family foundation

Structuring Your Philanthropy

Foundations, NonProfits, Public Charities, NGOs: Which Is Right For You? 


Understanding the different giving vehicles will help you choose a structure that is best suited to your needs and resources. Each structure varies in terms of its legal requirements, tax benefits and in the control it allows a benefactor.

There are two types of foundations, a nonprofit corporation or a charitable trust. Generally, a foundation is a non-governmental organization (NGO) that makes grants to charitable causes of their choice. Foundations allow a donor a good amount of control over the use of their funds, particularly as compared to that of public charities.

  • A nonprofit corporation is formed to carry out a specific mission, usually charitable but could include other causes such as scientific research. Nonprofits do not pay federal or state income taxes on profits they makes from their mission-related activities.
  •  A charitable trust is a set of assets that a donor can either sign over to a particular organization or group or use to create a charitable foundation. They are not tax exempt. There are two different kinds of charitable trusts, remainder trusts and lead trusts.

♦  In a remainder trust, the assets are signed over to a charitable organization at a specific period of time—this can be months, years, or any pre-determined date. Until that date, it generates a potential income stream for you or your beneficiaries. At the end of this period, the remainder of the assets go to the one or more charities you have selected.

♦  A lead trust is often explained as the opposite of a remainder trust. It generates a potential income stream for the nonprofit organization of your choice until it expires, at which point the remaining assets go to any beneficiary you listed, such as your children.

Nonprofit is a common term for organizations that, according to tax code, are classified as a charitable. Nonprofits must benefit the broad public interest, not just the interests of their members.

PUBLIC CHARITY/ 501 (c)(3):
Public charities or 501 (c)(3)s contribute some form of direct charitable activity, such as giving to churches, private schools and shelters. However, in order to classify as and maintain public charity status, a 501 (c)(3) must be organized for exclusively charitable purposes. This means no part of the net earnings of the organization can benefit a private shareholder or individual. Also, a public charity must represent the public interest by having a diversified board of directors.

More than 50% of the board must be unrelated and not compensated as employees of the organization.

A charity generally enjoys additional advantages to that of private foundations, including higher donor tax-deductible giving limits and the ability to gain more support from other public charities and private foundations. Tax filing requirements depend on the annual revenue of the charity. Details and forms can be found on the IRS website.

A non-governmental organization (NGO) is a non-profit, volunteer group organized by citizens at a local, national or international level. NGOs perform a variety of service and humanitarian functions around various issues such as health, human rights and advocacy. While NGOs can be created at any level, the title is typically held for those at the international level. They play an important role in developing society, improving communities and promoting citizen participation.

These are just a few options available to you as a donor. We strongly recommend exploring these options and the others available to you with the assistance of your legal, financial and philanthropic advisors. If you ask, these advisors will meet with you as a team to discuss the best course of action from all perspectives. Just as choosing the right investment vehicles is essential, it is important to explore all possible giving vehicles available to ensure that you are making the right philanthropic investments for you and your time, talent and treasure.