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How to Protect Your Assets With a Charitable Foundation Just Like Billionaires Gates & Buffet

Updated on June 19, 2010

Starting Your Own Charitable Foundation

Donating to a foundation is one legal way to protect wealth for descendants. Assets transferred into a foundation are immune to capital gains taxes, plus the donator still gets a tax deduction for the contribution. Additionally, the charity receives more money than if the donator sold assets, paid the taxes, and donated the remainder.

This may come as a surprise to some—that anyone, not just the super rich like Bill Gates and Warren Buffet--can set up a trust and/or foundation very inexpensively by doing all the research and drafting their own documents. There are many sources that provide templates. If your situation is straightforward, all you have to do is fill in the blanks. For those with more involved situations an experienced attorney is recommended. Even if you do it yourself, it’s not a bad idea to have an attorney review it. The final step is transferring your assets into the foundation or trust, otherwise all your hard work is for naught.

Other Options

Banking through a Foundation 

A foundation such as a Panama Private Interest Foundation can hold any number of assets for its beneficiaries. This includes a bank account. The beneficiaries can have access to the bank account’s assets through the use of credit or debit cards that can be used worldwide. A foundation can also own a corporation that owns the bank account. (Ten Ways to Protect Your Assets Offshore – Asset Protection Using Offshore Company Structures)

For those with complicated estates, setting up a charitable foundation requires the expert advice of a lawyer and a financial planner or tax consultant. If you don’t have the level of income or resources to justify the cost of setting up a foundation, here is another alternative. Umbrella organizations such as the National Heritage Foundation allow you to start your own foundation, under their auspices, at a lower initial cost. Later you can split off from the umbrella organization and run the foundation independently. Be careful when going this route however. Make sure that the umbrella organization you and your advisor choose has sound legal and administrative policies and an excellent reputation among the smaller organizations they have taken in. (Charitable Donations--Tax Deferred Benefits)

What Qualifies as a Charitable Foundation?

To qualify as a charitable foundation, you must earn your living by donating to educational pursuits or worthy causes. Worthy causes would be categorized as universities (all universities are non-profit foundations), large national organizations or small local enterprises that protect the environment, provide homes, vocational training and jobs for the impoverished, or promote the arts.

Advantages of a Charitable Foundation

The revenue from your activities goes directly into this public foundation, thereby escaping income taxation from the outset. This gives you the greatest tax-deferral benefits, something like a 401(k) plan or an IRA but on a much larger scale.

You can draw an income up to the value of your services, but you only need to draw what you must have to live on. The result is that the remainder of your income, or your revenues less expenses, is not taxed to begin with. The excess can be invested and the value compounded tax-free, which makes it possible to rapidly expand the assets of the foundation.

As long as you continue to serve the purposes of the foundation, you can continue to draw an income throughout your life from the tax-deferred income and the investment returns it generates. Simultaneously, the assets of the foundation will accumulate an accelerated rate, allowing you to generate wealth to give to your most cherished causes. Over time, you or your heirs can shift the goals and purposes of the foundation. This gives you the flexibility to choose the most worthy causes of interest to you, especially as your preferences change.

Primary Difference Between Public and Private Foundations

The primary difference between public foundations and private foundations is the number of restrictions on income sources and the amount of investment income the foundation can generate.

Private foundations offer fewer restrictions but they do minimally tax the investment income. Donors to private foundations can only make a tax-deductible donation of 20% of their adjusted gross income, or in the case of private operating foundations, 30%.

Public foundations have more restrictions, but their donors can make a tax-deductible contribution of up to 50% of their adjusted gross income.

For More Information

The Save Wealth website provides a summary of how Private Family Foundations work. See their website at


Charitable Donations--Tax Deferred Benefits,

Private Family Foundations,

Ten Ways to Protect Your Assets Offshore – Asset Protection Using Offshore Company Structures,


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    • Don Simkovich profile image

      Don Simkovich 

      8 years ago from Pasadena, CA

      Good Hub. I spent most of my career in the nonprofit world, but I didn't realize setting up a foundation could be a smart financial move; I've always thought more of a planned giving approach would be best. But you're right, two of the nonprofits I worked for had donors with their own family foundations.


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