NOT-FOR-PROFIT ORGANIZATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

​

At Lara Sass & Associates, PLLC, we have a deep passion for, and extensive first-hand knowledge of, the not-for-profit sector.  Lara has worked with not-for-profit entities since the inception of her legal career, serving as outside counsel to numerous charitable organizations and as in-house counsel and member of the Executive Advisory Board for The SASS Foundation for Medical Research, Inc., a 501(c)(3) public charity, for over 17 years.  Lara's work at The SASS Foundation, in particular, has provided her with decades of hands-on legal expertise and, a rarity with legal professionals, real-world business experience to help non-profits run smoothly, efficiently and legally.

 

At Lara Sass & Associates, PLLC, we help clients create a plan for charitable giving which may include the establishment and operation of a family foundation or public charity.  In addition, we advise both public charities and private foundations about operating in compliance with applicable laws and regulations.  We offer comprehensive services to not-for-profit organizations pertaining to the following organizational and operational matters, among others:

 

• Formation of not-for-profit corporations and charitable trusts

• Preparation of state incorporation and governance documents, including Certificate of Incorporation and By-laws

• Operational Matters

• Tax Planning

• Governance Structuring

• Fundraising

• Investments

• Personnel Matters

• Grant Making and Expenditure Responsibility

• Fiduciary Obligations

 

Private Foundations

 

Many wealthy individuals set up private foundations to accomplish their charitable goals.  These foundations can provide additional benefits to the donor, including obtaining income, gift and estate tax deductions; teaching the donor's children about philanthropy and money management if they become part of the foundation's board; assuring that the donor's charitable vision will be realized; and perpetuating the donor's name in connection with charitable works.  Following the donor's death, family members can use a private foundation to support their particular charitable interests.

 

Private foundations generally use donated funds to make grants or gifts to other nonprofit organizations.  In this way, they help charitable, educational, religious, or other causes that help the public.

 

Private foundations are subject to certain restrictions and requirements.  For instance, a private foundation must give away at least 5% of the sum of its assets and income each year.  However, if the foundation earns more than 5% on its investments, then the foundation's assets can grow over time.  There are also significant limits on income tax deductions when gifts are made to a private foundation.  Generally, cash gifts are deductible up to 30% of the donor's Adjusted Gross Income.  Non-cash gifts may be deductible up to 20% of the donor's Adjusted Gross Income; but in some cases the donor's deduction is based on the smaller of the donor's income tax basis or the value of the asset given away.  In addition to these restrictions and requirements, private foundations cannot do business with their major contributors, they are subject to excise taxes and can face penalties for self-dealing, making risky investments, and for failing to distribute adequate funds to charitable endeavors, among other regulations.

 

Every U.S. and foreign charity that qualifies under Section 501(c)(3) of the Internal Revenue Service Code as tax-exempt is considered a private foundation unless it demonstrates to the IRS that it falls into another category.  Broadly speaking, organizations that are not “private foundations” are considered “public charities.”

 

Public Charities

 

A public charity is a charitable organization that (a) has broad public support, (b) actively functions to support another public charity, or (c) is devoted exclusively to testing for public safety.  Many public charities rely on contributions from the general public.  Cash gifts to public charities are generally deductible up to 50% of the donor's Adjusted Gross Income, while non-cash gifts are generally deductible up to 30% of the donor's Adjusted Gross Income.  In most (but not all) cases, a donor's deduction on a gift to a public charity is based on the value of the asset and is not limited to the donor's income tax basis. 

 

The missions of public charities range from helping the poor to easing community tensions to advancing religion, education, or science.  Some examples are churches, universities, hospitals, and medical research groups.

 

A public charity is either “publicly supported” (derives a substantial portion of its support from the public) or functions to “support” one or more organizations that are public charities. 

 

CHARITABLE TRUSTS

 

Charitable trusts allow individuals to give to charity, while providing for their family at the same time.  Using charitable trusts—on their own or in conjunction with donor-advised funds—could offer greater flexibility and control over intended charitable contributions while helping to fulfill philanthropic, estate planning and tax management goals.

 

A charitable trust allows a donor to set assets aside for one or more charities.  There are two different types of charitable "split interest" trusts—charitable remainder trusts (CRTs) and charitable lead trusts (CLTs).  These types of trusts "split" the assets between a charitable and noncharitable beneficiary.  Which type you choose depends on your priorities with respect to estate planning and wealth preservation, how you want the charity to receive the gift, and even the types of assets you wish to donate.

 

CRTs and CLTs are similar in that a portion of the assets go to the charity and a portion go to a noncharitable party of the donor’s choosing.  The key difference is when the charitable and non-charitable beneficiaries receive their payments.  With a CLT, the charity receives an income interest for a term of years or for someone's lifetime, with individuals receiving the remaining assets at the end of the trust term.  On the other hand, with a CRT, individuals receive the income interest, while one or more charities receive the remainder.  With charitable trusts, the donor can control the timing of the charitable donation, choose whether to make it in a lump-sum remainder or income stream, and decide how much their heirs can benefit from the income or remainder.

 

A type of charitable giving program, a donor-advised fund, can be used in conjunction with split interest trusts to easily benefit more than one charity or to preserve the ability for donors to be flexible and cost-efficient if their charitable giving priorities shift.  This strategy is implemented by directing the proceeds from a charitable trust—whether the interest payments from a CLT or the remainder from a CRT—to a donor-advised fund, rather than to a different, specified charity.  Because the donor retains privileges over how donor-advised fund assets are distributed, the donor can recommend a charity at a later date or change his or her mind about charities previously chosen.  With a donor-advised fund, the donor can also advise how the assets are invested and the timing and amount of the distributions to the recipient charities.  

 

Benefits of Charitable Trusts

 

Charitable remainder and lead trusts can preserve wealth for those with charitable intentions, because they can be a tax-efficient way to give.  Here are some of their key advantages:

 

• Preserving the value of highly appreciated assets.  For those with significantly appreciated assets, including non-income-producing property, a charitable remainder trust allows the donor to take that property, sell it within the trust as tax exempt, and preserve the full fair market value of the property, rather than reduce it by large capital gains taxes. 

• Income tax deductions.  With a CRT, the donor has a potential immediate partial income tax deduction based on the value of the eventual gift the donor is making to charity.  A CLT established during a donor’s lifetime may be designed so that the donor benefits from an up-front charitable income tax deduction in the year it is funded.  

• Reducing estate taxes.  Generally, once a donor funds a charitable trust, these assets are out of the donor's estate for estate tax purposes.  This may not only reduce the amount of tax the donor's estate has to pay upon the donor's death, it may preserve money for the donor's heirs.  If a contribution to a CLT occurs upon the death of the donor, the donor will be eligible for an estate tax deduction for the value of the interest paid to the charity.

• Reducing gift taxes.  If a donor makes a contribution to a non-grantor CLT during his or her lifetime, the donor may be eligible for a gift tax deduction based on the interest going to the charity.  However, if the remainder beneficiary of a CLT is not the donor, then the donor might be subject to gift tax on the value of the remainder interest.  It is important to note, however, that there are ways to structure these non-grantor CLTs that could potentially eliminate transfer taxes on the amount passing to the remainder beneficiary. 

• Creating income from non-income-producing property.  If an individual is charitably inclined and needs income, but has significant non-income-producing property, he or she could fund a charitable remainder trust with that property.  The CRT, which is tax exempt, would sell the property, preserving the charitable remainder, and, at the same time, provide an income stream back to the donor.  Moreoever, if the individual wants to avoid taking the income until he or she is in a lower tax bracket, he or she could establish a special type of CRT that allows the donor to contribute the appreciated assets, and have the trust invest in non-income-producing property so that the donor is not receiving income from the trust until he or she is ready (e.g., in a lower-tax bracket in retirement).

 

If you are interested in forming a tax-exempt organization, need legal advice regarding your nonprofit organization, or want to establish a charitable remainder or lead trust, please contact Lara Sass & Associates, PLLC; we would be pleased to assist you.