary capabilities without running afoul of IRS regulations.

WE MAKE IT EASY FOR YOUR CLIENT TO ENGAGE AND EMPLOY EVERY IRS-SANCTIONED OPTION AVAILABLE TO ACCOMPLISH THEIR CHARITABLE GOALS.

7. You Can Keep Your Clients Off the IRS Radar with Properly Prepared 990-PF Tax Returns

The IRS has stepped up its review of private foundation tax returns. Now, more than ever, it’s imperative that your client’s annual 990-PF tax return is prepared by experts who know the ins and outs of this specialized filing as well as the potential issues that an IRS reviewer might flag.

At Foundation Source, our team of tax specialists complete over two thousand 990-PFs each year as well as quarterly excise tax filings, state filings, and every other state and federal filing required for private foundations. There are no more experienced preparers in the private foundation space.

8. You Can Significantly Reduce Your Client’s Foundation Tax Bill

At Foundation Source, we undertake strategic data mining to help donors avoid tax penalties, and we proactively identify opportunities for them to obtain tax refunds on an ongoing basis—not just whenever a filing is due. Recently, we helped a foundation receive a $110,000 refund; another received $80,000. And because of our in-depth knowledge of tax law and IRS regulations, we often help foundations that are new to Foundation Source abate IRS penalties assessed in connection with a prior accountant or due to their own mistakes.

One frequently overlooked possibility for savings is the foundation’s excise taxes. Private foundations are required to pay a 1.39% excise tax on income and realized capital gains.

9. Your Clients Can Communicate with Over 2,000 Private Foundation Donors

Family foundations often operate outside of the formal philanthropic field, making it difficult to connect with and learn from their peers. With Foundation Source, you and/or your clients get access to an instant network of foundation donors, both online and in-person. When you or your client have questions, post them to the Client Forum, a secure, social networking platform that’s reserved exclusively for Foundation Source clients and their authorized staff.

10. Your Clients Get a Sustainable Solution for Foundation Operations

Because our wide array of services adapt to fit every foundation’s needs, you can count on your partnership with Foundation Source to last.

As foundations evolve and change, they need never misplace key data, lose momentum, or endure growing pains during staff and board transitions. Whatever comes, we’re a constant, steadying presence that can help you maintain the efficacy of your clients’ foundations for many years to come.

WE PROACTIVELY IDENTIFY OPPORTUNITIES FOR CLIENTS TO OBTAIN TAX REFUNDS ON AN ONGOING BASIS—NOT JUST WHENEVER A FILING IS DUE.

The post 21st Century Private Foundations: Outsourcing for Impact appeared first on Foundation Source.

Having supported thousands of private foundations for more than 20 years, our philanthropic experts found that our clients rely on the five following touchstones to help family members adopt a giving mindset and create a foundation that inspires younger generations.

1. Instill Values & Traditions

o Involve children in the causes you care about
o Work together as a family to give back
o Teach that giving is a habit, like brushing your teeth

2. Maintain Family Ties

o Hold quarterly or annual family meetings
o Schedule meetings outside of the holidays to stay focused on the purpose
o Provide virtual options for those who can’t attend in person

3. Deepen Social Consciousness

o Conduct a nonprofit site visit with family to better understand needs
o Use the foundation to discuss problems and how to solve them

4. Increase Personal Fulfillment

o Try psychologist Martin Seligman’s exercise to have the family engage in “one pleasurable activity and one philanthropic activity”
o Write about both experiences and have the family discuss

5. Develop Skill, Knowledge & Awareness

o Task young children with simple acts such as donating birthday gifts or toys
o Involve young adults in the foundation to develop skills such as leadership and financial management

Want to get the complete checklist?

Philanthropic Support Is Just a Call Away
Have questions about philanthropy? Want to talk about a specific client? We’re here to help! Schedule a call with us here or call 800-839-0054.

The post Q4 Conversations: Engage Clients with This Family Philanthropy Checklist appeared first on Foundation Source.

MODERN PHILANTHROPY STARTS HERE
Our tech-enabled solutions make giving—and having a foundation—easier.

Foundation Management

New Foundation Creation

• Provide corporation structure (State of Delaware)
• File IRS Form 1023 for tax-exempt status
• Define foundation’s policies and guidelines
• Configure foundation’s cloud-based platform and provide orientation
• Coordinate with client’s financial, legal and tax advisors

Existing Foundation Implementation

• Configure foundation’s cloud-based platform and provide orientation
• Enter foundation grant history (up to seven years unformatted and unlimited formatted)
• Set up budgeting and any multi-year commitments
• Assess current state(s) filing status
• Coordinate with client’s financial, legal and tax advisors

Administration and Governance

• Undertake foundation recordkeeping
  › Funding and income
  › Expenses and fees
  › Assets and valuations
  › Grant history
  › Substantial contributors
• Track 5% minimum distribution
• Archive corporate, tax and other foundation documents
• Manage online access rights

Compliance

• Verify grantee’s 501(c)(3) public charity status
• Provide USA PATRIOT Act due diligence
• Identify supporting organizations
• Monitor “Advance Ruling” expirations
• Monitor grants and expenses to help prevent:
  › Self-dealing
  › Taxable expenditures
  › Excess business holdings, etc.
• Monitor affiliations with other nonprofits
• Track substantial contributors

Transaction Processing

• Process contributions to the foundation
• Prepare grant checks and transmittal letters
• Pay fees and expenses
• Provide payroll services (if applicable)
• Provide transaction accounting

Tax Preparation and Filing

• Calculate and pay quarterly estimated taxes
• Prepare and file federal 990-PF return
• Prepare and file 990-T UBIT return as needed
• Prepare Forms 1099 and 1042 for independent contractors
• Prepare and make state filings
• Provide donor substantiation receipts
• Maintain tax records in foundation archive

Financial and Grant Reporting

• Grant activity and transaction reporting
• Expense reporting
• Financial reporting

Advanced Foundation Management

Specialized Grantmaking Services

• Expenditure responsibility grants
• Equivalency determination
• International granting
• Program-Related Investments and recoverable grants
• Scholarship, fellowship and award programs
• Direct charitable activities
• Set-asides

Specialized Compliance and Tax Services

• Transition-year tax returns and amended tax returns
• Audit support (not IRS audit)
• Limited partnership, trust and S-corporation investments
• Foundation DBA (doing business as) filings

Specialized Accounting Services

• Budgets for expenses and grantmaking
• Prepare monthly financial reports, including customized statements
• Statement of Financial Position and Statement of Activities
• Internal control protocols
• Cash flow projections

Expertise

YOUR PARTNER IN GIVING

Let us join you on your philanthropic journey with the experience and tools you need to reach your goals.

Advisory Services

• One-on-one customer service
• Set up customized cloud-based platform
• Configure granting permissions and grant-approval processes
• Provide orientation and technology support for platform users
• Monitor qualifying distributions
• Manage schedules for state and federal filings
• Review and process foundation expenses
• Review grants for compliance with IRS regulations
• Review grant letters to help avoid compliance issues
• Provide implementation support for advanced services
• Facilitate board meeting preparation

Philanthropic Advisory Services

Governance

• Establishing a board
• Creating decision-making approaches
• Facilitating a board meeting
• Developing a succession plan

Leadership and Staff

• Defining staff roles
• Transitioning to new leadership
• Professional development for board members and staff
• Identifying opportunities to engage with other funders and nonprofits

Strategic Planning

• Determining focus areas
• Crafting a mission
• Setting long- and short-term goals
• Evolving foundation priorities

Sunsetting

• Defining a model for spending down a foundation’s assets

Grantmaking

• Cultivating and managing grantee relationships
• Streamlining grantmaking processes
• Building grant selection criteria

Grantee Relations

• Grantmaking guidelines and procedures
• Identification and due diligence of potential grantees
• Manage application process
• Review, verify, and document grantee eligibility
• Manage grant payment schedules and post-award process
• Monitoring and reporting on programs
• Annual grant analysis and onsite meetings

Program Development and Management

• Maximizing the giving capabilities of private foundations
• Creating programs with measurable impact
• Developing philanthropy beyond grantmaking

Asset Growth

• Adjusting giving goals when foundation assets increase
• Meeting a suddenly higher minimum distribution requirement

Next-Generation Family Engagement

• Engaging younger generations in the family foundation
• Unifying diverse generations through the foundation

Monitoring and Evaluation

• Measuring impact of charitable activities
• Conducting an annual review

Corporate Philanthropy

• Establishing and managing a corporate foundation
• Introductory or advanced skill development in grantmaking, due diligence, communications, leadership transition and governance
• Guiding the foundation through a company merger

To learn more about Philanthropic Advisory Services offerings, including custom engagements, please contact us.

Technology

AMPLIFY YOUR IMPACT
Our tech platform was built with one thing in mind: more effective philanthropy.

Online Resources

Web-Based Foundation Management Tools

• Cloud-based platform
• Orientation and training

Online Research

• Database of more than 1 million IRS-approved charities
• Access to GuideStar® and Charity Navigator
• Charity research requests

Online Granting

• Automated granting to IRS-approved charities and others
• Customized grant approval workflows
• Favorite charities list for expedited granting
• Hardship, emergency, and medical distress grants to individuals
• Grant certificates

Advanced Online Resources

Online Tracking

• 5% minimum distribution requirement
• Grant history by date, donor and program area
• Pending grants
• Funding history by date and donor
• Foundation expenses

Online Reporting

• Over 25 customizable report templates
• Financial activity, expenses, grant history

Online Administration

• Foundation document archive
• Personal profile
• Report codes
• Contact file

APPLICATIONS

• Customized grants management platform
• Online applications
• Online eligibility quiz to vet applicants
• Communication and collaboration tools
• Correspondence management

OUTCOMES

• Online portal to monitor grant performance and impact
• Uploading additional grant history
• Multi-year commitments
• Program areas with budgeting
• Multi-payment grant management
  › File management

APPLICANT PORTAL

• Complete, view and track applications and outcome reports
• Track status of grant payments
• Create and manage charity profile
• Information hub

As Your Foundation Grows, We Grow With You

You get the horsepower and expertise you need to make a real difference without overseeing a team of advisors or building a bureaucracy. Whether you need support for essential functions today, or guidance to explore some of the more complex capabilities of a private foundation tomorrow, you can rest assured that we’ll be with you every step of the way.

The post Foundation Source In Brief appeared first on Foundation Source.

Engaging the next generation presents a powerful opportunity for a family foundation and its continued legacy. Getting family involved is a pivotal chance to connect shared history and values across generations of your clan—whether it’s the stories that matter to your families or the ideals that you’re expressing through your foundation. For many families, next-generation engagement can also be an amazing moment that sets the stage for the kinds of growth, connection and maturing that family foundations experience when rising members step into leadership roles—or help evolve new ones.

Blending new voices brings diversity, new strengths and developing roles to your mission. And the more diverse your decision-making body is, the better decisions you make. In these ways, involving succeeding generations of family members becomes a learning experience that ensures continuity, too, which ultimately can enhance your grantmaking and lead to increased impact.

2. Acknowledge the Challenges

It’s a fact: navigating family dynamics is hard but necessary. You and your family members may not have identical values, so it can take some work to recognize and identify what your shared values really are. Reaching that point means taking stock of individual interests and beliefs and then creating a common, shared vision from which you all can move forward. Having different views is a given; the task is to figure out how to align them in the best ways.

To make this a success, it’s also important to recognize that family foundations are often mirrors of the family culture, dynamics and communication styles behind them. That defining trait makes the ability to communicate about differences and similarities alike—and navigate around any dysfunction—essential challenges of working together as a family.

One way to approach these inherent challenges is to start early with a learning emphasis. What do your children, grandchildren or other relatives really know about your foundation? As they grow, for example, perhaps they can get involved in the selection process of charities to fund. Or maybe they can accompany you to site visits or events sponsored by the organizations you help.

Another step is to think about how to work empowerment into your governance when onboarding new generations. There can be a certain tension, after all, as it naturally creates a mixed group, in which some people feel more empowered to make decisions and others feel less so. Family foundations that have been run solely by their founding generation, for instance, may find it difficult to transition to a more democratic process as new generations come on board.

Blending new voices brings diversity, new strengths and developing roles to your mission.

That’s why a more formal onboarding process is often preferable over, say, just family discussions, to smooth those crucial transitions. It can be hard to step into a leadership role if you feel that you don’t have clear authority to question, challenge and make decisions. So, having governance practices and decision-making structures in place brings more objectivity to a process that can be subjective—and that gives next-gen family leaders a solid base to lean back on in terms of how to engage, integrate and contribute.

3. Master Transition Planning

When managing transitions, taking the time to discover passions and identify roles that fit is a best practice to move forward successfully. Square pegs will never fit round holes, so don’t try to force them. Instead, it’s vital to match interests, responsibilities and leadership abilities to family members who have the desire, enthusiasm, education and drive for the roles that make the most sense for them to accept. The bottom line? Intrinsic motivations will maintain the foundation’s effectiveness and sustainability.

What about bringing outsiders into the multigenerational family mix? It’s a trend among most family foundations today, according to NCFP’s Trends 2020 study, but it’s also something that a lot of them grapple with. Before adding outside directors, prioritize effective family communication, a focus on values and operational direction.

It’s not always easy for an outside party to walk into a family setting, so make sure your reasons for engaging other voices bring value and new expertise to the table and that the advisory goals you set are clearly defined. Whether you’re actively bringing on the next generation, outside advisors or both, always remember to be mindful of the actions you take. You’re laying the groundwork for the next stage of your family foundation and defining what you want your message to the world to be.

To learn more about these key takeaways and other valuable insights, listen to the full webinar discussion.

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