Here’s a case study:

Recently, I was working with “Dave” (not his real name). He was an executive at a large Silicon Valley tech company. Part of his compensation package included incentive stock options and also non-qualified options.

Dave had been working “24/7″ for more than five years. He had been sacrificing his personal needs in the process. He had also gone through a particularly nasty. His “plan” was to keep working for another five to ten years.

As I was talking with Dave, I discovered several interesting things about him. He liked kids, though he had none of his own. He also enjoyed sports, particularly golf, although he hadn’t played in years. It had been a very long time since Dave had allowed himself to have fun.

He was very concerned about his current tax issues. Earlier in the year, he had exercised and then held about $1.5 million of company shares of stock. He had been told to expect a tax bill exceeding $500,000.

To find a solution, we completed a Macro Strategic Plan. This is a life plan that includes defining one’s vision and goals, and then proceeds to implementing those objectives by utilizing proper structures and tactics. Here’s how Dave executed part of his Plan:

1) He sold about 70% of his shares of stock, converting enough of the previous potential AMT to ordinary income. This left him with about $1,050,000 of ordinary income, more than enough to offset the potential AMT on the remaining unsold shares.

2) Dave set up a private foundation with himself as the founder.

3) Subsequent to setting up his foundation, Dave contributed $500,000 in cash to the charitable entity.

Since Dave was interested in kids and sports, he set up his own charitable program that helped handicapped children learn how to golf. His foundation could subsidize the costs of special equipment, the time to perform due diligence on the types of courses best suited for handicapped children and subsequent educational programs to integrate physical therapy programs

Implementing the above plan allowed him to offset $500,000 of income. Because that $500,000 was contributed to his foundation, and because Dave was the director of his foundation, it was Dave who controlled how the assets in his foundation were managed.

In addition, Dave was able to combine his interest in children and sports by helping handicapped kids learn how to play golf. By starting his foundation, he managed to resolve his financial issues and at the same time achieve a personal dream as well. He was able to integrate his strategic planning goals with his vision and values.

That’s the beauty of private foundations. They can help you integrate your values and vision into strategic planning. They can also help pay for pursuing your interests and save lots of taxes, all while making a real difference in the world.

If that interests you, click on that yellow field at the top right of this page and get a
free chapter of my guide private foundations for wealth management. If you have questions, I’ll be happy to talk with you. Just call me at 702-247-6809.

Please mark each of the following statements as either true or false:

1. The main reason for creating a foundation should be the resulting tax savings.
2. Setting up a foundation is similar to setting up a corporation.
3. A private family foundation would make a terrific Christmas present for my family.
4. If I don’t like my foundation anymore, I just close up shop.
5. Done correctly, a foundation can be very rewarding and bring the family closer together.
6. It’s important to focus on political correctness when picking a purpose for the foundation, whether I like the activities involved or not.
7. A private foundation is private, so there are few if any reporting requirements and administrative hassles.

Answers

1. False. Tax savings may be one of the benefits, but you should focus first and foremost on what you’re passionate about and make that the mission of your foundation. To make your foundation work rewarding, you need to find a way to integrate it with your own passions and your life. Many of the tax savings actually come from your being able to pursue your passions on pretax dollars.

2. True. Setting up a foundation is very much like setting up a corporation. In fact, a foundation is generally set up as a corporation. There’s also a significant amount of legal and administrative work that must be done on an ongoing basis.

3. False. A foundation is a huge commitment. Unless your family has been closely involved in the decision making process, and is deeply committed to the foundation, it won’t work. “Surprising” your family with a foundation is a very bad idea.

4. False. A foundation, like a corporation, is a long-term commitment. It becomes an entity of its own. You can’t just start and shut them down at will.

5. True. If your foundation is truly built around your passions and those of your family, and is well integrated into your life plan, it will likely be very rewarding. And working together on a shared passion is bound to result in a closer relationship between you and your family.

6. False. Absolutely not. You must create your foundation around your own passions, not around what you perceive to be the politically correct issue of the moment. If you don’t, you will lose interest very quickly, and your foundation will become a chore, and maybe a nightmare.

7. False. The name notwithstanding, a private foundation is subject to numerous requirements. For example, there are reporting requirements, legal and administrative requirements, as well as requirements about disbursing funds to charities or for charitable activities.

The Results

So what’s your score? If you have answered at least 6-7 questions correctly, you may be ready to take the big step. Be sure to get all the facts, though, so your foundation will become the rewarding experience you deserve.

However, if you answered fewer questions correctly, you should start by getting more information on private foundations. You need to find out how they really work and what is involved.

A private family foundation can do far more for you than just save taxes — and you get to make a real difference in the world. But you have to make sure that you integrate it with your passions — and your life.

If you want to make sure you get all the details right, get your free sample chapter from my ultimate guide to using private foundations for wealth. Look for it in the yellow/golden area at the top right of my blog.

And if you want to know more, feel free to call me at 1-702-247-6809. I’ll be glad to talk with you about whether a private foundation could be right for you.