ARDEN DALE for the Wall St Journal writes: A lot of people like the idea of having a private charitable foundation of their own, but financial advisers caution they're not suitable for everyone.
When the time comes for clients to give, their advisers can help them decide if a foundation is better than using a donor-advised fund or charitable trust, or simply writing a personal check. How much money a client wants to give is a crucial determining factor, along with the right personality and the passion to make the foundation succeed.
Operating a foundation is akin to running a business, advisers say. It requires tax filings and other money-management tasks, establishing by-laws, holding meetings with a board of trustees and recording minutes, and much more.
What may seem like a great idea at the outset can turn into an administrative or financial nightmare for the wrong person. Without solid guidance, the over-eager may get burned. That's why some advisers consider them too much of a hassle, and steer their clients away.
"They're going to get annoyed, and if you're the adviser who got them into a tough spot, there's backlash," said David Diesslin, an adviser in Fort Worth, Texas.
But those clients who do choose a private foundation are often after certain things they can't get through donor-advised funds and other charitable vehicles.
They have more control over their investments and gifts. And they can run their own programs, make gifts directly to individuals, groups and families facing hardships, emergencies or medical distress, and grant scholarships. Someone who contributes to a donor-advised fund doesn't have such flexibility.
"It's great for people who want to go to the gala and hand the check right to the person," said Rich Polt, a spokesman for Foundation Source, which works with advisers and their clients to establish and help run new foundations.
The number of foundations has grown each year since 2000 (except for 2010). In 2011, there were some 73,764 independent, private foundations, up 8.1% from the previous year, according to the Foundation Center, which provides data on foundations.
For Mr. Diesslin of advisory firm Diesslin & Associates, it's all about heart and vision. If the idea of establishing a foundation isn't "owned by your client," he said, it likely won't work out well. He also has a dollar amount--$3 million--that he considers a rough minimum to commit to a private foundation. Only a handful of his clients have foundations.
Recently, Mr. Diesslin has been talking to a married couple who wants to set up a faith-related foundation with their parents and children. Serious philanthropists, the couple seeded the effort with a few hundred thousand dollars, with an eye toward putting $10 million to $15 million into it eventually.
The problem right now, he noted, is getting everyone in the family together so they can sit down and focus on the foundation. Everybody loved the idea of creating it, but scheduling has already become a stumbling block.
Beth Gamel, an adviser with Pillar Financial Advisors in Waltham, Mass., likens running a foundation to operating a business. Her advice: Don't set one up without the help of an attorney or accountant with specific experience in the niche. Explain to clients that the tax rules are complicated. Then, encourage them to keep good records and let the professionals handle the details.
One of her clients with a $10 million foundation had a hard time meeting the Internal Revenue Service requirement to give away 5% of a foundation's asset each year. In one instance, he ended up giving $300,000 to a donor-advised fund, which chose charities on his behalf.
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