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Family Foundation Pledge

  • 1.  Family Foundation Pledge

    Posted 11-01-2021 02:40 PM


    I have two family foundations, where some of the trustees may be part of both foundations.  For my question, we will refer to them as A Foundation and B Foundation.   If A Foundation makes a pledge, can B Foundation legally make some of the payments to satisfy A Foundation's pledge if they so choose?  Right now, they don't know if that will ever be the case, but they want to have that as an option. 


    I am aware of the self-dealing issue if the pledge happened to belong to one of the trustees of A Foundation. 






    Colleen Hobson

    Senior Director of Advancement Services

    Utah State University

    Tel: 435-797-1285  Fax: 435-797-1364


  • 2.  RE: Family Foundation Pledge

    Posted 11-01-2021 02:59 PM
    Colleen, you will want to seek professional advice from legal counsel.  First, however, here are a few points:
    • You are correct in understanding that self-dealing prohibits a private foundation from satisfying a pledge made by a "disqualified" person.
    • The above is often misunderstood.  It does not preclude a private foundation from paying on any pledge.  A "disqualified" person is someone with a tie to that foundation.  It also applies to government officials.  But it does not apply to Bob or Sue Anybody that has zero connections (including relatives) to the foundation.
    • However, a "disqualified person" can apply to non-persons!  The text on this is too long to cut and paste here.  However, here is a summary:
      • A corporation in which at least 35 percent of the voting power is owned by
        disqualified persons;
      • A partnership in which 35 percent of the profits interest is owned by
        disqualified persons; and
      • A trust or estate in which 35 percent of the beneficial interests are owned
        by disqualified persons
    Given that some trustees are associated with both foundations, I might be concerned even if the above definitions do not perfectly fit.  Hence my earlier suggestion to seek legal counsel.  Ultimately, however, the risk falls on the foundations, not you, if you are directed to apply the payments from one foundation on a pledge by the other.


    John H. Taylor
    John H. Taylor Consulting, LLC
    2604 Sevier St.
    Durham, NC   27705
    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987

  • 3.  RE: Family Foundation Pledge

    Posted 11-01-2021 03:34 PM
    Seek advice of counsel, but I am inclined to believe that they can, even though there are shared trustees between the two foundations. The disqualification rules on paying pledges are ultimately about not allowing a private foundation to benefit a private interest - whether that private interest is embodied as an actual individual, as a company or partnership that is substantially governed by the beneficiary private interest, or a trust that substantially benefits the private interest. In those circumstances, the payment by the foundation leads to a private person or entities/assets that they own/control receiving relief from an obligation. But in the case of a private foundation paying for another private foundation, the relief, the monetary savings, are fully captured by a charitable entity that is itself prohibited from benefitting private parties. The issue of shared trustees goes more towards duty of loyalty among the directors, not towards a disqualified persons issue. 

    To my mind, it is the job of the foundations to offer you the documentation that allows for the payment from B to allow Foundation A's pledge to be fulfilled - an agency agreement, for example. If they have the documentation, great. If not, the credit goes to B.

    Thank you,
    Isaac Shalev
    Data Strategy Expert
    Sage70, Inc.
    (917) 859-0151

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