Springfield Business Journal Articles
Sarah Delano Pavlik and Tom Pavlik write a monthly column on legal and business issues for the Springfield Business Journal.

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You may have read last year that Joan Kroc, the widow of McDonald's founder Ray Kroc, left National Public Radio two hundred million dollars at her death. Likewise, Ruth Lilly, heiress to the Eli Lilly pharmaceutical fortune, left Poetry magazine a gift worth approximately one hundred million dollars. Each of these women used their fortunes to provide ongoing support for organizations that they valued. Would you like to provide ongoing support for your church, college or other organization after your death but you don't have $100,000,000, or even $1,000,000? Don't let that dissuade you.

One option is to create a private foundation during your lifetime or at your death. Many wealthy people create private foundations to manage their charitable interests. Bill Gates has a foundation, as does Michael Jordan. The advantages of a private foundation are that you can select the charitable recipients and can retain control over the foundation through its board of directors. Your children, and even grandchildren and future generations, can serve on the board of directors and learn about philanthropy. The disadvantages of a private foundation are the significant restrictions placed on such foundations by the Internal Revenue Code in an effort to prevent the abuse of these private charities. In addition, gifts to private foundations can produce lower income tax deductions than gifts to public charities. Finally, private foundations can involve significant expense to create and operate. An attorney must prepare the foundation documents. The attorney or accountant must also file an application for tax exempt status with the Internal Revenue Service, and there are further annual reports to the IRS. Therefore, it is generally not economical to create a private foundation unless you intend to fund it with at least $250,000. Some people may even say that a minimum amount should be $1,000,000.

But what if you only have $100,000 to donate or even much less? You can still make a difference in your community and leave a memorial in your own name or in the name of a loved one. One such example is an endowed scholarship at the University of Illinois at Springfield. For a minimum donation of $25,000, you can create a named scholarship that will be awarded in perpetuity. (For more information, contact Dr. Vicki S. Megginson, Associate Chancellor for Development at UIS and Vice President, University of Illinois Foundation at 217-206-6058.) The minimum donation may be even less at your alma mater. As with all donations, it is best to contact the development office at any organization before a gift is made to ensure that it is made correctly and will accomplish your goals.

An exciting option that has recently come to Springfield is the use of a community foundation. A community foundation provides most of the benefits of a private foundation with none of the costs. In addition, because a community foundation is a public charity, it is not subject to the restrictions on private foundations and can provide larger income tax deductions.

For a minimum donation of $5,000, you can create a fund at the Sangamon County Community Foundation ("SCCF"). Your fund will be used only as you specify. For example, you could provide that all of the income of the fund be paid to your church each year. Or, you could provide that all of the income be used for programs within the community that feed the poor. Finally, while you are alive, you can make recommendations to the community foundation each year, such as "This year I would like $1,000 to be distributed to the center for the arts." After you are deceased, your children can make such recommendations.

John Stremsterfer, Executive Director of the SCCF, summarizes the benefits of the SCCF as follows, "The Sangamon County Community Foundation enables donors to set up charitable funds for any cause or charity a person cares about. Donors may name their fund, set it up to fulfill their charitable wishes, fund it through a variety of gifts (i.e. cash, stock, real estate, insurance policies, etc.) and the Community Foundation will take care of all the administrative concerns associated with the fund in perpetuity. No matter how broad or narrowly restricted, SCCF assures that a donor’s legacy will be carried on as originally intended. We’re here to create 'new' philanthropy and make charitable giving easier."

If charitable giving appeals to you, keep in mind that how you fund your gift can have important results. For example, if you own stock worth $10,000 and an individual retirement account worth $10,000, these assets are not truly of equal value. If you leave the stock to your children at your death and they sell it, they will receive $10,000. If you leave the IRA to your children, they must pay income tax on the distributions, reducing the value to possibly $6,000 after federal and state income taxes. If you leave the IRA to a charity, however, the charity will not be required to pay income taxes and will benefit from the entire $10,000. As with all tax planning, however, there are traps to naming a charity as a beneficiary of a retirement plan (especially if you name the charity as one of several beneficiaries), so check with your tax advisor first.

Remember, no gift is too small, and you, too, can make a difference in your community.

by Sarah Delano Pavlik
Posted in: October, 2004
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