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Foundations are quite funny, actually. They are required every year to distribute a certain percentage of their assets to charities. The percentage is very smal

Foundations are quite funny, actually. They are required every year to distribute a certain percentage of their assets to charities. The percentage is very small - i think it is about 5%.

auntienomen 9y ago
5% isn't small! A charity is typically funded by the returns from investing some pot of money. The stock market returns on average about 7% a year, and inflation is typically about 2%. 7-2=5. At 5%, the charity is required to spend on average all inflation adjusted money its endowment provides.
- notyourday 9y ago
  5% is an extremely small percentage. Foundations are not supposed to operate perpetually. That's the difference between them and charities.
bluGill 9y ago
It is generally considered that a foundation that distributes more than 7% will lose all their money in just a few years, while foundations that distribute less than that amount will exist "forever". You can calculate the exact amount, based on various market rates of returns. That said, if you are in the situation of setting up a foundation (unlikely, you have to be rich) you should probably force it to spend down to zero in ~20 years. That way you can the best assurance that the foundation doesn't change focus to something you would oppose.
- notyourday 9y ago
  That's exactly the reason that the vast majority of foundations are frauds used to shield money from taxes by the ultra wealthy: setup a foundation one controls, transfer money into it and have foundation spend 5% on "charities" while extracting value from the foundation by having it provide the lifestyle for those who set them up. Need cash? Have a foundation lease a copy machine from you for $2000 a month. Want to have a dinner at French Laundry? Have a foundation pay for your meeting with a potential donor, etc etc etc. And that's exactly the reason why there's a Byrd amendment - it blocks the income arriving at the foundation via foundation owning private companies tax free.

Foundations are quite funny, actually. They are required every year to distribute a certain percentage of their assets to charities. The percentage is very small - i think it is about 5%.

auntienomen 9y ago

5% isn't small! A charity is typically funded by the returns from investing some pot of money. The stock market returns on average about 7% a year, and inflation is typically about 2%. 7-2=5. At 5%, the charity is required to spend on average all inflation adjusted money its endowment provides.

notyourday 9y ago
5% is an extremely small percentage. Foundations are not supposed to operate perpetually. That's the difference between them and charities.

bluGill 9y ago

It is generally considered that a foundation that distributes more than 7% will lose all their money in just a few years, while foundations that distribute less than that amount will exist "forever". You can calculate the exact amount, based on various market rates of returns. That said, if you are in the situation of setting up a foundation (unlikely, you have to be rich) you should probably force it to spend down to zero in ~20 years. That way you can the best assurance that the foundation doesn't change focus to something you would oppose.

notyourday 9y ago
That's exactly the reason that the vast majority of foundations are frauds used to shield money from taxes by the ultra wealthy: setup a foundation one controls, transfer money into it and have foundation spend 5% on "charities" while extracting value from the foundation by having it provide the lifestyle for those who set them up. Need cash? Have a foundation lease a copy machine from you for $2000 a month. Want to have a dinner at French Laundry? Have a foundation pay for your meeting with a potential donor, etc etc etc. And that's exactly the reason why there's a Byrd amendment - it blocks the income arriving at the foundation via foundation owning private companies tax free.