Why Christians Should Not Use Private Foundations
I’ve seen it many times. A Christian family decides they want to formalize their giving. They go get advice from their lawyers and accountants who often are not Christians. Those advisors have the frame of reference of starting a private foundation, 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 their advisors miss, is what happens when the founders pass away.
When the founders pass away, the foundation typically will have a set of bylaws allowing for the appointment of new board members. New board members are appointed, who realize that they are sitting on top of treasure. In other words, they have the opportunity to support organizations. 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 wishes and desires of the foundation fall away, and the foundation often morphs into something other than Christian.
Certainly, some wise founders associated with Christian council may wisely put in enough road blocks and provisions in the bylaws to keep the foundation Christian. But few do. If they make these protections, then it can be an appropriate vehicle.
One of the best solutions can be to use a Christian community foundation. A donor-advised fund can be set up; this operates much like a private foundation. The tax benefits are higher, 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 put its own tax-exempt status in jeopardy.
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 100,000 private foundations in the country, only 4500 are Christian foundations which take applications. It causes one to wonder how the remaining 95,000 started out and then where they ended up.