Helping foundations and endowments satisfy payout of total assets
All private foundations must annually satisfy a payout requirement of 5% of total assets. Rather than simply selling assets and then distributing proceeds, one family foundation sells options on foundation assets. This strategy can preserve the foundation’s securities, enabling them to continue to grow in value, while making the foundation even more valuable and impactful.
Foundations are tax-exempt, so no virtually tax liability is generated. Please contact your tax advisor for more information.
The following illustration describes a family foundation with $50 million that is required to pay $2.5 million annually. In this example, the $2.5 million in spending need could be fulfilled if by selling 6,411 options over the course of one year, at a net average price of $3.90. In this way, no assets would be sold and income generated elsewhere in the portfolio could be reinvested or distributed.
This case study is also available in printable PDF format.