The Changing Role of Private Philanthropy
An English dictionary published in 1704 defined philanthropy as "a generous Love for Mankind in General, or an Inclination to
promote the Publick Good." Although the style is quaint, the meaning is modern. It suggests an important distinction between
the generosity that one individual exercises toward another and the philanthropic impulse to help larger numbers of people.
The basic aim of private foundations is "to promote the Public Good."
In the United States, churches initiated the practice of general rather than person-to-person giving. Beginning with Colonial
times, they used their resources to found and operate schools, hospitals, and homes for children and the elderly. Churches
cared for their parish poor and sponsored international missionary activities that brought medical, educational, and practical
assistance to people half a world away. During the late nineteenth century, church philanthropy was supplemented by local
welfare societies organized in small towns and major cities. At the same time, wealthy individuals established increasing
numbers of charitable trusts designated for specific purposes.
Social welfare remained largely the concern of private and religious philanthropy until the 1930s. But these resources could
not begin to meet the demands placed on them by the Great Depression, and the federal government entered the arena. As
fortunes crumbled, some previously active foundations dissolved. But, at the same time, such giants of the foundation world as
the Ford Foundation, the Lilly Endowment, and the Alfred P. Sloan Foundation were organized.
The federal government has remained in the business of social welfare long after the Great Depression. And, as some observers
are quick to note, governmental programs are more apt to react than to act, and government agencies often have little energy
for long-range planning or creative thought.
Private foundations, on the other hand, are organized for a variety of purposes and offer a multitude of potential sponsors
for innovators in science, religion, welfare, education, arts, and other sectors. In the business world, foundation grants
would be called "venture capital"-the seed money that enables an idea to be tested. Private foundations help insure the
viability of individual ideas, and in doing so preserve the pluralism of American society.
An important practical advantage of private grantmaking is expressed in a Roman proverb: "He gives a benefit twice who gives
quickly." While it may take years for a government agency to respond to a grant request, most private foundations have
relatively simple application procedures. Unfettered by elaborate hierarchies, private foundations are often the only solution
when the project seeking sponsorship must be carried out quickly or not at all.
In addition to sponsoring new ideas, private foundations have a long tradition of providing ongoing community services.
Private giving has helped perpetuate such diverse projects as boys' and girls' clubs, hospitals, colleges, and symphony
orchestras.
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Private Foundations and Tax Incentives
Traditionally, American charitable organizations have been tax-exempt because the government wishes to encourage activities
that serve the public good. And since the advent of income tax in this country, individual and corporate contributions to
charitable organizations have been tax deductible up to a certain percentage (that has varied) of income.
There are many tax incentives for establishing private foundations. Individuals may deduct cash contributions to a private
foundation of up to 30 percent of the donor's adjusted gross income. Details about gifts of appreciated property are discussed
in Section 2.
It is in estate planning, however, that establishing a private foundation presents the greatest tax advantages. All
contributions to private foundation by will are fully deductible for estate tax purposes. A legacy to a private foundation
will substantially reduce the federal estate tax imposed on the testator's estate.
Those familiar with the tax structure will hasten to point out that an individual may deduct direct contributions to publicly
supported charities of up to 50 percent of his or her adjusted gross income. While the tax benefits available to those who
exercise their charitable impulses exclusively through private foundations are smaller, many donors realize major tax planning
benefits by a combined pattern of giving both to a private foundation and to public charities.
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The Unique Benefits of Private Foundations
There are a number of benefits, both social and personal, that make private foundations very special investments in the
future. Unlike a direct gift that usually benefits one recipient on one occasion, a private foundation perpetuates the donor's
generosity for as long as the foundation exists. Foundations give to more recipients over a longer period of time.
As mentioned earlier, private foundations play a vital role in supporting social, scientific, and cultural innovation. The
kinds of new ideas most needed by society change over time, and a private foundation can respond to new needs as they occur. A
one-time, direct gift does not provide this flexibility.
Several important personal benefits accrue to donors who establish private foundations:
- Many donors use private foundations as enduring tributes to loved ones-memorials that are not static monuments but
living, changing entities.
- Donors find that setting up a foundation is an effective means for organizing their charitable efforts and for
regularizing the amount given.
- A foundation is an orderly mechanism for giving that intervenes between the donor and potential recipients.
- In the case of a family foundation, most donors have found the foundation to be a stimulating and effective vehicle fo
teaching the next generation about philanthropy and its value to the family.
- In those family situations, the foundation also becomes a rallying place, an opportunity to share values and concerns for
society, and a common cause for family members who might be scattered geographically.
The English poet Horace Smith wrote, "Our charity begins at home/And mostly ends where it begins." Even the most socially
conscious donor is understandably concerned about providing for the well-being of his or her family. But careful planning
makes it possible to attend to both familial needs and those of the community.
Not everyone should consider establishing a private foundation. But they are excellent charitable tools for individuals and
families who want to have impact not only on their own time and place, but on the future. When one creates a private
foundation, one joins the ranks of those who have not only voiced their concern for humanity, but who have translated this
concern into action.
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Reprinted with permission from the Forum of Regional Associations of
Grantmakers
©2003 Indiana Grantmakers Alliance, Inc.
32 East Washington Street, Suite 1100
Indianapolis, Indiana, 46204
Phone: (317) 630-5200 | Fax: (317) 630-5210
Email: info@indianagrantmakers.org
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