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| Advisors' Forum |
Act Globally
02/01/2007
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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.
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