Why Christians Should Not Use Private Foundations
I’ve seen it many times. A Christian family of means decides they want to formalize their charitable giving. They go get advice from their lawyers and accountants, who often are not Christians. Those advisors’ frame of reference is that private foundations are the way for families to give, so off they go.
The first few years may be bumpy as they learn the ropes of minimum distributions, excise taxes, the types of organizations they can support, and of course, the importance of the tax return.
But the problem they miss, and that their advisors miss, is what happens when the founders pass away.
When the founders die, the foundation typically will have a set of bylaws allowing for the appointment of new board members.
The newly appointed board members realize that they are sitting on top of treasure. They have the opportunity to decide which organizations to support. The first generation is often kind to the wishes of the founders and tends to support generally the same organizations.
However, as more board members get added, and as more generations intervene, the wishes of the founders get muted. Everyone tends to forget why the founders supported a particular organization. Accordingly, the original mission of the foundation falls away, and it often morphs into something other than Christian.
Certainly, some wise founders associated with Christian council may anticipate this tendency. They put in enough roadblocks and provisions in the bylaws to keep the foundation true to its Christian values. If the founders include these protections, then a foundation can be an appropriate vehicle. But few do.
An Alternative to the Private Foundation?
One of the best solutions can be to use a Christian community foundation. Givers set up a donor advised fund, which can make grants in the same way a private foundation does. The tax benefits are actually greater, and the administration is simpler.
But one of the key safeguards is that, because the foundation is organized as Christian, it cannot distribute to anti-Christian organizations. To do so would jeopardize its own tax-exempt status.
Thus, a Christian family engaged in family giving can rest assured that, no matter what beliefs subsequent generations adopt, their original purpose of Christian giving will remain.
I find it interesting that, of the approximately 80,000 private foundations in the country, only 4,500 are Christian foundations which take applications. It causes one to wonder how the remaining 75,000 started out and then where they ended up.
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Published February 9, 2011
Topics: Giving Strategies