Classifying An Asset for Charitable PurposesClassifying An Asset for Charitable Purposes

Many are unaware that the assets of a private foundation (PF) can be categorized as held for either investment or charitable purposes. However, the classification as one or the other can be of crucial importance to a PF. A PF’s investment assets are included in its asset base in calculating its 5% annual minimum distribution requirement (MDR), whereas assets used—or held for use—in carrying out a PF’s charitable purposes are excluded from such asset base.

Some may be under the impression that the assets of a PF are automatically deemed to be held for charitable purposes because, after all, the PF is an Internal Revenue Code Section 501(c)(3) charitable organization. However, while the income from investment assets, such as stocks or bonds...