Planned Giving Options for Family-Owned Foundations

Why planned giving matters for family-owned foundations

Planned giving is a strategic approach that helps family-owned foundations convert business proceeds, appreciated assets, or estate resources into long-term philanthropic impact. Beyond simple donations, planned gifts let families match tax planning with mission goals: generate lifetime income, reduce estate taxes, avoid capital gains, or fund endowments that support causes for decades.

In my practice advising family foundations for 15+ years, I’ve seen three consistent drivers: preserve family control and identity, maximize tax efficiency, and engage younger generations in purposeful giving. Getting the structure right requires legal counsel, tax advice, and clear governance.

Core planned giving vehicles and how they work

Below are the most commonly used planned giving tools for family-owned foundations, with short descriptions, primary benefits, and key considerations.

• Bequests (via will or revocable trust)

• What: A gift specified in an individual’s will or living trust that transfers assets to the foundation at death.

• Benefits: Simple to create, easy to change during life, can reduce estate taxes for large estates.

• Considerations: Requires estate planning coordination; consult guidance on how to structure bequests to avoid administrative confusion (see FinHelp: “How to Structure a Charitable Bequest in Your Will”).

• Charitable Remainder Trusts (CRTs)

• What: An irrevocable trust that pays income to one or more non-charitable beneficiaries (often family) for a defined term or life(s), with the remaining assets passing to the foundation.

• Benefits: Immediate partial income tax deduction for the present value of the remainder interest, possible capital gains tax avoidance on appreciated assets, predictable income stream.

• Considerations: Irrevocable after funding; trust rules (investment, payout, and reporting) must be followed. CRTs require careful valuation and trustee selection.

• Charitable Lead Trusts (CLTs)

• What: The opposite of a CRT—assets provide income to the charity for a set period, then return to the donor or heirs.

• Benefits: Effective for transferring wealth to heirs with reduced gift or estate tax cost while supporting the foundation during the lead term.

• Considerations: Two main forms (grantor and non-grantor) with different tax consequences. Use estate counsel to model tax outcomes.

• Donor-Advised Funds (DAFs)

• What: A charitable account held at a sponsoring organization where donors recommend grants to IRS-qualified charities over time.

• Benefits: Fast tax deduction at contribution, lower administrative burden than a private foundation, easy to involve family members.

• Considerations: DAF grants are advisory, not binding; the sponsoring organization has ultimate control.

• Charitable Gift Annuities (CGAs)

• What: The donor gives assets to a charity and receives a fixed income for life; the remainder goes to the charity.

• Benefits: Simplified structure, predictable payments, partial tax deduction for the remainder interest.

• Considerations: Rates depend on age and are backed by the issuing charity’s reserves; not suitable for every donor.

• Gifts of Appreciated Securities and Real Estate

• What: Donating long-term appreciated stock, mutual funds, or real property directly to the foundation.

• Benefits: Avoids capital gains tax and (usually) yields a fair-market-value income tax deduction when rules are met. See FinHelp: “Donating Appreciated Securities: Tax and Timing Checklist.”

• Considerations: Non-cash gifts require appraisal (real estate) and may carry restrictions or management costs.

• Life Insurance and Bequests to Fund Endowments

• What: Using paid-up policies or new policies owned by the foundation to provide future funding, or naming the foundation a beneficiary.

• Benefits: Can create large future gifts for a relatively small present cost.

• Considerations: Policy ownership affects tax treatment. Work with insurance and tax advisors.

Tax, regulatory, and governance considerations specific to family foundations

Family-owned foundations are often private foundations for IRS purposes. That status brings benefits and responsibilities:

• Annual distributions: Private foundations must generally distribute at least 5% of their net investment assets each year (the “minimum distribution requirement”).
• Public disclosure and filings: Private foundations file Form 990-PF annually with the IRS and must maintain transparency about grants and finances (IRS, Exempt Organizations pages).
• Self-dealing and prohibited transactions: Private foundations are subject to self-dealing rules, excess business holdings, and excise taxes on certain transactions. Professional counsel helps avoid penalties.
• Excise tax on investment income: Private foundations pay an excise tax on net investment income (usually 1%–2%, depending on distributions and certain adjustments).

Always confirm current IRS rules and thresholds. Useful official references: IRS: Charitable Organizations and Publication 526 (Charitable Contributions) for donors; consult a tax attorney for foundation-specific guidance.

How to choose the right vehicle: a step-by-step checklist

1. Clarify the foundation’s mission and family objectives. Is the priority income now, maximum eventual gift, multigenerational transfer, or brand-building? Document impact goals.
2. Run tax and financial models. Compare CRT vs. outright sale and gift, CLT vs. direct bequest, DAF vs. private foundation maintenance. Model income tax, capital gains, and estate tax effects.
3. Consider governance and control. Do you want to maintain family advisory roles (DAF or private foundation) or reduce administrative burden (DAF, donor-restricted gifts)?
4. Evaluate liquidity and administrative costs. Trusts and private foundations have setup and ongoing costs; DAFs and CGAs may be simpler.
5. Legal and tax review. Use counsel experienced in tax-exempt entities and estate planning to draft instruments and ensure IRS compliance.
6. Communicate with family. Develop a giving policy and educate younger generations; see FinHelp: “Family Philanthropy Governance: Creating Giving Policies for Future Generations.”

Practical examples (illustrative)

• Example 1: A CRT funded with appreciated stock. A family funds a CRT with $750,000 of stock (basis $100,000). The trust sells the stock tax-free, pays the family $40,000 per year for life, and leaves the remainder to the foundation. The family receives a partial charitable deduction on funding and avoids immediate capital gains taxes. (Numbers are illustrative—work with your CPA for exact estimates.)

• Example 2: Using a CLT to shift estate value to heirs. A CLT pays the family foundation $60,000 annually for 20 years. After the lead term the assets pass to the next generation with reduced gift/estate tax exposure.

Common mistakes families make (and how to avoid them)

• Ignoring private foundation rules. Assess whether private foundation status adds more cost and complexity than it’s worth.
• Not modeling tax outcomes. Run multiple scenarios and include sensitivity to market returns and interest rates.
• Overlooking valuation and appraisal needs for non-cash gifts. Real estate and closely held business interests require qualified appraisals.
• Failing to document family governance. Without clear policies, decisions can fragment the mission across generations.

Professional tips from practice

• Start with the mission, then pick vehicles that serve it. Tax benefits should be secondary to impact clarity.
• Use a hybrid approach. Families often combine a DAF for flexible, immediate grants with a CRT or CLT for long-term objectives.
• Engage younger family members through advisory committees and grant cycles—this reduces friction when assets transfer.
• Revisit planned giving every 3–5 years to adapt to tax law changes and family circumstances.

Frequently asked implementation questions

• “Can a family foundation accept complex assets like privately held company shares?” Yes, but accept only after careful underwriting, legal review, and considering liquidity and valuation implications.
• “How do planned gifts affect estate taxes?” Depending on structure, planned gifts can reduce estate taxes (e.g., bequests, CLTs) or shift taxable events to other tax years (e.g., CRT sale of appreciated property).
• “Are DAFs better than private foundations for families?” DAFs are lower cost and simpler, but they provide less control and fewer legacy branding options than private foundations.

Where to get authoritative guidance

• IRS pages for exempt organizations and Publication 526 (Charitable Contributions) provide primary tax guidance (IRS: Charitable Organizations; IRS Publication 526).
• National Philanthropic Trust and other charitable planning organizations publish up-to-date white papers and calculators for CRTs/CLTs.

Final checklist before committing

• Confirm alignment with family mission and written governance documents.
• Obtain legal counsel experienced in tax-exempt and estate law.
• Run detailed tax and financial projections with your CPA.
• Create a communication plan for family members and potential grantees.
• Document the gift terms clearly and update estate documents.

Disclosure

This article is educational and not personalized legal, tax, or investment advice. Consult qualified tax counsel, estate attorneys, and financial advisors before implementing planned giving strategies.

Internal resources

• How to structure a charitable bequest in your will: How to Structure a Charitable Bequest in Your Will
• Donating appreciated securities: Donating Appreciated Securities: Tax and Timing Checklist
• Family philanthropy governance: Family Philanthropy Governance: Creating Giving Policies for Future Generations

Author: Senior Financial Content Editor & Advisor — drawn from 15+ years advising family foundations.

Authoritative sources cited: IRS (Exempt Organizations and Publication 526), National Philanthropic Trust. Readers should verify current law and consult professionals.