Home > Gift Legacy Blog > Why a Private Foundation?

The reasons I hear that some people establish a private foundation is because of CONTROL, PRIVACY, AND FEES. So, if that is the case, why are some of the smartest and wealthiest people in the Bay Area establishing their Foundations under the umbrella of the Silicon Valley Community Foundation? Because they want control, privacy, and low fees. They achieve all of those better with a community foundation than by establishing a private foundation.

What kinds of numbers are we talking about? Well, in 2013 the Silicon Valley Community Foundation received $1.3 billion in new gifts, which were mostly from people setting up Foundations there. Total Foundation assets have increased from $1.3 billion in 2013 to $4.7 billion by the end of 2013. In the San Francisco and Santa Clara Valley areas, advisors now really understand the benefits of working with the Community Foundation, especially for clients who want control, privacy, and low fees.

On the issue of CONTROL, when a donor establishes a foundation and then cedes control to the directors they appoint, they are trusting that those directors will follow their wishes with virtually no oversight. At the Community Foundation the donor still appoints directors, but the directors must adhere to the donor’s wishes and instructions. Community foundations provide great oversight, plus lots of expertise and resources. The Directors are free to act but not free to drift away from the donor’s instructions.

On the issue of PRIVACY, it takes about a minute to look up a private foundation on the internet. The tax returns are there, showing all of the assets, all of the expenses, all of the grantees, the names of the directors, and the compensation they receive. There is no privacy. But with the Community Foundation there is an extremely high level of privacy because all of our 240 charitable funds are assimilated in one tax return.

On the issue of fees, let’s use some real information. I looked up three local private foundations and, using their most recent tax returns, found the following:.

Foundation #1 has assets of about $30 million. Their expenses, not including grants, totaled 1.2%.

Foundation #2 has assets of about $20 million. Their expenses, not including grants, totaled 75 basis points.

Foundation #3 has assets of about $4 million. Their expenses, not including grants, totaled 3.8%. WOW, if I was the donor that had set up this foundation, I would not be happy.

The donors that made gifts to establish all three of these foundations are not with us anymore; but if they had set up their Foundations at the Community Foundation, they would have been pretty happy. For the two larger foundations our fee is 50 basis points, and for the smaller foundation our fee would be about 1%.

It is worth noting that on all three of these foundations the top expense is the compensation of officers. Therein lies the reason that many clients are advised that a private foundation is the way to go. Being the director or trustee of a private foundation is a pretty sweet deal.

But if you value control, privacy, and low fees, please check out the Community Foundation.

The closer you look, the better we look.

Chris Askin, President & CEO

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