Frequently Asked Questions
- What is a Family Foundation
- Are many people establishing foundations?
- Who should consider “Family Foundation Planning”?
- What is different about The American Foundation?
- What are the benefits of “Family Foundation Planning” with The American Foundation?
- How does a Family Foundation reduce or eliminate taxes?
- How does a Family Foundation protect assets from creditors?
- How can 100% of my estate pass tax-free to heirs?
- How can I receive increased tax-favored cash-flow from a CRT Advantage™ trust?
- How is the CRT Advantage trust different from a Family Foundation?
- What happens to the assets in the CRT Advantage when the owners are no longer living?
- Why is our charitable remainder trust called the CRT Advantage?
- How do I set up my own Family Foundation?
- Who is The American Foundation?
What is a Family Foundation
It is a simple ongoing charitable account at The American Foundation™ under its Family Foundation Turnkey Program. All contributions to the account are tax deductible. Each foundation can carry the namesake of the donor’s family, such as the Bill and Mary Jones Foundation, or any other name the donor chooses. The Family Foundation then distributes part or all of the annual growth or income to family selected charities.
Family Foundation charitable accounts with The American Foundation operate as perpetual charitable program accounts. They are not endowment accounts, but rather they are totally unrestricted gifts to The American Foundation for its family foundation charitable program. We promote the preservation of principal. This is a much more effective and successful way to financially benefit charities and charitable programs over time. It also becomes a more meaningful family endeavor. We are helping families to build their own “Family Charitable Legacy” that provides never-ending financial assistance and philanthropy to worthwhile family causes.
Are many people establishing foundations?
Yes. There has been a phenomenal growth in foundations during the last decade. Over two-fifths of larger foundations were formed during the last ten years. There are over 60,000 grant making foundations. Assets of all active U.S. foundations have exceeded $500 billion. This increase is attributable to people becoming more aware of the advantages of foundation planning and the tremendous amount of good that can be done through a foundation.
Many foundations are expensive to set up and require a large amount of money to get started. One of the many benefits of planning with The American Foundation is that our Turnkey Family Foundation Program can be established for $300 and funded with as little as $5,000 (both amounts are tax
Who should consider “Family Foundation Planning”?
People who want to do any of the following:
· reduce their income tax burden
· sell assets without incurring capital gains tax
· reduce or eliminate potential estate tax
· protect their assets from creditors
· sell appreciated property (stocks/mutual funds, real estate or a business interest)
· increase personal cash flow from low or non-income producing property (stocks/mutual funds or real estate)
· sell a business or parcel of real estate
· receive a sudden increase in income (windfall)
· transfer wealth to heirs in the most tax-efficient manner
· benefit their community or support their favorite charity or cause
In truth, anyone who is financially secure, or is exposed to high income or capital gains taxes, even with assets of under $1 million, should consider having a Family Foundation to take advantage of the tax saving opportunities related to charitable giving.
What is different about The American Foundation?
The Family Foundation Advantage™ can bedefined as the creation of a charitable “endowment like” account within The American Foundation. The Donor or his/her family retains the ongoing right to direct the annual income, as grants, to the charity they choose. This format provides for a charitable account that operates similarly to a private foundation while receiving the greater tax benefits associated with donations to a public charity.
The Tax Advantage. This new and improved format provides greater tax benefits than a private foundation. Our public charity status (which all new component Family Foundations qualify for) gives the maximum available charitable tax deductions (better than private foundations).
The Charitable Legacy Advantage. In addition, when a Family Foundation is established with The American Foundation, principal is preserved so the Family Foundation will continue to operate indefinitely. This allows the Family Foundation benefits to be passed to future generations so the name and the wishes of the original donor will be carried forward and continued in perpetuity.
The Paperwork Advantage. The American Foundation does all the administration for each individual Family Foundation. This includes all accounting and tax reporting, making annual grants to qualified charities, overseeing, delegating, or implementing the investments, and maintaining compliance with IRS policies.
The Cost Advantage. There is no cost to establish a Family Foundation with The American Foundation. By doing this we hope to encourage anyone that wants to, to become a philanthropist, or take advantage of our Turnkey Family Foundation Program and Family Foundation planning.
What are the benefits of “Family Foundation Planning” with The American Foundation?
· Reduce or eliminate taxes (income tax, capital gains tax, and estate tax)
· Protect assets (creditors cannot access Foundation assets)
· Leave more tax-free wealth to heirs (pass 100% of your estate tax-free using a Wealth Enhancement Trust™ in conjunction with a Family Foundation)
* Any such Wealth Enhancement Trust planning is done outside and independent of The American Foundation and is an idea that we promote to the extent that it allows donors to increase their philanthropy.
· Create a family legacy
· Benefit society with a Foundation under your family’s perpetual direction – provide annual support to family-selected charities, religious organizations and/or causes
· Increase cash-flow (receive increased tax-favored cash-flow from a CRT Advantage™ trust).
How does a Family Foundation reduce or eliminate taxes?
· First, any asset (cash, stock, or other property) transferred to a Family Foundation account at The American Foundation receives a 100% income tax deduction (especially beneficial for taxpayers in higher income tax brackets who receive the highest charitable tax deductions available – up to 50% of Adjusted Gross Income [AGI] for contributions of cash, and 30% of AGI for donations of appreciated property. Excess deductions above the 30% or 50% limits per year can be carried forward for five years).
· Second, any asset (cash, stock, other property) transferred to a Family Foundation account is removed from the donor’s estate, completely avoiding potential estate taxes attributable to those assets.
How does a Family Foundation protect assets from creditors?
A Family Foundation account (which is creditor protected) is no longer “owned” by the donor. However the donor retains charitable direction of their Family Foundation. This is known as having “charitable ownership”. Creditors cannot attack charitable ownership.
How can 100% of my estate pass tax-free to heirs?
All assets transferred to your Family Foundation are removed from your estate – thereby avoiding any possible estate tax on those assets.
Since most people don’t want heirs to feel left out or disinherited, a Wealth Enhancement Trust™ is established to replace the value of those assets transferred to your Family Foundation. This strategy provides your heirs with an inheritance equal to the value of the assets that were transferred.
The *Wealth Enhancement Trust™ is an irrevocable trust that is funded with a type of life insurance policy up to an amount equal to the value of the assets transferred to your Family Foundation. Because the life insurance policy is owned by an irrevocable life insurance trust (ILIT), it is also out of your estate. Since life insurance proceeds are not subject to income tax, the life insurance proceeds (that are equal to the value of the assets transferred to your Family Foundation) are received by heirs both income and estate tax-free.
The end result is that you have been able to establish a family legacy in perpetuity in the form of your own Family Foundation. Your heirs can receive their full inheritance even if you transfer all of your assets to your Family Foundation (which many wealthy people do to eliminate all taxation). You are able to pass the full value of those assets transferred into your Family Foundation to your heirs without incurring any taxation for you, or for your heirs. And in addition, you receive an income tax deduction, and possibly an income for life (if a CRT Advantage Trust is used).
* Any such Wealth Enhancement Trust planning is done outside and independent of The American Foundation and is an idea that we promote to the extent that it allows donors to increase their philanthropy. This information is included because it makes it more attractive to those who do want to become philanthropists.
How can I receive increased tax-favored cash-flow from a CRT Advantage™ trust?
Many taxpayers that we work with have assets such as real estate, stocks or mutual funds, a business interest etc. that have appreciated over the years. In many circumstances these assets generate little or no income, but the owner doesn’t want to sell because he/she doesn’t want to have to pay the capital gains tax on the appreciation. This is known as “capital gains lock”.
The CRT Advantage trust provides the solution to “capital gains” lock. After the CRT Advantage trust is set up, the appreciated property is transferred to the CRT Advantage trust at The American Foundation, then the property is sold by the Trustee. Because the CRT Advantage is a tax-exempt trust, the property is sold without incurring capital gains tax. One hundred per cent of the value of the property sold is now available to be invested into income producing assets (to provide the donor(s) with a lifetime income).
The CRT Advantagewill usually distribute anywhere from 5% to 10% (a minimum of 5% has to be paid in order to qualify as a charitable trust) annually to the income beneficiary (usually the donor, or donor and spouse). These income payments can be structured for a term of years (not to exceed 20 years), or they can be for the lifetime of the owner and spouse (the usual option). Whenever possible, The American Foundation structures this income stream to be paid out as capital gains income which is taxed at a lower rate than ordinary income (especially beneficial for those taxpayers in higher income tax brackets).
How is the CRT Advantage trust different from a Family Foundation?
The CRT Advantage is a trust with its own tax identification number. It is usually used for people who have appreciated assets and don’t want to pay capital gains tax when the appreciated assets are sold. The CRT Advantage provides a lifetime income stream to the donor or donor and spouse.
A Family Foundation account comes under the public charity status and tax identification number of The American Foundation and provides an income stream to family selected charities. This income stream to charities is designed to be perpetual in nature so the wishes of the donor can be carried out for many generations to come.
A Family Foundation charitable account is usually set up whenever a CRT Advantage is established.
What happens to the assets in the CRT Advantage when the owners are no longer living?
Usually, if a donor has a traditional (older version) Charitable Remainder Trust (CRT), after the owners are no longer living, the remainder interest (assets that still remain in the trust) goes to charities. And that’s it, the END. The income stream to any and all charities stops.
In the new CRT Advantage with The American Foundation, when the owners are no longer living, the remainder interest is transferred to their Family Foundation account at The American Foundation. This results in the creation of a family legacy for future generations. Their Family Foundation account will be guided by their heirs to carry out their wishes and continue to benefit worthwhile philanthropy in perpetuity.
This is another of the many unique benefits that you and your family receive when working with The American Foundation for your Family Foundation planning – perpetual philanthropy in your family name.
Why is our charitable remainder trust called the CRT Advantage?
Because the CRT Advantage is used in conjunction with a Family Foundation at The American Foundation. This results in the creation of a perpetual Family Foundation which we feel is more advantageous than outright gifts to charities.
How do I set up my own Family Foundation?
Setting up a Family Foundation account at The American Foundation is as easy as setting up a bank account. After completion and submission of a Donor Application (along with $5,000 to fund your foundation). Your cash or assets are transferred directly into your Family Foundation account at The American Foundation. Your Family Foundation is now funded and operating.
Who is The American Foundation?
The American Foundation is a qualified 501(c)(3) non-profit public charity. All of our Family Foundation components (such as your component Family Foundation account) qualify under our public charity tax status (the same status as a church, the Boy Scouts, a university, or a hospital, etc.). Donors qualify for the highest charitable tax deductions available – the same as mentioned under FAQ Number 6.
Using our public charity status, we help individuals, families and corporations create foundations that give financial support to their communities and/or favorite charities, causes or religious organizations. Unlike many other charitable organizations in the nation, we strive to make the entire process of philanthropy easy and rewarding by: 1) making it very simple and inexpensive to set up; 2) having a low minimum amount to fund a foundation; and 3) providing a great amount of donor direction in recommending charities that will receive grants from the foundation.
The American Foundation can be traced back to 1982 when its founder Ben L. Schaub originally established the Interstate Community Foundation. Mr. Schaub later established the Interstate Support Foundation (ISF) in 1985. Ben had a vision of creating an expanding network of foundations that would provide ever-increasing financial assistance to charitable organizations. He knew that without private capital, many important social, educational, scientific, and religious programs or entities would not survive.
Acting under these ideals, the Interstate Support Foundation experienced considerable growth since its establishment. In 1996, the Foundation received generous contributions from two principal donors who recognized and wanted to support the vision of ISF by designating large amounts of funds to promote that vision. This allowed ISF to increase its services and presence nationwide.
At this same time another foundation, simply called The American Foundation was created. The American Foundation has become our parent and primary foundation. It was created to assist in new foundation development and act as an umbrella foundation to all other affiliated foundations. The American Community Foundation and the World Foundation are sister foundations that fall under this umbrella.
The American Foundation has since facilitated the establishment of hundreds of charitable trusts and Family Foundation accounts through its Turnkey Family Foundation Program. The American Foundation provides not only administration, but also compliance with the complex IRS rules and regulations governing foundations.
We hope that you will soon join The American Foundation family and help us in our quest to promote new philanthropy that will help support the charities of the world.
We appreciate, and thank you for your interest.