Charitable Foundations

"You Can't Take It With You..."

LOWER GWYNEDD, PA - It's an axiom as old as death and taxes.

When people die, their money can go to three places: family members, the IRS and charity. Most people would like to leave the majority of their money to their family and to charity, leaving the IRS out in the cold. But how can you do that legally?

Blue Bell attorney Samuel T. Swansen has one answer to this question for individuals with sizeable estates over $500,000. He suggests setting up a private foundation using a "remainder trust." On November 23, 1998, he made his pitch for charitable giving as a tax shelter to 51 members and guests of the Montgomery County (Pennsylvania) Estate Planning Council. The council meeting was held at the William Penn Inn.

"I think of a supporting organization as a private foundation that got dressed up," he said. "A private foundation that attached itself to a public charity, and supported it, is now able to get some tax considerations."

The advantages of a supporting organization include "pretty good autonomy" and a "charitable (income tax) deduction." The supporting organization also carries the "family name," and allows "paid employment for children and grandchildren."

The five-member boards which control the supporting organizations can be formed in several ways. The "entrepreneurial" supporting organization has no representatives of the charity on the board. It would include the husband and wife, their accountant, their lawyer and their financial advisor. Swansen said that a minimum of $500,000 would be needed to form a private foundation. It would cost between $1,000 and $2,000 in expenses to create the charitable organization and a small amount of money for operations.

"These are not that expensive to maintain and operate," he said. The rules for charitable foundations were more liberal than the IRS tax rules because for each dollar they might cost in tax revenues they yield $1.42 in relieving the burdens of government through private philanthropy.

Swansen was critical of private groups, such as the Ford and Rockefeller foundations, because they generate a "high level of suspicion and scrutiny" by the IRS, are subject to a 1-2% excise tax, and come with low-deductibility thresholds. The advantages include the ability of the private foundation to carry the family name, the ability to retain control of assets, and the charitable deduction.