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Foundations R Us

You can give it away as smartly as you made it.

Ethan Hill

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When the subject is philanthropy, it's natural to think of such heavyweights as Gates, Buffett, and Soros. Even Google (NASDAQ:GOOG) has started a foundation. And then of course there's Fung.

That would be Coleman Fung. He came to this country from Hong Kong when he was 16, got degrees from Berkeley and Stanford, and eventually started Openlink Financial, a Long Island software firm whose annual sales now exceed $90 million. Says Fung: "I am your classic poster child for the American dream." Recently, Fung decided it was time to "give something back," so he plowed $18 million into the new Coleman Fung Foundation, which he'll use to support education and environmental causes. He hopes to get his kids involved when they're older, and to challenge--by his example--other well-to-do Asian Americans to step up their philanthropy. As the end of the year approaches, you may be scrambling to get your charitable donations done in time for your 2006 tax return. Go ahead and give generously. But then sit down and think about whether something grander might be in order. Think about making like Coleman Fung.

Once the sole province of the obscenely rich, the mere term "foundation" conjures stuffy old men in a mahogany-paneled boardroom, basking in noblesse as they go about the stodgy business of philanthropy over cigars. Time was, several million was considered the minimum necessary to make all the expense and effort of a foundation worthwhile. But as in so many arenas, technology and innovation are revolutionizing the philanthropic world, making it possible for even the moderately well-off to establish and pilot a family foundation of their own. This may help explain why the number of such foundations rose by 28 percent from 2000 to 2004, when it reached 31,347.

Dan Schley, a serial entrepreneur with a philanthropic bent, is one reason it's easier now to establish and run a foundation. Schley runs a company called Foundation Source, which functions as a kind of Foundations R Us. Setting up a foundation, he says, used to take three months and $30,000. But now, "we can do it in three days for less than $5,000," and instead of millions, assets of $250,000 are sufficient to launch an economically viable foundation.

Setting up a foundation--a nonprofit enterprise for charitable, religious, educational, scientific, or literary purposes--can be particularly appealing to entrepreneurs who experience what is often termed, somewhat delicately, "a liquidity event." If you want a big tax deduction in the year you sell your business, a foundation gives you a way of donating all at once and then parceling out the money over time. But most of all, a foundation can make you feel great--and not just because it's fun to be a big shot. Having a foundation gives families a structure for manifesting shared values, not to mention a way of channeling energies and wealth away from self-absorption and into making the world a better place. "It is an incredible opportunity to define family culture and promote family unity," says Claire M. Costello, a philanthropic consultant and ex-director of Citigroup's Philanthropic Advisory Service.

A family foundation gives you the highest possible degree of flexibility and control, which is likely to appeal to those who are used to owning their own businesses. You get to establish the foundation's purpose, appoint the board, and hire the staff (if any). Foundations can enjoy vast latitude in investing and grantmaking, although in general they are required to give away 5 percent of their assets annually. Grants can be to individuals, other charities, or for such direct expenses as conferences, research, and publishing. Foundations can even fund scholarships and prizes and make low-interest loans.

With your own foundation, you can follow Google's example and be as entrepreneurial about giving money as you were about making it. Google has taken entrepreneurial philanthropy to a new extreme, starting a $90 million foundation but dedicating 10 times as much money to a philanthropic venture that isn't officially nonprofit and therefore isn't bound by IRS rules governing charities. The idea is that there are many ways to improve the world, some of which involve profit-making initiatives even if profit isn't the primary goal.

Sam Patterson, 46, is living proof of the democratization of philanthropy. He was one of 19 children, and his father died when Sam was six. To pay for his education at Cheyney University, family members used to pass the hat. Patterson later got an M.B.A. at Wharton and founded Veridyne, a technology consultancy in Broomall, Pennsylvania. Despite his success, he worries about the African American community. To try to help, Patterson used Foundation Source to establish the Veridyne Private Foundation, which now has some $230,000 in assets and supports such outfits as the United Negro College Fund. Patterson says he hopes his young daughters will be involved with the foundation someday if the spirit moves them, and it well might. They raised money for victims of Hurricane Katrina by setting up a neighborhood car wash.

Resources

For more information, visit the Council on Foundations at cof.org, or if you prefer a turnkey approach, try foundationsource.com.
Last updated: Dec 1, 2006




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