The Power of Giving

Family Foundations Help Philanthropists Share and Save Their Wealth

George Soros, famous (or infamous, depending on which side of the political spectrum your beliefs lie) for donating to liberal causes and Democratic candidates, has transferred $18 billion of his vast wealth into his Open Society Foundations. The transfer immediately dropped him out of the ranks of the 50 richest Americans and catapulted his foundation to the second largest in the U.S. by assets, just behind the Bill & Melinda Gates Foundation.

Although reports framed the donation as a sudden gift, Soros’ transfer of wealth to his family foundation has been going on for a while.

“It’s an ongoing process of migration from a hedge fund toward a pool of capital deployed to support a foundation over the long term,” said Bill E. Ford, CEO of private equity firm General Atlantic, in a Wall Street Journal article.

It was a brilliant move because family foundations, also known as private foundations, can be extremely effective philanthropic vehicles when created by savvy individuals like Soros.

There are three very strong motivators behind most family foundations: Caring, legacy, and permanence. And of course, there are the tax advantages.

At its core, philanthropy is about caring, and family foundations are a great way to put your money where your mouth is, so to speak. Soros’ worldview, formed by growing up in Hungary during the Nazi occupation and later under communism, is a very strong motivator behind how he has chosen to distribute his wealth.

Family foundations are also great tools for leaving a legacy. They help to get the family involved in charitable giving, training them to become wise philanthropists. “To whom much is given, much is expected,” as the old saying goes. And according to research, nearly 70 percent of inheritors of huge fortunes will become more involved in evaluating the impact and results of their giving.

One of the most appealing things about family foundations is that they last long past the original donor’s death. That allows the wealthy founders to ensure that the institutions and causes important to them will be funded in perpetuity.

It would be foolish to believe that idealism is the only factor at work in the creation of family foundations. They also bring substantial tax benefits, both to the donor and their descendants. Giving to a family foundation can reduce a donor’s income tax for each year in which they make a donation to that foundation, up to 30 percent of the donor’s adjusted gross income.

Gifts to family foundations allow donors to avoid paying capital gains taxes by donating highly-appreciated assets, such as stock that has gained a great deal of value, to the foundation. When the foundation decides to sell those assets in the future, it will pay only a nominal excise tax of 1 to 2 percent on the net capital gains.

Finally, family foundations can provide a big advantage when it comes to estate taxes. When assets are contributed to a family foundation, they are excluded from the donor’s estate and are therefore not subject to federal or state estate taxes. This saves the donor’s wealth for something more meaningful.

George Soros is just one of the many wealthy people who have started their own foundations. From Bill and Melinda Gates to Stephen and Tabitha King to the Chan Zuckerberg Initiative, donors have a lot of good examples from whom they can take lessons when starting their own family foundations.