4. Foundations and Charities
Chapters in this video
- 0:00 Meet Carl the private foundation and Iris the public charity
- 1:29 Private foundation number traps: 5% rule, 30% excise tax, and 1.39% investment tax
- 3:18 The public charity difference: no mandatory distribution minimum
- 4:06 UPMIFA, the great equalizer: total return and prudent spending
- 5:05 Advisor endowment strategies: the spending versus growth tightrope
- 5:37 Rapid-fire exam recap
What this video covers
- Why private foundations must distribute at least 5% of non-charitable-use assets annually, and how to calculate the base (fair market value net of acquisition debt)
- The 30% excise tax penalty on undistributed amounts when a private foundation misses its 5% minimum, and why liquidity planning is essential
- The 1.39% excise tax on net investment income that applies only to private foundations, not public charities
- The jeopardizing investment rule: what makes an investment too risky for a private foundation and how it differs from normal prudent investor standards
- Why public charities have no mandatory distribution minimum, and how the exam baits you into applying the 5% rule to the wrong entity
- How the Uniform Prudent Management of Institutional Funds Act (UPMIFA) applies to both foundations and charities, mandating total return (income plus appreciation) and purchasing power preservation
- The adviser balancing act between spending rate, growth, liquidity, and inflation protection when managing endowment assets for each client type
Read the full lesson, free
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