903 533 8585 - 800 436 1213
Private Family Foundations
A number of years ago, Vance Packard wrote a best selling book called “The Hidden Persuaders.” The book explored at length the reasons (usually subliminal) people buy certain products including, among other things, life insurance. In the book, Packard quotes from a presentation by Edward Weiss entitled “Hidden Attitudes Toward Life Insurance.” Weiss was reporting on an in-depth study made by a number of psychologists assigned to study the question: “Why do people buy life insurance?”
One of the strongest appeals prompting a person to buy life insurance, the study found, is that it offers to the buyer, “The prospect of immortality through the perpetuation of his or her influence. It is not the prospect of physical death that is inconceivable - rather it is the prospect of obliteration.” People apparently cannot tolerate the thought of no longer being present - obliteration.
Although Weiss’s observations pertain to the motivation for the purchase of life insurance, they have equal application for those who desire to perpetuate their influence through the use of charitable bequests or endowments. This is a method to which people increasingly turn to satisfy this “fierce desire to achieve immortality,” and to maintain one’s influence after death. This should not be interpreted as an indictment, but merely a natural human desire. It is rather nice to recognize that successful people want to leave behind something significant other than their progeny.
Certainly, paying large amounts in estate taxes does not satisfy one’s yearning for immortality. After all, have you ever heard of anyone being honored and acclaimed for the amount he or she paid in the form of estate taxes? The establishment of one’s own Private Family Foundations is one way of subsiding this urge for immortality.
We are all familiar with the large foundations set up by the Rockefellers, the Fords, the Carnegies, the Duponts and the Kennedys. Not many of us are in that league, however. So, what are the options available to the rest of us? For one thing, to set up one’s own private foundation not only calls for the amassing of a vast amount of wealth, but it can be a most costly proposition, both to set up and to administer on an ongoing basis. In addition, whereas donations made directly to qualified charities may generate income tax deductions of up to 50% of adjusted gross income in the first year, contributions to a private foundation permit deductions only up to 30% of adjusted gross income. On top of that, private foundations are subject to excise taxes on certain investments, plus a whole host of restrictions for the primary benefactor and family. A Private Family Foundations has some serious drawbacks. However, there exists an even better way of achieving these same objectives, without the costs and restrictions.
THE PUBLIC/PRIVATE SOLUTION
Although one may find a number of alternatives to the Private Family Foundations, perhaps the simplest and most cost effective way is to tie-in with a public community foundation. In this manner, you can to a large extent have your own “private foundation” under the larger community foundation umbrella.
The Tax Act of 1969 made the regulations of Private Family Foundations so burdensome that some 50,000 of them closed down. Many realigned themselves with a public community foundation, and not just because of the 50% versus 30% deductibility advantage. There are other advantages as well. For example, any unused deductions involving a gift to a community foundation may be carried forward for five years. Because it is considered a “non-public” charity, a gift to a Private Family Foundations may be carried forward and subject to the 30% limitation and there is a risk that not all the deduction may be claimed.
Under a “Donor Advised Fund” option available in most public community foundations, one can actually achieve greater benefits than with a private foundation, with significantly greater cost effectiveness. Through a local community foundation, for example, you may create such an account in your own or your family’s name, thus enjoying all the emotional and psychological benefits of a Private Family Foundations. To satisfy IRS requirements, you cannot control the Donor Advised Fund or its investments. You may make some recommendations as to disbursements, however, that the community foundation will usually honor.
After your death, other family members may continue to advise with regard to the disbursements. The community foundation provides the administration for such an account on an ongoing basis. While there may be no such thing as true immortality, setting up a Donor Advised Fund option through a community foundation could be the next best thing.
Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Federal tax laws are complex and subject to change. This information is not intended to be a substitute for specific individualized tax or legal advice. Neither Feliciano Financial Group, nor Lion Street Financial, LLC, offer tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.
Check the background of your financial professional on FINRA's BrokerCheck
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by Advisor Launchpad to provide information on a topic that may be of interest. Advisor Launchpad is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.
Copyright 2017 Feliciano Financial Group
Securities and investment advisory services offered through Lion Street Financial, LLC., member FINRA/SIPC. Fixed and traditional insurance offered through Feliciano Financial Group (FFG). Medicaid planning and consulting offered through Geriatric Care Solutions (GCS). FFG and GCS are not affiliated with Lion Street Financial, LLC.
This site is published for residents of the United States only. Registered Representatives and Investment Adviser Representatives of Lion Street Financial, LLC and Lion Street Advisors, LLC respectively, may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed.
DOL ERISA: Effective June 9, 2017, all individuals who provide advice to retirement plans, including Individual Retirement Accounts (IRAs), must abide by the fiduciary standard. What does the fiduciary standard mean? This means that your advisor must put your interests first before their own or that of the firm, make prudent recommendations, charge reasonable compensation and make no misrepresentations to you regarding recommended investments. The recommendations made by your advisor must be based upon your specific investment needs and objectives. The fiduciary standard is applicable to any recommendations that your advisor makes to you, the client, for your retirement account. Please note the firm does have policies and procedures in place to monitor this level of fiduciary responsibility for our clients.
Contact Feliciano Financial Group
1828 East Southeast Loop 323, Suite 200, Tyler, TX 75701-8340
Mon-Fri: 8:00 AM - 5:00 PM
Sat-Sun: By Appointment