Integrating Strategic Planning with Vision and Values, Part 2: How Foundations Can Fund Your Interests

It can be challenging to integrate vision and values into strategic planning. But it's also very rewarding. In a previous article, I described an example where "Dave" started a foundation to successfully integrate his values while resolving a major financial challenge. Read on to discover the details and how exactly starting a private foundation was instrumental in providing the solution, and may provide a solution for your wealth planning challenges as well.

There are several key factors that make it work:

A private foundation is essentially a corporation which, once it is completely set up, will be able to get a tax-exempt status. In addition, the foundation's corporate form also limits liability to the founders and ensures its longevity. Moreover, the founders can control the assets inside the private foundation by becoming the directors. All this results in many benefits for the family, including the following:

1. Dollar-for-dollar, there may be income tax deductions for gifts made to the foundation (up to certain limitations).
2. There are no capital gains on the sale of appreciated assets gifted to the foundation.
3. The family benefits by receiving salaries and other corporate reimbursements.
4. As with any corporation, the foundation is perpetual and continues to exist well beyond the lives of the original founders.
5. Any assets gifted to the entity are no longer part of your estate.

The foundation also provides significant additional benefits, particularly as it relates to your lifestyle. For example, while you could take compensation from the foundation in the form of a salary, you could also take your compensation in the form of fringe benefits (medical, dental, welfare benefits and so on). You could even elect to take compensation in the form of reimbursements for foundation-related activities.

Among the possibilities are so-called due diligence trips. Because you are responsible for proper evaluation of any charity and/or cause you decide to support, personal visits might be advised. With proper documentation (as in any business), you could be legitimately reimbursed for any these expenses you incur during these trips.

The key to maximizing your foundation's usefulness is to incorporate your interests into your philanthropy. Rather than thinking of supporting “charity”, think of involving yourselves with your community. And then... think of your community as the whole world.

For example, Dave indicated he had an interest in children and sports. So Dave set up his own charitable program that helped handicapped children learn how to golf. In this way, he was able to purchase special equipment through his foundation. His foundation also could subsidize the cost of performing due diligence on the types of courses best suited for handicapped children and subsequent educational programs to integrate physical therapy programs. He could get very creative where he wanted to focus his activities. As an example, he could choose populations that live in any cities he would like to spend time in, either in the US or abroad.

While starting a foundation clearly has many benefits, it does require great care and can get quite tricky. There are numerous issues that can mean trouble if they're not handled correctly, from a variety of prohibited transactions to tax ramifications of various activities. So while it can be an excellent tool, it would be wise to include someone in your planning stages who is familiar with all the aspects of setting up and running foundations and how they related to private wealth management.