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Should we establish a foundation?

Your Legal Questions Answered

Should we establish a foundation?

When and why should a well-established 501(c)(3) organization give consideration to establishing a separate Foundation that supports the organization? What are the benefits and negatives of establishing a Foundation?
I represent a large 501(c)(3) Continuing Care Retirement Community that is 45 years old and has three campuses and 1,200 residents. We have accumulated a reasonable amount of dollars for various areas of the organization.

The primary benefit of creating a “foundation” to support established charities is to insulate the assets from potential liability for an uninsured catastrophe or an economic failure of a line of business. If your CCRC is a single corporation, a foundation would be generally less valuable than if you operate with several separate corporations. Assets of a separate foundation dedicated to one operating entity would be attachable for obligations of the organization to which they were dedicated.
In many cases, charitable “systems” have created a “parent organization” to control the various operating organizations and the foundation, giving the foundation discretion on how to apply the funds so that the funds are insulated from potential loss from one of the operations. (See Ready Reference Page: “Charities Weigh Restructuring to Protect Assets” ) 
Separate entities have financial and administrative costs, and we don’t generally recommend them unless they add real value to the program.
Monday, January 12, 2015

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