<h1>How to roll a Private Foundation<br />into a Donor Advised Fund</h1><h3>By Dennis Thomas, Attorney at Law</h3>

Now you can "have your cake and eat it too" by rolling your private foundation into a Donor Advised Fund operated by a qualified public charity (an IRC 501&#40;c&#41;(3) organization). The roll over to the Donor Advised Fund is very easy to accomplish and does not have any adverse tax effects.

Private foundations are wonderful tools for charitable giving. They allow the donor, through the Board of Directors of the private foundation, to distribute funds for a wide variety of charitable purposes. 

<h2>Private Foundation restrictions</h2>

There are, however, many restrictions on private foundations that do not apply to public foundations. Private foundations have very severe restrictions against "self dealing," have annual mandatory distribution requirements, are not allowed to have any "unrelated business income," qualify for only a "30% of income" income tax charitable deduction for gifts of cash, etc.

These severe restrictions do not apply to a Donor Advised Fund at a public foundation, and the income tax charitable deduction is increased to 50% of the donor's income for gifts of cash. The Donor Advised Fund allows the donor to make charitable distributions when, and in whatever amount(s), the donor recommends, limited only by the requirement that such distributions be made for valid charitable purposes as approved by the Board of Directors. There are no annual minimum distribution requirements for the Donor Advised Fund.

In the organizational documents of all private foundations, and in the IRS rules and regulations, there is the requirement that upon the termination of the private foundation all of the assets of the private foundation must be distributed to a public charity. In order to avoid an IRS termination penalty (which is in most instances equal to the total value of the assets held by the private foundation), the assets must be distributed to a public charity that has been in existence a minimum of 60 months. A Donor Advised Fund operated by a qualified public foundation, like WaterStone, that has been in existence for the minimum of 60 months meets this requirement and is therefore not subject to any termination penalty.

<h2>Easy termination process</h2>

The private foundation must include in the minutes of a meeting of its Board of Directors a <i>Resolution of Termination</i> and a <i>Plan of Distribution </i>of all of its assets to the Donor Advised Fund. The resolution should include the name and address of the public foundation that operates the Donor Advised Fund, a list of the assets that are to be distributed to the Donor Advised Fund, and an explanation of the nature and fair market value of the assets to be distributed.

After completion of the distribution of the assets, the private foundation will need to file a <i>Notice of Dissolution </i>with the Secretary of State in its state of incorporation and file a "final" IRS <i>Form 990-PF</i> with the IRS. A copy of the resolutions of the Board of Directors will be filed with the <i>Form 990-PF</i> to indicate that the Private foundation has been terminated and that all of the assets have been transferred to the Donor Advised Fund. Thereafter, no further filings are required with the IRS or with the state of incorporation.  

<em>Contact WaterStone at WaterStone@WaterStone.org for more information on converting your Private foundation to a Donor Advised Fund.</em>