02/01/2007
I am part of an extended family whose wealth comes from a family business. Several of us are interested in starting a family foundation, but, after looking into it a bit, it seems the costs are quite high here in the U.S. Our professional, investment and personal interests are global. What are the options for setting up a family foundation abroad? Do you have suggestions for the best ways to get other family members involved?
Family foundations provide a way to keep a family unified and focused on a shared philanthropic mission. All family members can take part in the foundation decision-making process and work together to determine the mission and the charities it will support. Foundations allow families to perpetuate their philanthropic tradition while allowing for individual, discretionary giving. They also introduce future generations to the importance of family legacy and philanthropic stewardship.
Establishing a foundation overseas presents a number of issues. For U.S. citizens, there is some question as to the availability of an income tax deduction for a foreign-based foundation. If the tax deduction is important, but the foundation’s mission is global, it is still possible for a U.S.-based foundation to make grants to foreign causes, as long as it has met IRS requirements.
As global philanthropy continues to rise, several charitable intermediaries have emerged, offering foundations the economic efficiencies of providing grants to foreign charities without the high costs. Making grants through these intermediaries minimizes the operating costs required to support a U.S.-based foundation with international interests and ensures maximum philanthropic impact.
Cary S. Grace, Bank of America, Boston
There is a huge disadvantage to setting up a foreign family foundation. The federal income tax deduction is not allowed for gifts to foreign charities. Because anyone subject to U.S. income tax will be interested in a charitable deduction, this will probably rule out a foreign organization.
In contrast, the charitable deduction for federal estate tax purposes is not restricted to domestic charities. So if the funding for the family foundation is from an estate, that funding might qualify for the federal estate tax charitable deduction. There are, of course, some rules that apply.
To return to the original presumption though, is it truly the case that the costs are too onerous in the U.S.? If you are working with experienced professionals, you may find the costs are not so prohibitive.
Another alternative is to work with a donor-advised fund. There are some donor-advised funds organized in the U.S. that benefit foreign charities. Consider Charities Aid Foundation America, Give2Asia or United Way International. A donor-advised fund will allow family involvement in the philanthropic decision making, while handling compliance and investment issues.
In terms of getting other family members involved, the
selection of directors and officers would be the best tool. Then committees
formed at the board level can have particular family members focus on specific
projects.
John C. Vryhof, Snell & Wilmer, Phoenix
It is possible to set up a family
foundation in another country based on the laws of that jurisdiction. There also
are cases of foundations headquartered outside the U.S. that have U.S.-based
trustees. However, in some countries where tax incentives for giving are weak or
nonexistent, the tax situation may be disadvantageous, requiring, for example,
that the foundation’s assets be taxed as a business. Individual circumstances
and national laws vary, so it is best to obtain legal counsel wherever the
foundation is to be established.
To receive U.S. income tax deductions, a contribution generally
must be made to an organization created or organized in the U.S. Although the
IRS may recognize foreign charities if they qualify for 501(c)(3) tax-exempt
status under U.S. law, doing so does not make gifts deductible and does subject
the foundation to U.S. regulation.
One of the best ways to get family members involved is to
choose issues that relate to their interests, then have them visit the projects
they are funding.
For information on starting a foundation in Europe, visit the
European Foundation Centre’s website. The U.S. International Grantmaking Project
website provides information on how to make international grants from
foundations created in the U.S. For advice on starting a family foundation,
visit the Council on Foundations’ website.
Susan Price, Council on Foundations, Washington,
D.C.