Fidelity Private Foundation Services

Private Foundation Start-Up & Administration

Grantmaking

Fidelity Private Foundation Services

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Private Foundation Start-Up & Administration

What is a private foundation?

A private foundation is a nonprofit organization formed or funded to achieve a charitable mission. Learn more about Private Foundation Management.

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Who can open or establish a foundation with Fidelity Private Foundation Services?

Fidelity Private Foundation Services supports both existing and new private foundations. Existing foundations, whether organized as nonprofit corporations or trusts, and organized under the laws of any state, can establish a relationship with Fidelity Private Foundation Services.

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What is the difference between a trust and a corporation form of a foundation?

The corporation form of a foundation involves establishing a nonprofit corporation. Articles of incorporation or other similar legal documents must be filed with the appropriate state agency. The nonprofit corporation cannot begin operation until these forms are filed. After it is created, the foundation adopts by-laws to provide the internal operating rules of the corporation.

A charitable trust only requires the preparation and execution of a trust document and the transfer of initial trust assets for its establishment. A charitable trust is subject to jurisdiction of a local court perhaps, in addition to state rules. A charitable trust acts through trustees rather than board members.

Although a charitable trust is easier to set up, it is more difficult to change. A court proceeding is generally necessary to change a trust. A corporation on the other hand, can be changed by a vote of the directors and filing of the proper legal documents with the appropriate state agency. Accordingly, a family who wants to set up a foundation with a specifically formulated and required set of priorities may choose to set up a trust in order to make it difficult for future generations to depart from the charitable purposes prescribed by its founders. A family that wants more flexibility may choose a corporation, letting future generations to pursue their own charitable goals and interests.

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What is an Internal Revenue Code ("IRC") Section 501(c)(3) public charity?

An IRC Section 501(c)(3) public charity is a type of nonprofit organization that is eligible for tax exemption under Section 501(c)(3) of the Internal Revenue Code.

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How do I get started?

Complete the brief online application, or download the application – type your information into the form, print, sign, and mail or fax it, or call 800-334-4438 for more information. A Client Service Manager will then send you a Welcome Kit and contact you directly to continue the foundation establishment process. Review the complete establishment process.

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What is a letter of determination?

A "Letter of Determination" is the IRS' formal notification that a private foundation has been recognized as tax-exempt. Recognition can only be received upon request, after applying for recognition of tax-exempt status by filing IRS Form 1023.

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What are the available tax deductions when donating to a private foundation? How do individuals benefit from setting up a private foundation?

Under the Internal Revenue Code, contributions to a private foundation are eligible for an itemized deduction on the date that the charitable contribution is made to a foundation, subject to the general limitations. The deduction will depend, in part, on the type of asset that is contributed. You should consult your legal or tax advisor for more information about your personal situation.

Donations to a private foundation are generally eligible for an itemized deduction for cash contributions of up to 30% of adjusted gross income (AGI) in the tax year in which the contribution is made. Deductions for contributions of appreciated securities held for more than one year are limited to 20% of AGI. Any excess amount may be carried forward and deducted in the five-year period after the contribution. The ability to deduct itemized donations may be subject to certain other limitations. Please contact your tax advisor to determine your tax deductibility limits.

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How does a private foundation differ from a donor advised fund?

A donor advised fund is a program of an Internal Revenue Code Section 501(c)(3) public charity that allows you to make an irrevocable contribution and then recommend grants to qualified nonprofit organizations. As a donor you can make recommendations concerning investment allocation and grant distributions. However, ultimate decision-making authority resides with the charity's board. A private foundation is a private nonprofit organization, also defined under Internal Revenue Code Section 501(c)(3), established and managed by you and your board. In practice, the two giving vehicles can accomplish many of the same goals. The most significant differences are that donor advised funds involve less administration at start-up and on an ongoing basis, while private foundations provide ongoing control by you and your designee and can have more flexibility in terms of their operational restrictions. In addition, the tax benefits for a private foundation and donor advised fund vary. For more information, see Selecting Giving Solutions.

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What assets can be used to fund the foundation with Fidelity Private Foundation Services?

The foundation may contribute cash, mutual fund shares, stocks, bonds, and certain other publicly traded and restricted securities to the foundation's Fidelity Account. The tax benefits, however, vary depending on the type of asset donated. Please check with your tax advisor for more information. Also, please review Tax Benefits in the Private Foundation Management section.

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Can I continue to make contributions to the foundation?

Once the foundation establishes its Fidelity Account, additional contributions can be made at anytime.

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Can other individuals donate to the foundation?

Other individuals can donate to the foundation. In many cases, families start a foundation together with multiple contributions as a center for family philanthropic activities. Donors receive an immediate tax deduction for the fair market value amount of the contribution up to 30% of adjusted gross income for gifts of cash and 20% for gifts of property. Deductions in excess of these limitations may be carried forward for the succeeding five tax years.

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What can I name the foundation?

It is up to you and the board members you appoint as to what you would like to name the foundation. Frequently, foundations are named after their founder or founding family or loved ones the founder wishes to honor, or reflect particular causes of interest.

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How long does a foundation remain in existence?

A foundation can exist in perpetuity, overseen for many generations by a board of directors or trustees. The board can also choose to dissolve a foundation at a certain time, for example, at an event such as the death of the last original member. If the foundation is dissolved, all assets that remain after satisfying liabilities must be distributed for charitable purposes within the meaning of section 501(c)(3) of the Internal Revenue Code or to a governmental body for a public purpose. Foundation dissolution may also require court approval for either corporate or trust forms.

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Who are the directors and trustees of a foundation?
Who are the officers of the foundation?

In accordance with regulations, a foundation must have a board that has a fiduciary responsibility to operate the foundation in compliance with state and federal laws. Board members are called "directors" or "trustees" depending on whether the foundation is formed as a corporation or a trust. The by-laws of a foundation establish a plan for governing the foundation. Often, the by-laws establish "officers" of the board, such as the president, secretary, or treasurer, who have specific roles and responsibilities within the foundation. Visit the Private Foundation Management section of Charitable Planning & Tools in order to learn more about the purpose of the board and how to select board members.

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How do foundation board members and advisors get information about foundation activities?

During the foundation start-up process you can designate account access privileges for your board members and advisors that will enable them to take advantage of Fidelity Private Foundation Services' automated, centralized administration system. Depending on the access privileges you select for them, directors and advisors can view the account history and records, submit expenses, make contributions, and distribute grants.

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What laws govern foundations?

There are several different federal and state regulations that govern private foundations. Review a summary of the significant regulations in Regulation and Compliance in our Private Foundation Management section.

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Can I pay myself or other individuals a salary? Can I pay others a salary for working on my foundation?

The foundation may pay its board members a reasonable stipend for services provided by the members. In addition, board members may be reimbursed for necessary and reasonable foundation related out-of-pocket expenses for the foundation. A reasonable stipend is usually a nominal fee and may include attending meetings of the board. At the present time, Fidelity Private Foundation Services is unable to process payroll for the foundation.

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Do I need an office for the foundation, or can I run it out of my house?

You may choose to have an office for the foundation, but with Fidelity's services, it is not necessary. Our online services and dedicated Client Service Managers allow you to remotely administer your foundation. View a demonstration. It is necessary, however, to have an address of record for the foundation's operations.

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Grantmaking

How much money must a private foundation give away each year?

In keeping with Internal Revenue Code rules, the foundation is required to distribute approximately 5% of the average fair market value of its assets each year. Qualifying distributions meeting this requirement include grants and certain operating expenses. The Internal Revenue Code imposes penalties in the form of an excise tax on the foundation if it fails to make qualifying distributions within 12 months after the close of the tax year.

Fidelity Private Foundation Services will calculate and report the foundation's progress against the IRS-required minimum annual 5% distribution of foundation assets throughout the year. In addition, in order to avoid inadvertent noncompliance and penalties, Fidelity Private Foundation Services lets a foundation designate a charitable organization that will automatically receive an amount equal to any shortfall in the required distribution at the end of the year. If a foundation inadvertently fails to direct sufficient grant distributions to meet the minimum required distribution, Fidelity Private Foundation Services will automatically make the necessary distribution to the charity the foundation has chosen.

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How does a foundation give money to a charity?

Once your foundation has selected a grant recipient, you may make grants simply and easily via your online account management tool, or by completing the Grant Distribution Form. A Fidelity Private Foundation Services Client Service Manager will review each grant request to ensure that the grant recipient is a charitable organization recognized by the IRS. We will then issue a check in the name of the foundation to the charitable organization and send a confirmation to the foundation.

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Can the foundation give grants to anyone?

Fidelity Private Foundation Services makes it simple for a foundation to make grants of any amount to IRS-qualified 501(c)(3) public charities anywhere in the United States. For other grants, the IRS has specific rules surrounding expenditure responsibility on scholarships and foreign grants. Fidelity Private Foundation Services will work with the foundation to help the foundation make these types of grants. Please also note that grant distribution of funds from a foundation may be used for charitable purposes only. For example, grants may not be used for any personal pledge or for any private benefit such as school tuition, dues, membership fees, benefit tickets, or goods bought at charitable auctions. Grants may not be made to influence legislation, fulfill political contributions, or for non-charitable purposes. Other private foundations are generally not eligible to receive gifts from the private foundation although there are some limited exceptions permitted. Foundations should also ensure that distributions are not made to any disqualified persons which constitutes self dealing. For more information on disqualified persons, please read Regulation and Compliance in the Private Foundation Management section.

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Can I give grants to groups outside the United States?

The IRS has specific rules surrounding foreign grants and Fidelity Private Foundation Services will work with the foundation to help the foundation make these types of grants.

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Can I give scholarships to students?

The IRS has specific rules surrounding scholarships and Fidelity Private Foundation Services will work with the foundation to help it make these types of grants. However, grants may not be used for any private benefit such as paying school tuition.

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Can the foundation change the causes we support from year-to-year?

The first step is to review the charitable purposes of the foundation. Many times they are written very broadly. If the charitable purposes do not limit the causes to be supported, the foundation is allowed an unlimited number of grants from its account in any fiscal year. Frequently, board members are given grantmaking privileges and can independently determine the recipient of each grant within their privilege capabilities. The board member can generally change recipients as often or as infrequently as desired by the board. For more information on grantmaking strategy, visit Private Foundation Management.

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Fidelity Private Foundation Services

What services does Fidelity Private Foundation Services provides? What must I do?

Fidelity Private Foundation Services offers an easy and flexible way to establish and manage a private foundation that frees you from some of the burdensome aspects of foundation management so you can focus on the most rewarding aspects of grantmaking. The ultimate responsibility for foundation operations and compliance remains with the foundation and this responsibility may not be disclaimed or deleted. The foundation should always consult with a tax advisor to ensure maximum compliance. In addition, for more information on how to administer a foundation successfully so it meets your personal, financial and charitable goals, please visit Private Foundation Management.

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How does Fidelity Private Foundation Services charge for its services?

Each account is subject to an annual administrative fee for Fidelity Private Foundation Services. A portion of the administrative fee assessed by Fidelity Private Foundation Services may be able to be classified as a charitable expense and treated as a qualifying distribution. Additional fees may be incurred through the foundation's brokerage Fidelity Account as outlined in the Fidelity Customer Agreement. Please contact a Client Service Manager for specific information regarding fees to the foundation's account.

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Do I need to have a computer to use Fidelity's foundation services?

The foundation may work with Fidelity Private Foundation Services any way you choose: online, on the phone, by fax or by mail. Our Client Service Managers are available at 1-800-334-4438 to answer all of your questions and to help guide you through the account establishment process. Our web services allow you to perform all of your foundation's administration online including opening an account, grantmaking, expense processing and tax payments.

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