Charitable Family Foundation - Best way forward

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surgdoc
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Charitable Family Foundation - Best way forward

Post by surgdoc » Sat Jul 21, 2018 2:57 pm

I would like seek advice from lawyer colleagues on this forum with regard to establishing a charitable family foundation. I am a surgeon by trade and plan to start a family foundation for charitable purposes during my retirement life. Desire to start a foundation as opposed to giving to established charities is mainly based on two reasons: One is I want every last red penny go towards intended purposes, not so called overhead. Second one is we can actually decide where the money goes. Vision is to DIRECTLY help medical and educational activities in selected developing countries. I fully understand it requires lot of time invested to do that way. But my wife and I are quire prepared to do it.

After doing some research, we decided to go the route of non profit corporation. I want to run lean operation and decided to use LegalZoom to create a corporation, get EIN, and file for 501(C)(3) status with IRS. We would fund it exclusively with family finances and do not intend to solicit any outside help.

My questions to my lawyer colleagues are:

1. Is this best way forward?

2. Are there any legal or regulatory issues with funding this non profit corp exclusively with family finances, as opposed to typical non profits which solicit funds from multiple sources? I am paraphrasing a sentence from Investopedia website about non-profit corps "Have diverse funding sources. 501(c)(3) organizations are supposed to be public". That sentence raised my question if private family foundations are different entities from IRS qualified non-profit corps.

Thanks in advance!

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dm200
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Re: Charitable Family Foundation - Best way forward

Post by dm200 » Sat Jul 21, 2018 3:15 pm

surgdoc wrote:
Sat Jul 21, 2018 2:57 pm
I would like seek advice from lawyer colleagues on this forum with regard to establishing a charitable family foundation. I am a surgeon by trade and plan to start a family foundation for charitable purposes during my retirement life. Desire to start a foundation as opposed to giving to established charities is mainly based on two reasons: One is I want every last red penny go towards intended purposes, not so called overhead. Second one is we can actually decide where the money goes. Vision is to DIRECTLY help medical and educational activities in selected developing countries. I fully understand it requires lot of time invested to do that way. But my wife and I are quire prepared to do it.
After doing some research, we decided to go the route of non profit corporation. I want to run lean operation and decided to use LegalZoom to create a corporation, get EIN, and file for 501(C)(3) status with IRS. We would fund it exclusively with family finances and do not intend to solicit any outside help.
My questions to my lawyer colleagues are:
1. Is this best way forward?
2. Are there any legal or regulatory issues with funding this non profit corp exclusively with family finances, as opposed to typical non profits which solicit funds from multiple sources? I am paraphrasing a sentence from Investopedia website about non-profit corps "Have diverse funding sources. 501(c)(3) organizations are supposed to be public". That sentence raised my question if private family foundations are different entities from IRS qualified non-profit corps.
Thanks in advance!
I believe doing this will entail considerable work and expense.

Why not just use a Donor Advised Fund for the accumulation of the money aspect - THEN seek out qualified charities that have the low overhead yu desire.

Let me give an example if such a "charity" - I am a participant (committee member) for an organization that funds sanitation, clean water, education, reforestation, agriculture, etc. in a remote area of a very, very poor third world country. Some committee members travel there (at their own full expense) and the funds we send there are spent directly - close to zero overhead either there or here. I believe there are many such very low overhead entities that fund such efforts.

So, for example, if someone wanted to directly contribute to, say, a $25,000 effort to screening residents there for vision problems and supply everyone there with glasses - if they need them - we could do exactly that. There would be close to zero overheard - just a few dollars for the wire transfers to the country. it would the same if someone wanted to send $25,000 to expand education in that remote community - and so on.

Sidney
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Re: Charitable Family Foundation - Best way forward

Post by Sidney » Sat Jul 21, 2018 3:33 pm

dm200 wrote:
Sat Jul 21, 2018 3:15 pm
I believe doing this will entail considerable work and expense.

Why not just use a Donor Advised Fund for the accumulation of the money aspect - THEN seek out qualified charities that have the low overhead yu desire.
Like a lot of life, there are trade-offs on DAFs vs. Foundations. Here is a good table that summarizes some of them.

https://www.nptrust.org/donor-advised-f ... foundation

My wife and I have gone the DAF route for a variety of reasons. One of them is that we can make most of our local donations anonymously.

I also know from board work for one local charity and involvement with another that some charitable organizations will shy away from smaller, "shoe-string" foundations. We have a few in the area under $50 million of assets and in some cases there are reliable reports of questionable practices which the charities don't want to risk having blow back to them. One private foundation in particular is run and funded by a local couple and it is common knowledge that they pay for personal expenses out of the foundation (e.g., they hold their "annual meeting" in Florida). In a couple of cases we have actually had a private foundation route a donation through our quite large community foundation, accepting an administrative hit in the process.
I always wanted to be a procrastinator.

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dm200
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Re: Charitable Family Foundation - Best way forward

Post by dm200 » Sat Jul 21, 2018 3:40 pm

Or, perhaps, eliminate the middleman DAF and become active in an existing charitable entity - like our group that directly aids the remote community in a third world country. We would , for example, probably welcome a committee participant who also made donations and could actively participate in the expenditure of funds. The overhead (bother ends) would be close to zero.

Gill
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Re: Charitable Family Foundation - Best way forward

Post by Gill » Sat Jul 21, 2018 3:50 pm

I would urge you to talk with your local community foundation as to how they can be of assistance in such an effort before you consider your own private foundation.
Gill

aristotelian
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Re: Charitable Family Foundation - Best way forward

Post by aristotelian » Sat Jul 21, 2018 4:00 pm

Gill wrote:
Sat Jul 21, 2018 3:50 pm
I would urge you to talk with your local community foundation as to how they can be of assistance in such an effort before you consider your own private foundation.
Gill
They basically offer more expensive Donor Advised Funds.

I just do my own DAF. I wouldn't go through the trouble of setting up my own foundation unless there was a compelling reason to do so.

Gill
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Re: Charitable Family Foundation - Best way forward

Post by Gill » Sat Jul 21, 2018 4:02 pm

aristotelian wrote:
Sat Jul 21, 2018 4:00 pm
Gill wrote:
Sat Jul 21, 2018 3:50 pm
I would urge you to talk with your local community foundation as to how they can be of assistance in such an effort before you consider your own private foundation.
Gill
They basically offer more expensive Donor Advised Funds.

Yes, but with a more personalized hands on approach than a mutual fund.
Gill

jebmke
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Re: Charitable Family Foundation - Best way forward

Post by jebmke » Sat Jul 21, 2018 4:10 pm

aristotelian wrote:
Sat Jul 21, 2018 4:00 pm
Gill wrote:
Sat Jul 21, 2018 3:50 pm
I would urge you to talk with your local community foundation as to how they can be of assistance in such an effort before you consider your own private foundation.
Gill
They basically offer more expensive Donor Advised Funds.

I just do my own DAF. I wouldn't go through the trouble of setting up my own foundation unless there was a compelling reason to do so.
The one in my area is only a bit more expensive and offers a variety of "products" beyond DAF; they have endowment programs, charitable annuities, scholarship funds etc. Quite a few of what I would call mid-range wealthy use them around here. The bigger money (upper 9-figure+ wealth probably have private foundations but there are quite a few "mid-range" wealthy in my county that don't bother with their own. They probably spread some of their giving between the community foundation and some large university endowments or similar types of endowments.
When you discover that you are riding a dead horse, the best strategy is to dismount.

Gill
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Re: Charitable Family Foundation - Best way forward

Post by Gill » Sat Jul 21, 2018 4:17 pm

jebmke wrote:
Sat Jul 21, 2018 4:10 pm
aristotelian wrote:
Sat Jul 21, 2018 4:00 pm
Gill wrote:
Sat Jul 21, 2018 3:50 pm
I would urge you to talk with your local community foundation as to how they can be of assistance in such an effort before you consider your own private foundation.
Gill
They basically offer more expensive Donor Advised Funds.

I just do my own DAF. I wouldn't go through the trouble of setting up my own foundation unless there was a compelling reason to do so.
The one in my area is only a bit more expensive and offers a variety of "products" beyond DAF; they have endowment programs, charitable annuities, scholarship funds etc. Quite a few of what I would call mid-range wealthy use them around here. The bigger money (upper 9-figure+ wealth probably have private foundations but there are quite a few "mid-range" wealthy in my county that don't bother with their own. They probably spread some of their giving between the community foundation and some large university endowments or similar types of endowments.
That’s my experience as well. A private foundation doesn’t make sense for anything less than $100 million and probably more.
Gill

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dual
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Re: Charitable Family Foundation - Best way forward

Post by dual » Sat Jul 21, 2018 4:25 pm

IANAL but interested in the topic.

I think posters should answer the OP's question instead of trying to talk him out of it. His points make sense. See viewtopic.php?f=11&t=252131&newpost=3981988 and the post by senex on the difficulty of evaluating charities.


Some suggestions on setting up your own foundation:

I found Managing Foundations and Charitable Trusts by Roger Silk and James Lintott to be a decent book. Seems comprehensive yet readable without (much) jargon.

There are companies that will help you manage your foundation for a fee. A quick search turned up a large number of them. This one came out on top of the results list and claims they are the largest US provider: https://www.foundationsource.com/manage ... oundation/

No recommendation implied. I have no idea how much they charge or how good they are but worth checking into.

It would be great if you could report your experiences positive or negative so the rest of us can learn.

SixGz
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Re: Charitable Family Foundation - Best way forward

Post by SixGz » Sat Jul 21, 2018 6:26 pm

We have a similar goal as the OP. Having recently sold our business, we would like to spend time supporting small charities and making direct-to-the-recipient grants.

I contacted Foundation Source and received a quote to set up the private foundation for $6,500. The annual cost for our level of contributed assets, is $5,500. FS will provide the basic services for this fee. They do not manage the assets, but require your custodian, i.e. Schwab, Vanguard to allow electronic downloads of account balances. We intend to set up simple 4 fund allocation using very low cost ETfs.

While slightly more costly than a DAF at our contribution point, the flexibility serves our purpose. It appears the grant process and support is very similar to our DAF at Fidelity with the addition of the requisite tax and compliance service.

Something to consider, a private foundation is required to distribute at least 5% of it's assets every year. This 5% or some portion can be contributed to a DAF should your foundation not have the minimum amount granted by the year end.

Robin
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Re: Charitable Family Foundation - Best way forward

Post by Robin » Sat Jul 21, 2018 8:23 pm

dual wrote:
Sat Jul 21, 2018 4:25 pm
I think posters should answer the OP's question instead of trying to talk him out of it. His points make sense. See viewtopic.php?f=11&t=252131&newpost=3981988 and the post by senex on the difficulty of evaluating charities.
Not to worry. I have had more than one conversation with acquaintances who talked about starting a foundation and had never heard of a Donor Advised Fund or other vehicles like Charitable Annuities or Charitable Remainder Trusts. It is good for others to air alternatives in discussions like these.

bsteiner
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Re: Charitable Family Foundation - Best way forward

Post by bsteiner » Sat Jul 21, 2018 8:30 pm

surgdoc wrote:
Sat Jul 21, 2018 2:57 pm
I would like seek advice from lawyer colleagues on this forum with regard to establishing a charitable family foundation. ...

... I want to run lean operation and decided to use LegalZoom to create a corporation, get EIN, and file for 501(C)(3) status with IRS. ...

My questions to my lawyer colleagues are:

1. Is this best way forward?

2. Are there any legal or regulatory issues with funding this non profit corp exclusively with family finances, as opposed to typical non profits which solicit funds from multiple sources? I am paraphrasing a sentence from Investopedia website about non-profit corps "Have diverse funding sources. 501(c)(3) organizations are supposed to be public". That sentence raised my question if private family foundations are different entities from IRS qualified non-profit corps.
Shouldn't you ask LegalZoom these questions if you're using them as your lawyer for this?

If you're able to raise enough money from the public, then it will be a public charity rather than a private foundation.
SixGz wrote:
Sat Jul 21, 2018 6:26 pm
...
I contacted ... and received a quote to set up the private foundation for $6,500. The annual cost for our level of contributed assets, is $5,500. ...
The annual cost should be much less than that. A lawyer will incorporate the foundation (or set it up as a trust) and obtain the exemption from the IRS for about that cost. Going forward, an accountant can prepare the annual income tax returns at a much lower cost.
Gill wrote:
Sat Jul 21, 2018 3:50 pm
I would urge you to talk with your local community foundation as to how they can be of assistance in such an effort before you consider your own private foundation.
They'll probably charge about 1% a year, so it won't necessarily be less expensive. You also won't have the same degree of control as with a foundation (or even a donor advised fund, where you have practical but not legal control).
Gill wrote:
Sat Jul 21, 2018 4:17 pm
... A private foundation doesn’t make sense for anything less than $100 million and probably more.
I would put the threshold at about $1 million. At $1 million, a donor advised fund (DAF) will charge about $6,000. The annual cost to run a foundation should be less than that.

Of course, there are other advantages to a DAF. The limit on contributions to a DAF is 60% of income whereas the limit on contributions to a foundation is 30% of income. Some people give 30% of income to a foundation, and additional amounts to a DAF. It's easier to do foreign grants through a DAF. You can make anonymous grants through a DAF.

surgdoc
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Re: Charitable Family Foundation - Best way forward

Post by surgdoc » Sat Jul 21, 2018 9:34 pm

dm200,
It is awesome that your charitable group is able to keep overhead to near zero. That is truly admirable. It will be truly gratifying that one can contribute time as member of a charity organization, working on the same project money is donated for. Our intent is very similar. My wife is a family nurse practitioner. We intend spend time (significant) and money, providing health care and education benefits to truly needy people in developing world, while ensuring every bit of the money goes to beneficiaries. Let me briefly mention Fisher House Charity. These are guest houses, located near large military hospitals, where out of town service members and their families can stay free, while getting medical care at the hospital. Mr. Fisher did not write a check. His construction company built all these guest houses. While my contribution will not be any where close to his, the intent is the same: making sure money is not wasted by the middle men.

Dual,
thanks for your suggestions. I placed order for Managing Foundations and Charitable Trusts from Amazon for about 10 dollars including postage for used one. New hardcover costs about $35 and Kindle version $32.

SixGz, thanks for sharing costs of engaging Foundation Source.

bsteiner, I do intend to ask LegalZoom lawyer this question. This forum has so much talent, I thought I would seek free and unbiased advice.

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William4u
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Re: Charitable Family Foundation - Best way forward

Post by William4u » Sat Jul 21, 2018 10:22 pm

Sounds like a lot of overhead to me going with a foundation. There are a group of professors at Ivy League universities who research the most efficient charities with the lowest "ER" so-to-speak. They want to most "bang" in terms of helping the most in need for their buck...

https://www.effectivealtruism.org/
https://www.givewell.org/
https://www.givingwhatwecan.org/
https://www.theatlantic.com/business/ar ... od/395768/
https://www.npr.org/2017/05/26/52995802 ... -altruists

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dm200
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Re: Charitable Family Foundation - Best way forward

Post by dm200 » Sun Jul 22, 2018 9:54 am

dm200,
It is awesome that your charitable group is able to keep overhead to near zero. That is truly admirable. It will be truly gratifying that one can contribute time as member of a charity organization, working on the same project money is donated for. Our intent is very similar. My wife is a family nurse practitioner.
No expert - but I suspect there are many such US organizations that provide help and support to needy third world communities at close to zero overhead. I believe most of them would be programs of faith communities (churches, synagogues, denomination entities, etc.) BUT that support programs that are not restricted to religious affiliation. The near zero over head can be achieved with such programs because the umbrella entity (church, etc.) has the framework to collect funds, account for them and make disbursements. There would also be donors/participants who would do a lot of the work and make both cash and in-kind contributions. At the receiving end (third world country) there would also be an "entity" to receive and account for the funds and their disbursement/expenditure.

One program that was done was a group of health care professionals (physicians, nurses) along with a few others held a three day program seeing folks with all sorts of health problems, All of the folks paid their own way and expenses there. The organization paid for translators. The head of our committee is a Physician.

Here is an example of a faith based group that "matches" US supporters with deserving communities in a third world country. https://www.parishprogram.org/ I believe there may also be many other such "matching" organizations.

Here is an example of an educational effort that is worthy of support and which folks, such as any of us, could become directly involved with. Again, an opportunity for very low "overhead". http://www.raisinghaiti.org/assets/rais ... -story.pdf

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dm200
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Re: Charitable Family Foundation - Best way forward

Post by dm200 » Sun Jul 22, 2018 10:39 am

OP - I will send you a PM that you might find informative and helpful.

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dm200
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Re: Charitable Family Foundation - Best way forward

Post by dm200 » Sun Jul 22, 2018 11:52 am

dm200 wrote:
Sun Jul 22, 2018 10:39 am
OP - I will send you a PM that you might find informative and helpful.
I sent it. Hope you make the contact I suggested.

daveydoo
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Re: Charitable Family Foundation - Best way forward

Post by daveydoo » Sun Jul 22, 2018 1:17 pm

Since you self-describe as surgeon and not entrepreneur, I'm guessing that this is seven figures, max. I applaud your generosity. You are correctly very concerned about maximizing the dollars that make it to the recipient. But a much bigger risk and/or threat, imo, is how effectively the recipient can utilize your largesse. If they can only buy from the one shady plywood dealer who sells single sheets, then you're wasting enormous amounts of money. It all gets where you think it's going -- but it benefits the wrong people. This is why there are advantages of scale in philanthropy. I can donate a bag of beans to our state's food bank, or I can write a check for the same amount which they can pool with others' resources which, in turn, lets them buy beans at a tiny fraction of that cost on a per-pound basis.

Vis-a-vis international medical aid, we give to MSF ("Doctors Without Borders") and Medical Teams International -- the former is secular and the latter is faith-based (but not my faith). And we do this through our DAF. Not as flashy as our own foundation. But even Warren Buffett donates to the Gates Foundation to avoid wasting his own money duplicating the admin and oversight expenses.

Many times when we see folks micromanaging their medical aid, it's because they have deeply held beliefs about what medical procedures should or should not be performed, and about what educational activities they personally endorse.
"I mean, it's one banana, Michael...what could it cost? Ten dollars?"

Cruise
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Re: Charitable Family Foundation - Best way forward

Post by Cruise » Sun Jul 22, 2018 3:14 pm

I’m wondering whether if my wife and I have skills that would help worthy international charities, would creating our own foundation more easily allow us to expense our travel in support of these causes?

PhilosophyAndrew
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Re: Charitable Family Foundation - Best way forward

Post by PhilosophyAndrew » Sun Jul 22, 2018 3:40 pm

OP, I love your generosity and hope that you receive excellent advice here.

The utilitarian philosopher Peter Singer’s charity movement may be of interest to charitable Bogleheads concerned with minimizing overhead and maximizing the impact of donations for reducing human suffering.

See, in particular, his organization’s “impact calculator” and list of recomended charities that provide direct, life-saving assistance to large numbers of suffering people.

https://www.thelifeyoucansave.org

Singer’s book on this topic is also worth reading — at least I found it so, even though I’m not a fan of utilitarian ethics (and so am unpersuaded by some of Singer’s arguments about the ethics of charitable giving).

https://www.amazon.com/Life-You-Can-Sav ... 0812981561



Andy.
Last edited by PhilosophyAndrew on Sun Jul 22, 2018 5:31 pm, edited 1 time in total.

surgdoc
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Re: Charitable Family Foundation - Best way forward

Post by surgdoc » Sun Jul 22, 2018 4:34 pm

dm200,
Thanks for your e mail. I will try contacting the source you mentioned. There are modern day saints, she could be very much one of those.

PhilosophyAndrew,

I will order Peter Singer's book on ethical living from Amazon. It could be welcome respite from everyday "noise" I hear in DC. I live in DC!

Thanks for every one else who chimes in with opinion and advice.

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dm200
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Re: Charitable Family Foundation - Best way forward

Post by dm200 » Sun Jul 22, 2018 5:10 pm

Cruise wrote:
Sun Jul 22, 2018 3:14 pm
I’m wondering whether if my wife and I have skills that would help worthy international charities, would creating our own foundation more easily allow us to expense our travel in support of these causes?
No tax expert - but I suspect so. HOWEVER there may be legitimate ways of doing that (depending on the details) as an active volunteer/participant of a supporting entity.

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dual
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Re: Charitable Family Foundation - Best way forward

Post by dual » Mon Jul 30, 2018 10:44 am

Cruise wrote:
Sun Jul 22, 2018 3:14 pm
I’m wondering whether if my wife and I have skills that would help worthy international charities, would creating our own foundation more easily allow us to expense our travel in support of these causes?
See this article at the Wall Street Journal. Apparently the tax law on foundations has a lot of "flexibility"
https://www.wsj.com/articles/private-ch ... 1527613467

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Artful Dodger
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Re: Charitable Family Foundation - Best way forward

Post by Artful Dodger » Mon Jul 30, 2018 12:08 pm

Hi,

Kudos to you for giving back to your community.

We have a DAF with Fidelity, but I serve on the board of a small community foundation. Keep in mind, along with the initial filing for charitable organization status, you will also have to file regular annual reports. In my state, you are required to file an annual corporate report to the state, plus the state 990, plus the federal 990 form.

We have both an attorney and accountant who are members, and do these for free, but if we had to pay, we'd probably be looking at $500 to $1500 annual cost.

AD

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dm200
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Re: Charitable Family Foundation - Best way forward

Post by dm200 » Mon Jul 30, 2018 12:59 pm

Artful Dodger wrote:
Mon Jul 30, 2018 12:08 pm
Hi,
Kudos to you for giving back to your community.
We have a DAF with Fidelity, but I serve on the board of a small community foundation. Keep in mind, along with the initial filing for charitable organization status, you will also have to file regular annual reports. In my state, you are required to file an annual corporate report to the state, plus the state 990, plus the federal 990 form.

We have both an attorney and accountant who are members, and do these for free, but if we had to pay, we'd probably be looking at $500 to $1500 annual cost.

AD
If possible and practical to hook up with an existing charity that meets the desired needs and that has low operating costs - I would rather see that amount go to deserving recipients.

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