Give awards and prizes to spur progress. One effective and often-overlooked method of driving innovation and creating buzz around one’s field of interest is to offer a prize. For example, the first non-government-supported spaceflight was the product of competition created by the $10 million XPrize. Prize-based philanthropy spurs innovation by enabling donors to leverage the creativity of many people to innovate or solve a problem without having to support each person individually.
Award scholarships. With advance approval from the IRS, foundations may run scholarship programs and choose the recipients. This capability allows you to give back to your community in a profoundly personal and powerful way. Some foundations choose to reward not just high-achieving students, but also those who exhibit the values and potential that they wish to promote in their community.
6. Run Charitable Programs Without Setting Up A Separate Non-Profit.
A private foundation can run its own programs, in addition to making grants to fund someone else’s. Direct charitable activities (DCAs) are IRS-approved programs that permit foundations to directly fund and carry out their own projects. This brand of “hands-dirty” philanthropy suits entrepreneurial types who want to contribute both financial and human capital to the causes they care about. For ideas big and small, direct charitable activities allow private foundation donors to use their unique resources and skills to produce results that dollars alone wouldn’t buy. Here are a few examples of successful direct charitable activities Foundation Source has helped facilitate:
• Providing highly durable soccer balls to kids in war-torn countries.
• Running a small mathematics museum to teach children the importance of math in everyday life.
• Purchasing business attire and paying for the removal of gang tattoos to help paroled prisoners rejoin the workforce.
7. Make Loans Instead Of Grants
Would you like to extend credit to a local bakery employing homeless people? Perhaps you’d like
to purchase stock in a documentary film company that educates others about your favorite charitable cause. Instead of an outright grant, you might consider giving a low-interest loan to a nonprofit (such as a charter school or church) to begin construction on a new facility while conducting a capital campaign. With a private foundation, you can do all of these things and much more.
Loans, loan guarantees and equity investments, when made by a foundation specifically to support a charitable purpose, are called Program-Related Investments (PRIs). These financing mechanisms, historically associated with banks or private investors, enable private foundations to get a return on their investments, either through repayment or return on equity. And because PRIs are repaid (potentially with interest), you are able to recycle your philanthropic capital for another charitable cause.
8. Pay Charitable Expenses
When you have a private foundation, all legitimate and reasonable expenses incurred in carrying out the foundation’s charitable aims count toward your minimum distribution requirement. For example, conferences, office supplies and travel expenses for site visits and board meetings count as “qualifying distributions.”
9. Hire Staff (Even Family Members)
If you have a foundation, it’s permissible to
pay qualified staff for their foundation-related work—even if your foundation is staffed by family members. Federal tax law permits foundations to pay “reasonable compensation” for personal services.
For example, one family appointed their daughter, an art school graduate, to serve as the executive director of their foundation.
Because the foundation was active in the region’s arts and culture scene, she was able to make valuable connections, get an insider’s perspective on grantee organizations, and eventually land her dream job of assistant curator at a local museum.
10. Train The Next Generation For Success
Many families of wealth want to give their children “enough to do something, but not enough to do nothing.” They don’t want their wealth to kill their children’s ambition—especially if that wealth passes to their children before they’ve had a chance to develop sufficient maturity and personal goals. For these families, a foundation is the perfect fit.
A private foundation enables children to participate in wealth and understand both its power and responsibility—all without taking control of it. By seeing how the foundation manages its investments, deliberates over its grants and expenses, and impacts the communities it serves, children learn the value of money in ways no lecture can ever hope to match.
Page Snow is chief philanthropic officer at Foundation Source, a firm that offers administrative and consulting services to private foundations.