Private Foundations

Contents

1. What makes a foundation private
2. The rules it lives under
3. The foundation beside a donor advised fund
4. Family foundations and the next generation
5. Omaha’s foundations
6. Sunsets and spend downs
7. What comes next for it

PlaySmart and Angels Among Us are two of the Omaha causes Brent O’Mara supports, and much of the money that reaches organizations like them in this city comes from a kind of charity measured in percentages. The unit is a share of assets. Candid, the research organization that tracks grantmakers, explains that a private foundation’s money comes from a family, an individual or a corporation, and that it must meet an annual payout requirement: at least 5 percent of the market value of its assets, given away every year.³ A second percentage draws the boundary from the other side. A public charity must show that a third or more of its support comes from the public rather than from one source, or the Internal Revenue Service may reclassify it as a private foundation, an outcome known as tipping.⁴ Between those two numbers sits the whole category.

What makes a foundation private

The legal definition works by exclusion. The Internal Revenue Service states that every organization exempt under section 501(c)(3) is a private foundation unless it falls into one of the categories specifically excluded from the term, which are the public charities.¹ Within the category the service distinguishes private operating foundations, which run their own programs, exempt operating foundations, and grant making foundations, the familiar kind that funds other organizations.¹

The rules it lives under

Because its money comes from one source, a private foundation answers to rules that public charities do not. The service’s life cycle guide maps them from formation to termination: organizing documents with required provisions, an application for exemption, an annual return on Form 990 PF, and a set of excise taxes that apply only to private foundations, on net investment income, on self dealing between the foundation and its insiders, on failure to distribute income, on excess business holdings, on investments that jeopardize the charitable purpose, and on taxable expenditures such as lobbying.² Candid’s description of the work matches: a founder who starts one is running a nonprofit that must report to the IRS, follow legal guidelines, seat a board, manage its investments and write the checks.³

Figure

A foundation's life cycle

1. 01
   Starting outOrganizing documents with required provisions, bylaws, an employer identification number and state charity registration.
2. 02
   ApplyingAn exemption application under section 501(c)(3), a user fee, and a determination letter.
3. 03
   FilingAn annual return on Form 990 PF, unrelated business income returns where needed, and employment taxes.
4. 04
   Ongoing rulesExcise taxes on net investment income, self dealing, failure to distribute income, excess business holdings, jeopardizing investments and taxable expenditures.
5. 05
   Significant eventsReporting changes, letter rulings, examinations and, eventually, termination.

The foundation beside a donor advised fund

Most families weighing a foundation are really weighing it against a donor advised fund; Kiplinger laid the trade out point by point. A foundation lists every grant on a public return tied to its name and board, where a fund sponsor discloses its grantees but not which account gave. A foundation gives the family complete control as its board, where a fund donor cedes ownership and keeps only the right to advise. Gifts to a foundation are deductible up to 30 percent of income for cash and 20 percent for stock, against 60 and 30 for a fund, and foundations may owe excise tax on investment gains.⁵ Foundations must pay out 5 percent of assets each year and funds need not; foundations can run scholarships and sponsor events with some family benefit, which funds cannot.⁵ On size the gap is wide: a fund opens for $1,000 to $25,000 on a simple application, while experts generally suggest a foundation needs $5 million to $15 million to be worth its start up and legal costs.⁵ Both can run forever or carry a sunset, and the article’s conclusion was that many donors use both.⁵

Figure

A foundation beside a donor advised fund

	Private foundation	Donor advised fund
Privacy	Every grant listed on a public Form 990	Sponsor lists grantees, not which account gave
Control	Donor and family sit as the board	Donor advises; the sponsor can say no
Deduction for cash gifts	30 percent of adjusted gross income	60 percent
Deduction for stock	20 percent	30 percent
Required payout	5 percent of assets a year	None in law
Practical minimum	Experts suggest $5 million to $15 million	$1,000 to $25,000 to open

Family foundations and the next generation

A foundation built to last indefinitely needs successors. The Wall Street Journal’s reporting on family foundations found that heirs step back when the causes feel foreign to them, when a parent dominates the board, or when a nonprofit demands hours and training they do not have, and it recorded the practices foundations use in response, starting with passing down the account of why the foundation exists.⁶ Whether a family should form one at all depends on each family’s circumstances, and the answer is best worked out with qualified professionals in estate law and tax. The wider research on how families give together is gathered in family philanthropy.

Omaha’s foundations

Omaha is a city shaped by this kind of charity, and the city’s giving has its own entry in philanthropy in Omaha. The largest local example began with a will. The Omaha World Herald recounted that Peter Kiewit, who had built an Omaha construction company into one of the country’s large engineering firms, died in November 1979 and directed most of his estate, valued at about $150 million once liquidated, into an educational and charitable foundation focused on Nebraska, Omaha and western Iowa, conceived as a thank you to the people who had made the company succeed.⁸ The foundation grew to assets of roughly $480 million, distributed between $25 million and $50 million in grants a year and put more than $225 million into downtown Omaha alone.⁸ By 2024 it had seated its third generation of trustees, none of whom had known the founder.⁷ The Omaha Community Foundation, a public charity rather than a private one, counts twenty affiliated supporting organizations, many of them family foundations formed for the sole purpose of furthering its mission.¹⁰

Sunsets and spend downs

The question Omaha’s foundations are now answering is whether to outlive their founders, and several have decided not to. The Flatwater Free Press reported in December 2024 that a group of the city’s largest family foundations, two of them tied to its best known investing family, meant to exhaust their endowments and close, some on timetables already running.⁷ The Kiewit Foundation’s executive director described the reasoning as doing the good one can do now and solving today’s problems with today’s money, and a Council on Foundations lawyer told the paper that closing, historically the road less taken, was gaining favor among foundations anxious to honor donor intent rather than drift from it.⁷ The World Herald supplied the mechanics: the trustees would exhaust the endowment by 2030, concentrating on a few large projects rather than sprinkling grants over time, and would work alongside about four dozen partner nonprofits that relied on its operating support so that, in the director’s words, the foundation did no harm on its way out.⁸ Minutes from 1975, when an Omaha lawyer helped draft the trust, showed the founder himself weighing a life of 25 or 50 years for the foundation.⁸

Figure

The Kiewit Foundation in numbers

estate left to create the foundation in 1979

$150 million

assets held when the spend down was announced

$480 million

typical annual grants

$25 to $50 million

year by which the endowment is to be exhausted

2030

What comes next for it

Not every foundation is closing. The Lozier Foundation, with assets above $450 million in 2022, means to continue indefinitely, partly to offset the departures of its peers and to keep working on problems such as homelessness that its trustees expect to persist.⁷ The Scott Foundation told a 2025 forum that its own wind down, once set at fifteen years after a co founder’s death, would likely stretch to twenty, and its president urged nonprofits that lean on three or four large funders to broaden their support before those funders disappear.⁹ The Sherwood Foundation, which receives one stock payment a year from its benefactor’s family and aims to grant it within the year, expects a far larger inflow in time and has said its focus will stay local.⁹ New names are arriving as old ones depart: a family foundation funded by a bequest in 2022 moved at once into the upper tier of Omaha giving and in one year supported roughly seventy five groups working on social justice, mental health, youth and the arts, under a grandson of its founders.⁷ Nonprofit leaders quoted by both papers were split on whether the coming donors will match the pooled, collaborative habits of the departing ones.⁷ The percentage that defines the category, 5 percent of assets every year, assumes a foundation means to last; a growing share of Omaha’s have decided that the better measure is everything, over a decade, and then nothing.