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I want to put a large sum of money I am about to receive into a nonprofit for the purpose of distributing the annual income for charitable purposes of my choosing.  I want this asset to continue protected and run by a family member after I am no longer able to run it.  What is the best vehicle to use to proceed? 

The first question is whether you want to use a donor advised fund at a community foundation or other public charity or set up a separate entity, which will be classified as a private foundation if you don’t continuously raise new funds from outside your family to support it.  Donor advised funds usually work well for funds of less than a few million dollars unless you want absolute control or want to be paid for your services.  (For a full comparison, see Ready Reference Page: “Donor Advised Funds Still Compare Well with Private Foundations.”)

If you decide to create a separate entity, we almost always recommend using a nonprofit corporation because the governance rules for a corporation are usually clearer than those for a trust.  The Internal Revenue Service will recognize the exemption of either type entity.

April 17, 2009