According to the National Heritage Foundation, a charitable foundation is "a legal categorisation of non-profit organisations that either donate funds and support to other organisations (public), or provide the sole source of funding for their own activities (private)." As you seek to set up your own charitable foundation, plan carefully to produce the most good for your money. Consider obtaining legal and financial counsel before you start your foundation. Be aware that "foundation" is not a legal term indicating that an organisation gives grants. There are several routes to providing charitable contributions.
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Start a private foundation. These are non-profit organisations that give money to charities, but they are subject to much stricter tax and reporting requirements than are public charities. They cost more to set up and maintain as well. Contact your state's secretary of state and non-profit association for information about setting up a private foundation as a non-profit corporation or charitable trust. You will also need to register your organisation with your state's department of revenue and the Internal Revenue Service, and possibly your state's attorney general.
Start a public grant-making foundation. This is another type of non-profit organisation that gives grants. This type of organisation has multiple sources of support, and it does not rely on one family or individual's money for its financial survival. Most community foundations are public grant-making foundations. Procedures to set up a public grant-making foundation will also begin by contacting your state's secretary of state to learn about its non-profit organisation filing and reporting requirements.
Set up your foundation with a donor-advised fund, which is a "charitable giving vehicle wherein an individual, family or corporation makes an irrevocable, tax-deductible contribution of personal assets to a charity and at any time thereafter can recommend grant distributions to qualified charitable organisations," according to the Donor Advised Funds website. Donor-advised funds are much cheaper to set up and operate than private charitable foundations. Three of the larger fund companies offering donor-advised funds are the Fidelity Charitable Gift Fund, Vanguard Charitable Endowment Program and Schwab Fund for Charitable Giving. Donor-advised funds also take over much of the administrative requirements of a foundation.
Tips and warnings
- Consider setting up a charitable fund through your local community foundation. These organisations deal with much of the everyday management of administrative and financial responsibilities.
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