Most people have charitable thoughts, but few people set up their own foundations or funds to put feet on those charitable thoughts. Many people see a need that is not being met and want to do something about it, but the process of setting up a private foundation is daunting.
If you are one of those people with a charitable bent and a grand idea, I have good news for you!
The Internal Revenue Code recognizes entities set up for charitable purpose so that donations to those charities can be tax deductible. Obtaining that recognition, however, is anything but quick and easy. IRS Form 1023 (Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code) is the tool for obtaining that recognition. Without it, you cannot represent that the donations will be tax deductible. As the length of the name suggests, the application process is not short or simple.
The average person would have a difficult time understanding the form, let alone providing all of the information and documentation requested. Even an attorney or accountant who is unfamiliar with the Internal Revenue Code provisions that govern 501(c)(3) Organizations would have to do substantial research to be able to complete the form. For those reasons, most people with good ideas and good intentions find other ways to address the needs they see, if they get around to addressing them at all.
The good news is there is a simple alternative! The Community Foundation of the Fox River Valley was established in 1948 and has already been recognized by the IRS. The Community Foundation is structured to allow anyone to create a charitable fund for a specific purpose within the Community Foundation itself. In fact, that is what they do. The Community Foundation handles endowments and funds within the larger umbrella of the Community Foundation for all kinds of difference specific charitable purposes.
Using the Community Foundation’s structure that is already established eliminates the need to reinvent the wheel and establish your own individual, private charity. They already qualify as a 501(c)(3) organization. They already have the structure in place to allow individuals to set up funds within the larger Community Foundation structure. Your charitable intent can be put immediately into action with the Community Foundation.
When most people think about setting up a foundation for a charitable purpose, they think about large sums of money (like the Bill and Linda Gates Foundation, the Ford Foundation, and other foundations established by millionaires and billionaires). With the Community Foundation, you can address a need with as little as $500 to start with. You can literally establish your fund in less time than it takes to sit through a church service. The Community Foundation does not even charge a fee when the assets of the fund are less than $10,000, and the fees charged for managing larger funds are extremely reasonable (0.5% for assets over $10,000 and 0.25% for assets over $1 Million).
The Community Foundation will even set up charitable funds for existing churches and non-profit organizations. Churches and non-profit organizations may be established for specific purposes, but they might also like to provide funds for other programs that are auxiliary to the main purposes of the organization. The Community Foundation can handle the processing of those funds and will do it at a reduced fee for churches and other non-profit organizations.
With individual, private foundations, there are many limitations. Those limitations include a 5% annual minimum pay out, an excise tax of 1-2% of the net investment income, including capital gains, a need for legal and accounting services, office expenses, staffing, tax returns, audits and public disclosure requirements, an independent board of directors, bylaws, articles of organization and other regulatory requirements. All of these things are covered by the Community Foundation.
You can be involved with the Community Foundation in carrying out the charitable purposes that you want to address, or you can be hands off. The charitable fund can be established in your name or in the name of a loved one. Grants awarded through the fund that you establish can be provided in your name or in the name of a loved one.
The assets or money that you use to establish the fund, are tax deductible. Highly appreciated assets are a perfect vehicle for a charitable gift. For instance, an IRA that has a significant amount of accrued, built-in, but unpaid, income tax can be donated to a fund established in your name for a purpose that you choose with the Community Foundation. You can deduct the charitable gift, and avoid the income tax and capital gains on the asset that is donated.
Many people have charitable ideas that never get carried out, and one reason that charitable ideas never become realities is the time, effort and money involved to establish a foundation to carry out those charitable purposes. The Community Foundation provides all of the structure for your charitable intent with very little time or effort from you. Setting up your own charitable fund within the Community Foundation is a perfect way to leave a lasting legacy, and you can be part of that legacy right now by contacting the Community Foundation.Kevin G. Drendel Drendel & Jansons Law Group 111 Flinn Street Batavia, IL 60510 630-523-0543 630-406-6179 fax [email protected] foxvalleyestateplanning.com