I know that private foundations usually make grants to public charities, but can they also make grants directly to individuals? —From our recent Webinar.
Yes. Although it is true that most private foundations make most of their grants to organizations classified as public charities by the IRS, they also have the right to make grants directly to individuals for many charitable purposes. They often make grants directly to individuals who have suffered from a natural disaster, or for healthcare, or perhaps to subsidize housing costs. They don’t have to give through public charities to have an impact on individuals. A lot of private foundations became aware of this ability in making direct grants to individuals during COVID.
The one limitation on grants to individuals involves grants to individuals for travel, research, or study, including scholarships. Such grants are permissible only if the private foundation obtains prior approval of its selection procedures and qualifications from the IRS to assure that the selection process is objective and nondiscriminatory for a broad group of eligible individuals. The rules were adopted in large part to prevent corporate foundations from generally providing scholarships to the children of employees as a form of disguised compensation. Once the procedures are approved, the foundation can continue to run a scholarship program as long as it continues to follow the basic procedures approved by the IRS.
Donor advised funds may not make distributions to individuals. There are special rules on donors advising on scholarship funds, which if followed, remove the DAF from classification as a DAF, which can’t directly aid individuals, and reclassify it as a scholarship fund, which can and does.
For more on the contrasts between public charities, private foundations, and donor advised funds, listen to our recent webinar available in our Store.
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