Twelve Ways to Fund Your Foundation

If you are thinking about establishing a personal foundation within the Mid-Shore Community Foundation, there are at least 12 different ways in which you can provide funding for your foundation, now and in the future.

Gifts of Cash

Perhaps you've just sold a home or business, received an inheritance or cashed in some stock options-or maybe you've simply accumulated savings. Whatever the source, gifts of cash that are made on a regular basis are a great way to build up the principal of your foundation.

Appreciated Securities

When the appreciated value of stock that you own is so great that capital gains tax would claim a substantial portion of the value if it were sold, the solution may be to use securities to create your foundation. In many cases, the value of the tax deduction you receive could largely offset the net return after taxes.

Use an Existing Foundation or Fund

Sometimes, a family may have already created a private foundation, or established a donor-advised fund with a commercial investor, such as Fidelity. For various reasons-local support and control, ease of use, lower cost, avoidance of restrictions-you may wish to direct these assets into your personal foundation instead. 

Life Insurance

Both new and older life insurance policies can be used as a charitable gift. Say you own an older policy that is no longer needed. You can assign it to the Foundation to cash in, and use the proceeds to create your foundation; or continue to pay premiums (which will now be tax-deductible) so that the entire face value will someday be available to create or add to your charitable fund.

Transfer Stock in a Company

If you are the owner, or part-owner of a closely held business, you can transfer a tax-deductible block of stock to Mid-Shore Community Foundation in order to establish your personal foundation. You can also realize substantial savings when selling the entire business by donating your shares to the Community Foundation, which then re-sells the shares (to others in your family, for example), absent any capital gains tax.

Real Estate

We can liquidate real estate and other properties that you give us, and then use the proceeds to establish your personal foundation. For real estate gifts, you receive a charitable tax deduction equal to the fair market value of the property, and pay no capital gains. The deduction may be carried forward for up to five years.

Retirement Plans

Many individuals do not realize how heavily taxed their IRAs and 401(k) plans will be upon their deaths. If you are able to do so, contributing those retirement plans to the foundation, either via your will or during your lifetime, can significantly lower your estate tax, while preserving those precious assets for charity.

Tangible Assets

You can gift tangible assets to the Community Foundation to sell, and then use the proceeds to create your charitable fund. For most items-books, antiques, stamps, famous signatures, artwork, furniture-your tax deduction will be limited to what you paid for them, but the net amount realized from their sale will still go to your personal foundation.

Leaving a Gift in Your Will

Providing for your family and giving back to the community where you live and work can both be done at the same time through gifts left in your will. There are several ways in which you can do that:

Specific or Percentage Bequest--You can designate a specific number of dollars or property to be directed to the Foundation for the personal foundation that you have already drawn up with the Community Foundation.

Residual Bequest--Instead of, or in addition to a specific bequest, you can leave to the Foundation whatever portion of your estate may remain after all other gifts and expenses have been paid.

Contingent Bequest--A contingent clause provides for a distribution to the Foundation only if one or more of the named beneficiaries fail to survive the donor.

Charitable Gift Annuity

A charitable gift annuity contract that you form with the Mid-Shore Community Foundation lets you make a tax-deductible charitable gift, and secure a stream of income (partially tax-free) for life. The payment is usually fixed and can involve a second annuitant. Upon the death of all donor(s), the remaining principal is used by the Foundation to add to or create your charitable fund.

Charitable Remainder Trust

You can create a trust by giving it something of value (cash, securities, real estate), and the trust will then pay an annuity to you and your spouse. After your deaths, whatever has not been paid is used to create or add to your personal foundation. In the meantime, you will receive a current income tax deduction. There are two types of CRTs:

• Charitable Unitrust — pays a variable income based on a fixed percentage of the annual valuation of the assets; and
• Charitable Annuity Trust — pays a fixed income until death.

Charitable Lead Trust

This is similar to a Charitable Remainder Trust, except that annual payments are made to your Fund at the Foundation for a fixed term of years. What remains in the trust at the end of the term reverts to you, your spouse or family members. This can help reduce and sometimes eliminate gift and estate taxes on property.