Family Foundations

A Family that has much success in building wealth during their lifetime, may be able to later avoid Federal Estate Tax (40% in 2020 over the exemption amount) by creating a Family Foundation. This creates a legacy for your family to help fund charitable purposes which your family championed during mom and dad’s lifetime. In addition, these types of organizations offer effective tax strategies for income and capital gains tax.

Family Foundations

You have worked hard to provide wealth for yourself and your family and now, you would like to give back. Why not set up a Family Foundation?

Family Foundations are a great way to leave a legacy for causes you care very much for, while you are alive and after you have passed on. Family Foundations lessen the burden on government in that you can help benefit those causes you are passionate about, within your own Family Foundation, if government assistance is restricted or unavailable. By helping to fund your causes or tax exempt purposes, money from the government can be given to other charitable organizations that may be in need.

In addition to helping disadvantaged people and/or organizations, Family Foundations also may provide terrific tax incentives on income tax and capital gains tax on highly appreciated assets.

My Law Office will help with setting up your Family Foundation by placing an application with and working with the Internal Revenue Service in obtaining your tax exempt status for your Family Foundation. In addition, I will also help with the State approval for tax exempt status as well.

My Law Office will provide the following assistance in helping you set up your Family Foundation:
  • Drafting and filing Articles of Incorporation or Declaration of Trust.
  • Drafting Supporting Documents including but not limited to By-Laws and Conflict of Interest Policy.
  • Obtaining a Tax Identification Number.
  • Completing the IRS Form 1023 Application.
  • Narrative of Exempt Organizations Activities.
  • Internal Revenue Service Supplemental Questions, if applicable.
  • Advice on what to and what NOT to do.

This really depends on your business acumen. I have very few clients who would be able to go through the process of filling out the 1023 application, narrative, filing the appropriate paperwork to the State of California as well as the IRS.

As a tax exempt entity, the person or people running the foundation have to be wary of a couple of issues that come up with Family Foundations.

The first problem I see with foundations is that some organizations get behind on filing their tax return for the foundation. This is normally done using Form 990PF. If the organization has not filed its tax return for three successive years, the IRS will have the tax exempt status revoked. Always a good idea to bring a CPA or tax planner on board to help prevent this.

A second problem that sometimes comes up is the act of self-dealing. This is where you have a person who set up the foundation using funds for their personal use at the expense of the foundation, perhaps by borrowing funds from the foundation. Big No No!

The filing fee of $600.00 accompanies the 1023 application to the IRS.