The Family Foundation and the L3C
This edition of the Family Office Association Newsletter features insights on The Family Foundation and the L3C by Marc J. Lane, The Law Offices of Marc J. Lane, P.C.
The social sector is facing enormous challenges. Government support has dried up as staggering budgetary shortfalls divert federal and state resources toward basic services. The recession has taken its toll on philanthropy while philanthropic need is greater than it has been at any me since the Great Depression: The Chronicle of Philanthropy recently reported that charitable giving is down nine percent this year. And the stock market’s plunge has devastated endowments and the grants they fund.
In response, many charities are turning to earned- income strategies to help replace their lost revenue, and more and more social-purpose businesses are being organized every day. Social Enterprise Alliance, a public charity on whose board I sit, is collaborating with the Obama White House to foster private- sector solutions to drive positive social change and to ameliorate social problems.
Families of wealth are also giving serious thought to their role as agents of change. And an underutilized, 40-year-old economic opportunity to empower the family foundation is gaining new currency.
It’s well known that, as a trade-o for the tax benefits they enjoy, foundations, including family foundations, are obliged to distribute five per cent of their assets every year for charitable purposes. That’s what accounts for the feverish competion for grants in which charities engage.
What’s less well known is that the same law, the Tax Reform Act of 1969, gives foundations an alternative. Rather than distributing grants totaling five percent of assets annually, they may instead make “program- related investments,” or “PRIs,” of five percent each year, or a combination of the two. PRIs can take the form of interest-free or below-market loans, loan participations or guarantees, letters of credit, or even equity investments in for-profit businesses.
View the Newsletter in full: Newsletter: The Family Foundation and the L3C