Foundations — Everybody Needs One!

Have you established your family “foundation” yet? Everybody who is anybody seems to have one these days. There is the Ford Foundation, the Bill and Melinda Gates Foundation, the Mellon Foundation, the Bill, Hillary, and Chelsea Foundation . . . on and on. Why even my grandmother had a “foundation.” I knew she wore one because, every spring, she would wash the thing and hang it out on the clothesline to dry. But I digress.

What is the big deal about establishing a “foundation” that attracts so many wealthy people? Well, you guessed it. It’s a money-laundering tax scam!

Here are some of its benefits, as provided by Hurwit and Associates, who describe themselves as “legal counsel for philanthropy & the nonprofit sector.”

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Effective Philanthropy. The foundation vehicle may facilitate organized, systematic, and targeted giving.” Great idea. Must have made it easier for the Clintons to distribute the 15% of their donations to what they called charitable institutions. The remaining 85% went to pay Foundation “expenses.”

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Expanded Giving Opportunities. Individuals may not claim tax deductions for gifts made to other individuals or non-charitable organizations. But, they may claim tax deductions on donations to a family foundation, and then give it away — tax free.

Deductibility Plus Control. Family members may make tax-deductible donations to their own family foundation and still, as foundation trustees, remain in control of the funds. One of the few situations we know of where you can give it away, and still have it.

Sheltered Income Plus Control. Foundation investment income is exempt from taxation (with the possible exception of a 1-2% excise tax in some situations).

Payment of Reasonable Compensation. Family members and others may receive reasonable compensation from the foundation in return for services rendered.

Reimbursement of Travel and Other Expenses. Reasonable and direct costs of site visits and board meetings may be paid by the foundation to family members, employees, and trustees, tax free. Thus all the board meetings being held in Paris, Hawaii, Bali, etc.

Double Capital Gains Tax Benefits. First, no capital gain is realized when appreciated property is donated to a foundation. Second, donors may claim a charitable deduction for the full market value of appreciated stock held in publicly traded companies when donated to the foundation.

Estate Tax Reduction. Assets transferred to family foundations are generally not subject to estate taxes. This may provide triple tax savings when combined with the benefits above.

So the next time you hear of a “charitable foundation,” just remember that charity generally begins at home. And in the Bill, Hillary, and Chelsea Foundation, 85% of it apparently stays there!

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