Thinking about establishing a private foundation?

Here are two routes to consider.

Set up a private foundation

This is an effective route for those who want to maintain complete control over their activities, teach family members about the importance of philanthropy or fund initiatives that are outside of the mainstream. However, it can be expensive and time consuming. And, with over 9,000 public and private foundations in place, it is likely that there is already a charity with a similar mandate so it is worth investigating this before committing to the set-up costs.

Private foundations are really most effective for sums over $5 million, assuming you are prepared to do the work required. If this is your choice, you’ll need to establish a board of directors, decide on a corporate structure (trust or incorporation, national or provincial) and process the application. Then you’ll need to apply for charitable registration with the Canada Revenue Agency. On an ongoing basis, you’ll need to hold regular meetings, keep minutes, issue tax receipts, keep adequate books and records, report to the CRA and administer their grants and monitor their annual budget. Usually some professional staff is needed.

Establish a donor-advised fund

For smaller amounts, an endowment/family or donor-advised fund with a public charity is a far simpler and more cost-effective solution. These family funds are really an investment fund set aside for the long-term support of a charity… only a percentage of the value is distributed to charity each year.

Donors who give through a DAF deal with just one charity, usually a public foundation. Families investing in donor advised funds can realize many of the financial and personal advantages that come with establishing their own charitable foundation, with significantly less cost and complexity. Other benefits include:

Tax savings – the family members that contribute a fund will receive a donation receipt and can use that to claim a tax credit at their highest marginal tax rate. Also, if they gift appreciated securities, there will be no capital gains tax payable.

Control and flexibility you can maintain control in terms of directing the donations to alternate charities;

Simplified administration – the sponsoring charity does the record-keeping and due diligence.

Identity protection – unlike private foundations, a donor advised program can protect a donor’s identity if requested; and

Investment management – depending on the program, clients may be able to recommend to the sponsored charity on how it should invest the assets and use their own trusted investment advisors to oversee the funds.