February 13, 2025

When a Private Foundation No Longer Fits

Private foundations can be valuable tools for families that want to direct charitable gifts to their favorite nonprofits or develop charitable programming of their own and even hire staff (including family members) to manage their giving. But they can also be time consuming to manage and costly to operate.

What if you’ve created a private foundation and discover it’s no longer meeting your goals, or are now seeking a simpler way to manage your family’s giving?

Donor Advised Funds Can Provide an Easy Succession Plan

There are many reasons you may find that your private foundation is no longer meeting your needs. Perhaps the foundation is relatively small or has given away a substantial amount of its assets and is paying significant annual legal and accounting fees to maintain relatively modest holdings. Or maybe your busy family members still enjoy deciding who to give grants to each year but no longer have the time to manage the investments or administrative tasks required to operate a family foundation. Or perhaps you would prefer to adopt an even more hands-off approach and have your giving priorities automatically supported each year.

Whatever the case may be, transferring your private foundation’s assets to a donor advised fund may provide real benefits. Once you establish a donor advised fund, you or your designated representatives can continue to recommend distributions to your charitable priorities on your timeline, while being freed from any of the responsibilities (mailing checks, maintaining books, managing investments, preparing tax filings, recording minutes, etc.)

This can allow you to focus on giving and making a difference for the causes you care about. Many families involve children, grandchildren or others in the decision-making process, providing an opportunity to explore your family’s values and share in the joy of philanthropy.

With a donor advised fund, the responsibility of directing distributions can be passed from generation to generation continuing a family’s charitable legacy in perpetuity. Named funds may also be set to support certain cause of entire fields of interest into the future.

Finding the Right Fund Sponsor

Not all donor advised fund sponsors administer funds the same way. To ensure the fund continues to achieve your goals, select one that aligns with your values and giving goals. At MCF, for example:

• We can help you identify local nonprofit organizations working in specific areas here in Madison, across Wisconsin or beyond.
• The fees paid for the administration of a fund at MCF stay in Madison and benefit the work we do in our community.
• Your donor advised fund can facilitate multi-generational giving when you name your children or grandchildren as successor advisors to your fund.

Navigating the Transition Process Requires Some Attention

If you plan to transfer your private foundation’s assets to a donor advised fund, understanding the required steps is key to your success. It is also critical that you bring your legal and tax advisors into the conversation before you initiate the transfer. Failure to take the correct actions in the correct order can have significant legal and tax consequences.

The process for transferring assets from a private foundation to a donor advised fund typically works like this. The private foundation’s governing body:

• Approves the transfer of assets to a donor advised fund, then dissolves the foundation.
• Selects a fund sponsor and establishes a donor advised fund that aligns with the foundation’s giving priorities.
• Pays any outstanding pledges, attorney and accounting fees, and other administrative and operational expenses.
• Transfers the foundation’s remaining assets to the donor advised fund.
• Files its final Form 990-PF, as well as any required state filings related to its dissolution.

MCF Is Experienced in Private Foundation Transfers

MCF has worked with many families to create donor advised funds to serve as a successor to their private foundations. While people’s goals for giving are as unique as they are, MCF can help them continue to meet their giving goals long into the future.

See why Jim Berbee chose to move the Technology Education Foundation to MCF when it was time to pass the torch.

Watch Bill and Jan DeAtley share why they chose to move their family foundation to MCF.