The creators of private foundations and their advisors can accumulate more wealth to give to charities by taking advantage of tax savings available to the foundations, according to Jeffrey D. Haskell, chief legal officer for Foundation Source.

Financial advisors need to be intimately familiar with the tax advantages that can be obtained by creating a private foundation, according to Fairfield, Conn.- based Foundation Source, which provides education and support services for private foundations.

For instance, when assets are contributed to a private foundation, the assets are excluded from the donor’s estate and, as a result, are not subject to either federal or state estate taxes, enabling philanthropists to avoid estate taxes while creating a lasting legacy, Haskell said in a recently released report, “Tax Benefits of Creating a Private Foundation.”

The private foundation also can help a wealthy family preserve and promote the family’s charitable legacy and instill these values in future generations, Foundation Source said.

In addition to avoiding estate taxes, creators of a private foundation also may be able to avoid paying capital gains taxes by donating highly appreciated assets to the foundation. For instance, if an individual donates appreciated stocks with a current market value of $2 million to a foundation, he or she does not have to pay capital gains taxes on the appreciated amount. If the stocks were sold outright, the capital gains tax on that amount would be due on the appreciated amount. The difference can mean savings that reach into the hundreds of thousands if the stocks were bought several years ago, Haskell said.

One of the more immediate tax benefits in creating a private foundation is an income tax deduction for any amount contributed to the foundation up to 30% of the donor’s adjusted gross income. This applies to the initial contribution donated to start the foundation and to any subsequent donations.

The growth in the assets in the foundation also is not subject to income taxes. Those tax advantaged assets can then grow to create more money for charitable gifting, Foundation Source said.