Starting a Nonprofit Organization vs. Private Foundation for Fundraising

I've been considering setting up an actual 501(c)(3) nonprofit corporation for raising money for our son's needs and to also funnel more funding to PPMD. I have found similar Duchenne fund websites that do this or something similar. For example, check out Harrison's Fund.

Harrison's Fund is similar to PPMD in that it was started (according to their Mission Statement) to raise money that goes directly to funding research. They don't say anything about using any of the money themselves.

Another that I have found is Walk for Aidan, which does say that they use 50% of the funds raised to help with their son Aiden's needs (to help pay for medical bills, a wheelchair, the eventual remodeling of their home to be completely wheelchair-accessible, etc.) and the other 50% goes to Charley's Fund, another 501(c)(3) nonprofit that directs money to Duchenne research. I can't quite tell if Walk for Aidan is a 501(c)(3) nonprofit itself, as this is not mentioned on their website. On the donate page, it asks to make checks payable to “SHS-Walk for Aidan” and the money is handled through a high school in the Bellevue (WA) School District, and that proceeds raised benefit the Aidan Leffler Trust Fund.

I'm sure there are others like these as well (if you know of any, please post links), but these are the two best examples I've come across lately. The first is obviously a publicly supported organization, while the 2nd is probably more likely described as a private foundation.

Right now we are more than happy to continue raising money that goes 100% to PPMD through our fundraising page here, but eventually we know that we will need more for our own needs (my wife had two siblings with DMD so we know full well what this could entail). That is why I'm considering starting my own nonprofit organization for this. I'm just wondering if anyone else here in the PPMD Community has done this, how difficult was it, did you encounter any stumbling blocks or problems along the way, and if it has been beneficial? Or is this not a good idea and should we instead set up a "trust fund" or "private foundation" (and what would that entail)? Any tips or advice would be greatly appreciated.

Thanks!

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501c's cannot raise money to benefit an individual. It's part of the tax code.

Well, I guess that answers that question! Thanks.

I'm guessing that's why the Walk for Aidan site channels its donations through a school. That way the donations go to his "trust fund" but they're also able to be tax deductible for the donators.

Keith Van Houten said:

501c's cannot raise money to benefit an individual. It's part of the tax code.

Donating through the school doesn't make the donations tax deductible either.   Found this on a quick google search...

 

As a church or nonprofit administration, you must research and know the difference between a tax-deductible gift to an organization and a non-deductible gift to an individual in order to properly and lawfully issue contribution receipts. Here are some points to consider:

  • According to IRS Publication 526, contributions earmarked for a certain individual including those that are needy or worthy are not deductible. However, if an individual gives a contribution to a qualified organization that in turn helps needy individuals, the contribution would be deductible...if that individual does not designate a specific person(s) they want their gift to go to.

 

But, I think when you're looking for smaller donations, most contributors don't necessarily care about the tax deductibility.  Depends on the type of events you're looking at having.  Different answer for $10 a person versus $100 a person.

Jeff,

When Aidan was diagnosed, so many people asked what they could do to help.  Because we knew the upcoming costs would be horrendous, we, as Aidan's grandparents, started a trust fund for Aidan - not a foundation.  As Keith says below, a non-profit can't benefit a single individual, and this was the case with Aidan's trust.  We do not do any fundraising for this trust - people donate because they want to or find the explanation for it off Aidan's website:  aidanleffler.info  Or, as in the case of Sammamish High School students, they do it to help a much admired teacher and his family.  The 50% you mention goes into Aidan's trust.  (It's interesting that today is this year's Walk for Aidan...)  It's taken on a meaning beyond one boy and has become a way for high school students to do an amazing thing - pulling the community together for a cause.  It's incredible and we're honored to be a part of it!

When we do ANY fundraising, it's for an existing non-profit like PPMD or Charley's Fund.  Donations to these do benefit all and are tax deductible.  We decided against starting our own non-profit because there were so many good ones that already existed.  I do know that people who start their own do so, in part, because they have strong, financially capable support groups, and they feel they'd raise more money if they could channel it through their own mission.

Having a trust that benefits the boy with DMD enables families to cope more easily with the financial demands as they come along.  It provides a comfortability, both for the DMD family, and for their close friends and families to know that there will be funds available for expenses.  As Aidan's grandparents and trustees of this trust, we're careful to make sure all expenditures from the trust meet the trust guidelines.

I hope this helps in your thinking.

Judy Schneider

P.S.  The Walk for Aidan is not a 501C3, but a school fundraiser to help a family and a cause.  And to clarify the statement by Jeff, this is not a fundraiser channeled through a school, but a fundraiser by the students themselves - at their own instigation and because they care.  But donations to the trust are NOT tax deductible - just like purchasing items or services through fundraising events are not  deductible for the value of the item or service - only $$ above this value are tax deductible.

Judy - do you know if assets in a trust fund are included in determining a person's eligibility for social security and medicaid benefits? 

Keith,  I am not Judy but the answer is -- assets in a Special (Supplemental) Needs Trust Fund are NOT included in determining a person's eligibility for social security and medicaid benefits.  Here is a link to a short article about these trust funds written by a lawyer specializing in this area.  http://www.bizactions.com/n.cfm/page/e105/key/202324187G2806J531355...

What you need is a SPECIAL NEEDS TRUST ACCOUNT for individuals.  This account will NOT affect the person's SSI or medicaid.  Yes you will need Trustee's. it is good anything but rent and food.  My son uses it for medical supplies, equipment, etc...etc... that is not covered by any of his insurances (including Medicare and Medicaid).   As long as you are registered with the state to solicit funds and have an IRS EIN number you are ok.  And yes, you do have to pay taxes but not much.   I have the paper work if you need for me to email it to you.

That would be great, Dee! Please email whatever you have to kopper65 (at) gmail (dot) com.

I'm curious what the benefit is of setting up a Special Needs Trust Account vs. just soliciting for people to "donate" (give) money via a PayPal account that we can then put into a regular savings account... I mean, is it worth it to go through the rigamarole of setting up this account?

Dee said:

What you need is a SPECIAL NEEDS TRUST ACCOUNT for individuals.  This account will NOT affect the person's SSI or medicaid.  Yes you will need Trustee's. it is good anything but rent and food.  My son uses it for medical supplies, equipment, etc...etc... that is not covered by any of his insurances (including Medicare and Medicaid).   As long as you are registered with the state to solicit funds and have an IRS EIN number you are ok.  And yes, you do have to pay taxes but not much.   I have the paper work if you need for me to email it to you.

We do use a paypal account. it is set up on Tim's web page.   www.muscles4timothy.org  it is very easy to do.

Once you have the paper work done, find who you want to be trustees, have the paper work notarized, you all go to the bank to set it up. 

if you give me a call I can explain it better-as it hurts to type due to my stroke.  352 872 5391.  I"ll be glad to help you set it up. Very easy to do.  

dee

Well, again, I'm more interested in knowing the BENEFITS of setting up a trust vs. just taking money and putting it into savings. Why do the legwork of filling out paperwork and filing it if you don't need to? That's my point. Maybe I'm missing something here...

Dee said:

We do use a paypal account. it is set up on Tim's web page.   www.muscles4timothy.org  it is very easy to do.

Once you have the paper work done, find who you want to be trustees, have the paper work notarized, you all go to the bank to set it up. 

if you give me a call I can explain it better-as it hurts to type due to my stroke.  352 872 5391.  I"ll be glad to help you set it up. Very easy to do.  

dee

Jeff - if you put it in a regular savings account in your son's name, it will impact his eligibility to get Medicaid.  You can't have much in the way of assets and qualify.  The limit is something like $3000.  Assets in a special needs trust don't count towards the limit, but the money is restricted as to what you can use it for.  Medicaid eligibility was particularly important prior to Obamacare passing, even if you have company provided insurance, because many insurance plans only cover your children until age 21.  They're now required to cover them to age 26.  

Basically, the special needs trust is an estate planning tool, so your son can have assets for his care if you're not around, and still get Medicaid.  

You could raise funds and put them in a regular account in your name, but if he outlives you and the assets pass to him - he won't qualify for Medicaid any longer.  For the same reason, you'd name the special needs trust as the beneficiary in your will (after the last surviving spouse passes).

Judy didn't answer the earlier question about whether the trust she has set up impacts Medicaid eligibility.  Special needs trusts are a specific type of trust and do not impact eligibility. I believe a "regular" trust does.  

OK, great. That's what I was after. Thanks for clearing that up. And yes, Dee, if you could email me those forms, I'd appreciate it.

Thanks!


Keith Van Houten said:

Jeff - if you put it in a regular savings account in your son's name, it will impact his eligibility to get Medicaid.  You can't have much in the way of assets and qualify.  The limit is something like $3000.  Assets in a special needs trust don't count towards the limit, but the money is restricted as to what you can use it for.  Medicaid eligibility was particularly important prior to Obamacare passing, even if you have company provided insurance, because many insurance plans only cover your children until age 21.  They're now required to cover them to age 26.  

Basically, the special needs trust is an estate planning tool, so your son can have assets for his care if you're not around, and still get Medicaid.  

You could raise funds and put them in a regular account in your name, but if he outlives you and the assets pass to him - he won't qualify for Medicaid any longer.  For the same reason, you'd name the special needs trust as the beneficiary in your will (after the last surviving spouse passes).

Judy didn't answer the earlier question about whether the trust she has set up impacts Medicaid eligibility.  Special needs trusts are a specific type of trust and do not impact eligibility. I believe a "regular" trust does.  

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