One common form of a private foundation is a family foundation. Families sometimes use a family foundation as a forum in which family members can work toward common goals, or as a way to instill the value of charitable giving in future generations of the family. Another common option that families use to accomplish the goals of their family philanthropy is to establish a donor advised fund at a community foundation (see Give to or through a Community Foundation). To learn more about the differences between donor advised fund and a private foundation, see the Giving Options Summary Chart.

Since a private foundation is a charitable organization, it is exempt from federal income tax on its income, although it must pay a 1-to-2 percent excise tax on its net investment income. The gifts you make to establish a new foundation or grow an existing foundation can afford you certain tax advantages; income, gift and estate tax deductions are available under the law. Consult a tax advisor for details.

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TYPES OF PRIVATE FOUNDATION
There are three main types of private foundations: private endowed foundation, pass-through foundation and private operating foundation.

Private Endowed Foundation 
This is the most common type of private foundation. The foundation’s financial assets create a principal — or endowment — that is invested, and income from the endowment is paid out annually to charity. Generally, the principal or endowment is not spent, only the investment income. Therefore the principal can increase with good investment, ensuring the foundation's continuation and growth to meet future community needs. Private foundations are required by law to pay out annual grants and other qualifying distributions totaling a minimum of 5 percent of the fair market value of their assets.

Pass-Through Foundation 
A pass-through foundation is a private grantmaking organization that distributes all of the contributions it receives each year (not just 5 percent of its assets). The pass-through option may be made or revoked on a year-to-year basis.

Private Operating Foundation
A private operating foundation uses the bulk of its income to actively run its own charitable programs or services. Examples include the operation of a museum, library, research facility or historic property. Some private operating foundations also choose to make some grants to other charitable organizations.

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For some varied examples of how private foundations have set up their missions, guidelines and grantmaking policies, visit these Minnesota-based private foundations:

• F.R. Bigelow Foundation

• Blandin Foundation

• Otto Bremer Foundation

• Carolyn Foundation

• Jerome Foundation

• Onan Family Foundation

• Carl and Eloise Pohlad Family Foundation

PUBLICATIONS
For more information on establishing a private foundation, the Minnesota Council on Foundations offers several useful publications for sale. For details, see Giving Resources.

ONLINE RESOURCES

Council on Foundations
The Council on Foundations, a national membership association of grantmaking foundations and corporations, offers this helpful "Starting a Foundation" section.

National Center for Family Philanthropy
The Center focuses on matters of importance to families engaged in philanthropy and their effective giving. The Center has several useful publications and programs on starting and operating a private family foundation.

HELP
The Minnesota Council on Foundations is available for one-on-one consultations. Contact the Council at 612.338.1989 or info@mcf.org.