When I’m teaching grant-writing workshops outside the U.S. the participants sometimes ask me a very basic question: “Why do foundations give away money?” My answer is that in the United States, people who accumulate large amounts of wealth naturally want to see that wealth stay aggregated in one lump sum after they are gone. (I think it makes them feel better to know that their wealth will continue doing good things for the world long after they are gone.) So, while they cannot take this wealth with them, they can take steps to make sure that it continues to have a powerful influence.
The U.S. government makes it attractive for people to leave behind large aggregations of wealth by transferring these assets into private foundations. One advantage for the donor is that they do not have to pay the government quite so much in taxes if they transfer their wealth to a private foundation. Under some circumstances, they may even be able to benefit themselves and their families by establishing a private foundation.
The federal government does not provide this wonderful option for free. The price of having your wealth preserved in perpetuity by a private foundation is that it will be required to disburse 5% of the proceeds from its investments each year.
These gifts, or grants, must be made to charitable organizations. As a grant writer, I find it comforting to know that the foundations I appeal to are required to give away large amounts of money. I figure the recipients might as well be the clients I represent.
