My sister and I have been running a small family foundation for more than 30 years. It only has about $1 million. I was wondering if the foundation could be split into two in which my sister would run the current foundation and I would take half the money and start my own family foundation. This seems like a natural progression since both of our families have grown and our adult children are interested in being more involved. —By email.
The short answer is “yes.” How you would go about it may depend on whether the foundation is a corporation or a trust, whether you could divide the current entity or would set up a new foundation to receive assets from the existing one, and whether you need approval from your state attorney general or a court. The IRS recognizes such divisions as a natural evolution for private foundations and has a variety of published regulations and rules under section 507(b) of the Tax Code on how to go about it without incurring any of the various taxes that can be imposed on private foundations.
If you want to get adult children involved, however, you may want to test the concept first by either adding them to grant-making committees now or setting up internal “funds” over which they have some input. You could also make grants from the foundation to donor advised funds where they have a more formal role. Half a million dollars is not a lot of money to sustain the costs of a private foundation. Although more than half of the private foundations that filed a Form 990-PF tax return in 2022 had total assets of less than $1 million, most commentators recommend having significantly more in the foundation to make it economically advantageous. There are other reasons to run a smaller one, but economy is not one of them.
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