A private foundation is one of the most powerful — and most underutilized — tools in estate planning. For the right client, it can eliminate estate taxes entirely, unlock appreciated assets, and keep a family's philanthropic mission alive for generations.
Most high-net-worth families are aware of charitable giving. Far fewer have fully explored the strategic tax advantages a private foundation offers — not just as a vehicle for generosity, but as a core component of an estate plan designed to minimize tax exposure and preserve family wealth.
Unlike a donor-advised fund, a private foundation keeps control within the family. A board composed of family members directs the foundation's investments, grant-making, and long-term mission. The family name lives on. The values endure.
At Shober & Rock, P.C., Leonard L. Shober holds an LL.M. in Taxation — an advanced legal degree focused specifically on the tax law underlying these strategies. We have counseled private foundations and their founding families throughout Bucks County and the greater Philadelphia region, and we serve as legal counsel to several active foundations.
The three strategies below illustrate how a foundation can be deployed to solve real estate planning problems — all based on the type of matters we handle, presented here in anonymized form.
Assets passing to a qualified foundation are fully deductible for estate tax purposes — reducing or eliminating the 40% federal estate tax on amounts above the exemption.
A foundation does not pay capital gains tax when it sells appreciated assets donated to it. The full fair market value is preserved for charitable use.
Family members serve on the board, direct grant-making, and carry the mission forward across generations — with full control over how the assets are deployed.
Contributions generate immediate income tax deductions — up to 30% of AGI for cash, 20% for appreciated securities — with a 5-year carryforward for excess amounts.
The following illustrate the types of matters we handle. All identifying details have been changed to protect client confidentiality.
A Bucks County business owner's estate was valued at approximately $28 million — nearly double the 2026 federal exemption of $14.39 million. Without planning, the excess would have been subject to a 40% federal estate tax, representing a tax liability approaching $5.5 million.
Working with the client's financial advisors, we structured the estate plan so that the exemption amount passed directly to the heirs through a bypass trust, and the remaining assets — above the exemption — passed to a family private foundation established for the purpose. The family retained board control of the foundation.
The estate paid zero in federal estate taxes. The heirs received the full exemption amount free and clear. The family foundation, controlled by the next generation, holds the remaining assets and pursues the family's charitable mission in perpetuity.
A client held a concentrated position in publicly traded stock with a cost basis near zero, acquired decades earlier. Selling the position would have triggered a capital gains tax of roughly 23.8% (20% long-term rate plus 3.8% net investment income tax) on virtually the entire sale price.
The client donated the appreciated securities directly to their private foundation rather than selling them first. The foundation then sold the stock. Because the foundation is a tax-exempt entity, no capital gains tax was owed on the sale. The client also received an income tax deduction for the full fair market value of the donated shares, subject to the 20% of AGI limitation for appreciated securities.
The foundation retained 100% of the sale proceeds for charitable deployment — with none lost to capital gains tax. The client also received a substantial income tax deduction, with the unused portion carried forward over the following five years under IRC rules.
A client sold a privately held business for $12 million, creating a significant taxable income event in a single year. The client wanted a large deduction to offset the gain but had not yet decided which charitable causes to support — and did not want to rush that decision.
We established a private foundation in the year of the business sale. The client contributed cash to the foundation in an amount up to 30% of their adjusted gross income, taking the deduction in the high-income year. The foundation then had up to 20 years to thoughtfully distribute those funds to qualified charities — at the family's direction and pace.
The client captured a maximum income tax deduction in the year it was most valuable — the windfall year — while retaining full flexibility over which organizations would eventually benefit. The foundation became the family's long-term charitable vehicle, with children and grandchildren joining the board over time.
Clients often arrive having heard of donor-advised funds but unsure how they compare to a private foundation. The right vehicle depends on the client's goals around control, privacy, and the types of assets being contributed.
| Feature | Private Foundation | Donor-Advised Fund (DAF) | Direct Public Charity Gift |
|---|---|---|---|
| Cash Deduction Limit | 30% of AGI | 60% of AGI | 60% of AGI |
| Appreciated Stock Deduction | 20% of AGI (FMV) | 30% of AGI (FMV) | 30% of AGI (FMV) |
| Family Control | Full — family board directs all decisions | Limited — sponsoring org has legal control | None after gift |
| Privacy | Public — Form 990-PF filed annually | High — grants can be anonymous | High |
| Capital Gains on Appreciated Assets | None — foundation sells tax-free | None — DAF sells tax-free | None — charity sells tax-free |
| Distribution Requirement | 5% of assets annually | None (though expected) | N/A |
| Excise Tax on Investment Income | ~1.39% annually | None | None |
| Estate Tax Deduction | 100% — unlimited charitable deduction | 100% | 100% |
| Multi-Generational Governance | Yes — family legacy built in | Limited | No |
| Minimum Asset Threshold | Typically $1M+ to be cost-effective | Low — often $5,000 minimum | No minimum |
This table is for general educational purposes only and does not constitute legal or tax advice. Deduction limits and tax rates are subject to change. Consult with a qualified attorney and tax advisor before making any charitable planning decisions.
A sophisticated client deserves complete transparency. These are the ongoing obligations every foundation must meet — and why having experienced legal counsel from the start matters.
Every private foundation must distribute at least 5% of its net assets annually to qualified charitable organizations. This is not a burden for most clients — it's actually a useful planning tool that creates a structured, sustainable giving program. A $5 million foundation must distribute a minimum of $250,000 per year. Undistributed income is subject to an excise tax.
Net investment income — dividends, interest, capital gains — earned by the foundation is subject to a federal excise tax of approximately 1.39%. This replaced the old two-tier system in 2020. It is a small but real cost that should be factored into the foundation's investment and distribution planning. A well-run foundation more than offsets this through the capital gains and estate tax savings it generates.
Private foundations must file Form 990-PF with the IRS annually. This return is publicly available and discloses the foundation's assets, income, expenses, officers, and grants made. Privacy-conscious clients should be aware of this — it is one reason some prefer a donor-advised fund for anonymous giving. Some families embrace the public nature of the 990-PF as a statement of their values.
The IRS strictly prohibits self-dealing transactions between the foundation and its disqualified persons (founders, officers, family members). This means the foundation cannot make loans to family members, pay excessive compensation, or purchase assets from insiders at other than fair market value. Violations carry significant excise taxes. Understanding these rules — and building governance structures that prevent violations — is a core part of our representation.