Can My Family Create a Foundation?
Many donors wish to create a personal Family Foundation but often find the strict regulations and administrative overhead burdensome. These issues are resolved thru Legacy’s Supporting Organization program.
The Uncomfortable Choice
Typically, the only viable option for Donors seeking an alternative to the expense and compliance burdens of a Private Foundation has been a Donor Advised Fund. For some Donors, in spite of the enhanced tax incentives, an Advised Fund is simply inadequate with certain Donor Advised platforms. Donors find themselves restricted in the kinds of gifts they can make, the investments that are permitted, the use of outside advisers, the charitable causes they can support, and the degree to which they can pass control of their charitable legacy on to future generations.
What is a Support Organization?
A Supporting Organization (SO) is a separate organization controlled by a public charity. The Support Organization enjoys the benefits of a public charity and retains donor influence simultaneously. These benefits include greater flexibility and increased tax advantages. A Support Organization has:
- Separate corporate governance like a Private Foundation
- Public charity status like an Advised Fund
Support Organization Benefits
The tax benefits include deductions applicable up to 50% of the Donor’s AGI compared to 30% for Private Foundations. Donations are valued on the full fair market price of the asset. Excise taxes and penalties paid by many Private Foundations are avoided. There are no minimum required distributions and other restrictions and Donors are able to gift a variety of assets. Donors are also able to direct the investment of the Support Organization’s assets in qualified alternative platforms.
The Benefits of a Legacy Support Organization.
Thru a Legacy Support Organization, the Donor selects the name, identity, mission, and governing structure when forming the Support Organization. The Donor’s family remains actively involved in the Board and is directly involved in philanthropic causes creating a legacy of living well.
Legacy provides the experience and administrative support necessary to run a successful, compliant, and low-cost Support Organization.
The Donor’s family may elect to use Legacy’s services for all areas of Support Organization management but may also participate in selecting additional qualified independent advisors to the Support Organization.
In simple terms, through the Support Organization the Donor directly takes responsibility for certain functions that would otherwise be outsourced to Legacy’s officers, staff, and independent Board, such as:
- Serving as Directors on the Board
- Serving as Officers of the Support Organization
- Working as Employees of the Support Organization
- Running the day-to-day operations
- Investing funds
- Approving proposed charitable disbursement recipients
- Writing and delivering checks
- Holding disbursement recipients accountable
- Setting up and running charitable programs and initiatives
- Hiring Employees
Legacy will assist the Support Organization in taking care of those activities the Donor does not enjoy, which typically includes matters such as compliance, accounting, tax returns, annual reports, and research regarding charitable disbursement recipients.
By law, the Support Organization is ultimately governed by a Board of Directors, a majority of which must be independent of the Donor and appointed by Legacy. Consequently, the Board is generally comprised of two Donor appointed (“Family”) Directors and three Legacy appointed Directors. Legacy will generally appoint one of its officers to the Board and then seek for qualified candidates in the community for the other Directors it appoints. Legacy gives priority in reviewing recommendations from the Family Directors regarding the appointment of community representatives to the Board. Such community Board representatives often are centers of influence in the community or have a financial or legal background.
Formation and Compliance
A Legacy Support Organization is a separate non-profit corporate entity which must be formed according to applicable law. By definition, it is a Type I Support Organization analogous to a subsidiary that “supports” the charitable mission of Legacy and is accountable to Legacy for compliance, which is why it qualifies as a public charity rather than a Private Foundation.
The Support Organization must file a Form 1023 with the IRS and receive a Letter of Determination as a tax-exempt public charity. Legacy does this for the Donor, so it is a completely turn-key operation. From time to time, Legacy may have a pre-established Support Organization ready for immediate use. In support of its charitable mission, Legacy receives a percentage of the assets of the Support Organization annually, plus all actual out-of-pocket and operational costs. See the Legacy Support Organization Administration Agreement for further details.
The Support Organization must comply with applicable law regarding governance, management, investment, programs, and charitable disbursements. Legacy staff keep up to date with changes in the law. These valuable updates and services are provided to the Support Organization Board as part of Legacy’s association with the Support Organization. The Board may utilize Legacy’s staff to provide continual updates to policies and procedures which ensure compliance with the law.
On an ongoing basis, the Support Organization must file a Form 990 annually. Typically, Legacy provides such preparation and filing services in-house for the Support Organization. Unique or complicated structures may occasionally necessitate using additional counsel or advisors in the preparation of such required forms. Legacy has relationships with nationally accredited advisors as needed, and may also work with advisors of the Family in coordinating such compliance requirements.
What It Takes
For the Donor, creating a Legacy Support Organization requires the following:
- Completion of the Legacy Support Organization Application Form
- Coordination as needed to define the specific name, charitable mission, identity, and governing structure of the Support Organization
- Execution of the Legacy Support Organization Administration Agreement
- Appointment of Family Directors and Officers, and recommendations to Legacy for community Board members
- A one-time gift to Legacy’s general operating fund to recover the costs of establishing the Support Organization
- A minimum of $10 million charitable capital contribution to the Support Organization
When It Works Best
A Legacy Support Organization is best for Donors or Private Foundations when:
- The most important Donor objective is to retain the direct administrative control of serving as a Director and Officer
- The Support Organization is going to hold certain unusual assets or property (such as an operating youth camp or historical ranch)
- The Donor wishes to be personally involved in determining the investment policy for the assets held by the Support Organization
- The Donor wishes to personally manage the assets rather than use a third-party professional advisor
- The Donor wishes to personally set up and run charitable programs and operations (thrift store, soup kitchen, youth camp, charter school, etc.)
- The Donor wishes to actively involve their family in philanthropic causes.
- The charitable operations require hiring employees
- The Donor wishes to minimize the administrative burdens and expenses of managing a Private Foundation
- As a cost and compliance reduction alternative to Private Foundations
When It Is a Bad Idea
- A Legacy Support Organization is not such a good idea when:
- The Donor’s objectives can be met by a Legacy Donor Advised Fund.
The primary charitable purpose is to simply make grants.
What Legacy Provides
- Legacy works with a Donor’s professional advisors and representatives
- Legacy completes all filing requirements with the IRS and applicable state filings (this includes tax filings, business filings, registrations, etc.)
- Legacy manages the administrative aspects of the Support Organization
- Legacy manages the Support Organization’s accounting and financial compliance under the oversight of the Support Organization’s Board
- Legacy prepares financial budgets and reports relating to the charitable mission of the Support Organization to the Board (asset reporting may occur separately depending on the nature of the Support Organization’s investments)
- Legacy provides support for the proper management of funds and assets
- Legacy manages payrolls and employee reporting for the Support Organization
- Legacy provides additional Board members as required for public charity status.
- Legacy provides recommendations and advice to the Board regarding best-management practices for charitable organizations
- Legacy hosts board meetings and may provide meeting space
- Legacy maintains and provides organizational records such as meeting minutes, agendas, Board resolutions, and corporate compliance.
- Legacy obtains and maintains Directors & Officers liability insurance
- Legacy provides up-to-date and current compliance for charitable disbursements and grants
- Legacy processes all charitable disbursements and provides the required documentation for compliance with applicable law and IRS regulation
- Legacy follows-up with disbursement recipients to ensure the disbursement was used for the intended charitable purpose
- Legacy manages all audits, compliance events, and regulatory requirements
- Legacy prepares needed documentation, customized letterhead and marketing materials
Legacy Global Foundation’s mission is to bless the whole earth by delivering the promise that inspires charitable giving. Support Organizations and Donor Advised Funds are two of the many ways Legacy is accomplishing its mission.
Fulfill your life mission by empowering future generations.