A family foundation derives its assets from the members of a single family, in which the donor and the donor’s relatives play a significant role in managing the foundation. Aside from helping families channel their philanthropic ambitions, family foundations can form a legacy of community involvement and responsible citizenship for generations to come. Family foundations also offer potential tax- and estate-planning benefits for its founders.
There are two types of family foundations: private foundations and supporting organizations. Private foundations, the more common of the two, offer more flexibility and control (i.e., they can select and oversee their own board of directors and grant-making decisions), while supporting organizations enjoy more favorable tax treatment.
Gifts made to either type of family foundation are generally tax deductible from the donor’s annual income tax, yet these deductions differ depending on the foundation’s structure, the type of property or asset contributed, and the donor’s income level. As a general rule, all gifts to a family foundation are removed from the donor’s estate, avoiding estate or gift taxes.