Private Foundations

Options for a Private Foundation

As a community foundation, The Key Biscayne Community Foundation (KBCF) is legally classified as a publicly supported charity. At the same time, the foundation shares some of the features of a private foundation, particularly its expertise in making grants to other charities. Because of this hybrid quality, KBCF offers a number of options to a private foundation wishing to wind down its operations or minimize its administrative activities.

1. Transfer options

• Transfer and termination. The private foundation may transfer all of its assets to The Key Biscayne Community Foundation and then elect with the IRS to terminate its private foundation status and legal existence. As discussed further below, KBCF may then use the assets either for general community benefit or for purposes specified by the private foundation.
• Transfer without termination. The private foundation may transfer all of its assets to the community foundation without making a termination election. Through this method, the private foundation avoids excise taxes and the obligation to file a tax return, since it will have no assets and no income. But the private foundation still exists as a legal entity in order to advise the community foundation on disbursements from the fund.
• Reclassification as a supporting organization. The private foundation may change its legal status to that of a supporting organization of the community foundation. A supporting organization operates “in support of” the charitable purposes of another public charity. Because a community foundation’s purposes are so broad, a private foundation that becomes a supporting organization of a community foundation has enormous flexibility in grantmaking.

Purposes of future grants

Regardless which of these alternatives a private foundation chooses, the private foundation’s assets can come into the community foundation either without any restriction on the use of those funds, or with restrictions selected or recommended by the private foundation. The private foundation’s assets could also be divided among both unrestricted and restricted funds.

• Unrestricted fund. A private foundation’s assets may become part of the community foundation’s unrestricted fund, which provides grants to meet the most pressing needs of the Key Biscayne community, or the greater community, as they change over time.
• Field of interest fund. A private foundation’s assets may also be used to establish a field of interest fund. In this case, when making the gift, the private foundation outlines—either broadly or narrowly—the kinds of causes or people that it wishes to support, such as education, healthcare or the elderly. The community foundation will then distribute grants fulfilling those defined purposes each year in perpetuity.
• Designated fund. If the private foundation wants to support a particular agency, it could use its assets to endow a designated fund for that agency. The agency would receive income distributions from the community foundation quarterly in perpetuity. Even so, the private foundation can protect against the risk that the agency might close at some point in the future. In such a case, the KBCF has “variance power,” which allows it to redirect a gift if its original purpose, such as supporting a particular agency, can no longer be achieved.
• Scholarship fund. The private foundation might choose to establish a scholarship fund to provide educational support for young people in the name of the private foundation’s founder or other important person. The Key Biscayne Community Foundation can handle all publicity and administration of the scholarship fund. And unlike scholarship programs at private foundations, a community foundation’s scholarship fund need not seek advance approval from the IRS.
• Donor advised fund. There may be family members or other persons connected with the private foundation who are interested in occasional grantmaking, but not any of the administrative burdens involved in running the foundation. In this case, the private foundation might use its assets to create a donor advised fund. The family members can retain advisory rights to the fund, and then can recommend grant recipients periodically to the KBCF Board for approval.

Closure process

Termination of a private foundation into a philanthropic fund at The Key Biscayne Community Foundation is relatively simple, but should be done in consultation with an attorney to avoid any possibility of incurring the termination tax that is levied for an improper termination. The private foundation may be required to notify the IRS in advance of its intent to dissolve. It also must file a final tax return.

2. Private Foundation Service-Tiered Offerings

Customizable Grantmaking Solutions for Your Foundation’s Needs
As the Center for Philanthropy on Key Biscayne, the Key Biscayne Community Foundation provides a variety of professional philanthropic services to grantmaking institutions. We aim to assist in fulfilling philanthropic missions through investments in the community. Each foundation is unique so we have developed the following menu of services to facilitate the grantmaking process. All of the services are customizable to help your foundation fulfill its mission and support greater cost efficiencies for your operations. The pricing structure serves as a baseline for a full-service, annual grantmaking program and may vary depending on your needs.

Level I: Grant Management & Administration Services

• Manage an online application process
• Assist in the development of a grant application form
• Verify tax–exempt status of grant applications
• Maintain a database of grant requests, grant awards and status
• Prepare and send up award letters (including formal agreement to terms, payment schedule and reporting procedures)
• Prepare and send declination letters
• Process grant payments, issue checks and send disbursement letters
• Keep accurate records to facilitate reporting, provide a clear audit trail
• Establish and maintain grantee files
• Monitor grant–reporting schedules, notify grantees of the need to submit reports
• Maintain a ledger of all grant awards, track grants for reporting purposes: grants paid year–to–date and pending grant commitments

Level II: Expanded Services (Includes all Level I Services plus the following)

• Provide annual due diligence services on grant requests (including proposal analysis, site visits, fiscal and administrative review)
• Annual Board meeting participation and administrative support to present grant recommendations report

Level III: Premium Services (Includes all Level I & II Services plus the following)

• Research and development on community issues and needs
• Assist in the development of grantmaking strategies
• Analyze return on community investment and impact
• Measurement and assessment of outcomes
• Facilitate engagement and/or recruitment of additional potential community investors to leverage impact
• Arrange annual site visits with Trustees when appropriate to observe and/or examine program concept or agency capabilities

3. Private Foundation: Helping you meet your Annual Payout requirement

Customizable Solutions for Your Foundation’s Needs
As the Center for Philanthropy on Key Biscayne, the Key Biscayne Community Foundation can provide various philanthropic services for your private foundation. In the years that you have not met the IRS annual payout requirement, your foundation can set up a fund for the remainder of annual payout until your foundation has designated a grant recipient.