Private Foundations For the Common Man
Sunday, November 18, 2007
In the late 1980s, Constance Lane and her brother, Landon, faced a difficult decision. The furniture business founded by their grandfather had been sold. The deal had given them stock in the new owner, but an attempted hostile takeover of that company had driven up the value of their holdings, at least temporarily, and it seemed the time had come for them to "sell, pay a fortune in tax to Uncle Sam, and get out."[an error occurred while processing this directive]
The Lanes agreed to do that, but as part of the process they decided to place some of their stock in a private foundation and sell those shares via the foundation. The move produced some tax savings, but also, Constance Lane said recently, it created a long-running charity that has become one of the most rewarding experiences of her life.
"There are benefits . . . you can't put a value on," she said, reflecting on her nearly 20 years of helping worthy causes in and around her home of Rapid City, S.D.
And the work has drawn in her 36-year-old daughter, Amanda Stanfield, who says she sees her mother as a role model and hopes to carry on the work of the foundation.
The term "private foundation" has long had an aura of great wealth about it, conjuring up, on the one hand, images of Bill Gates, Warren Buffett and other mega-millionaires setting out to solve the problems of the world, and on the other hand of tax finagling that ordinary people cannot get away with.
But private foundations can be relatively small -- the Lanes' L.B. Lane Family Foundation initially had assets of just over $700,000 -- and experts say $500,000 can be enough to establish one capable of continuing indefinitely if reasonably well managed.
Today, the Lanes' foundation's assets total about $1.6 million, and it is able to give away about 6 percent of that every year.
Many foundations become deeply involved in their communities, providing seed money for a variety of programs, and the work often draws in the next generation of the founding family, both teaching them money-management skills and passing on to them the values and goals of the parents and grandparents.
"The reward comes not just from the tax advantages but from the sense that my children are able to continue this -- it's a family-unifying event," said John Dedon, an attorney with Odin, Feldman & Pittleman in Fairfax.
Perhaps surprisingly, private foundations are not hard to set up, and once established, they can be and often are run by the founder and his or her family. In the Washington area alone, there are nearly 1,000 private foundations with assets of $1 million or less, and of these, roughly two-thirds have assets of $250,000 or less, according to a study by the Foundation Center, a New York group that studies and gathers data on philanthropy.
But what, exactly, is a private foundation?
Oddly, that's not as easy to answer as it might seem, because technically a private foundation is defined by what it is not. As the Internal Revenue Service puts it, "Every exempt charitable organization is classified as either a public charity or a private foundation." Public charities are such institutions as churches, hospitals, colleges and the like, and they actively raise money from a variety of sources.