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.