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.

Don’t just jump into setting up a private foundation without very careful research and soal searching. It’s a big commitment. You and your family have to be very clear about what’s involved. And then, there’s that most important issue of all: You have to choose the right goals.

What are your true goals in life?

A foundation is forever, at least almost. So you’ll need to be ready to stick with your foundation for the long haul. That’s why it’s so important that you choose the right goals. And those goals must be truly yours — plus they need to have staying power.

What happens if you skip that step? The number one problem I’ve seen with people setting up foundations is that many of them neglect that crucial step and focus strictly on the immediate tax benefits, which can be substantial. Unfortunately, that can easily get in the way of developing a real philanthropic program.

Instead of selecting activities that are truly exciting to them, those people take on programs that they believe are more politically correct. As their enthusiasm wanes, their commitment generally wanes as well.

If you want to avoid having that happen to you and your private family foundation, you should think seriously about what exactly you would really like to accomplish. What are the activities they would like to be able to do as part of your work for the foundation?

Do you enjoy gourmet cooking? Are you interested in exploring other cultures? If so, you should work on finding ways to incorporate those into your foundation by building it around those activities. You could for example set up a foundation that provides international gourmet cooking classes for economically disadvantaged teenagers.

As you pursue activities that are of real interest to you as the founder and your families, your private family foundation becomes a mechanism where you can legally tax leverage and institutionalize your hobbies and passions.

If you get that part right and you have carefully integrated your foundation in your overall life plan, working with it can become so rewarding that the considerable commitment involved won’t be too much of an issue.

To find out more about it, just click on that yellow/golden square at the top right of the page and get your free sample chapter from the ultimate guide to using private foundations for wealth management, written by yours truly. And I’ll be very happy to talk with you if you should have any questions. Just call me at 702-247-6809.