It’s always been possible for individuals to give money to friends and family, and if they follow certain guidelines from the IRS, it can be a tax-free gift to the recipient. But not tax-free for the giver. And that’s fine. We aren’t moved to help our friends and family for the tax benefits.
That said, I’ve seen many cases where close family want to set up a fund so a larger circle of friends can contribute, and even local businesses. People ask me if they can set up a charity to help pay Jane’s or John’s medical expenses. Unfortunately, community foundations or Donor-Advised Funds can’t host this kind of fund: it’s not considered a charitable purpose to provide aid to a single person. And although private foundations can make grants directly to individuals suffering this kind of hardship, the process is not well understood and avoided by most foundations.
But a new 501(c)(3) charity was established in Puyallup, Washington that may be a perfect solution for some families and individuals. It’s called The Lighthouse Community and, as confirmed by Jeff Haskell, Senior Vice President, Tax & Legal Affairs at Foundation Source, their model works for a number of reasons. See their web site for the full details, but in short here’s what Jeff explained:
- “You can not set up a charity to benefit any one individual. This is clear as crystal, because the charitable class must be broad. It’s not uncommon, though, to set up a a benevolence-type fund in which the organization sets forth criteria to help people with serious medical/life-threatening issues; this is permitted because the class is open-ended.
- “The foundation [or individual donor] may be able to recommend that the funds be applied to alleviate a particular person’s suffering…but the charity must have the ability to disregard the request and spend the grant funds as it sees fit. The charity would need to make its own need assessment, etc., to see if the person recommended for assistance fits the charity’s criteria, etc.”
According to The Lighthouse Community (TLC) site, the TLC community includes individuals with one of four afflictions: cancer, AIDS/HIV, ALS (Lou Gehrig’s disease) or Alzheimer’s. The site is awfully light on details (a real shame) but a column by Dan Voelpel in The News Tribune of Tacoma (available here), explains the process this way:
“How to apply: Prospective clients fill out an application. A caseworker conducts criminal history check, obtains credit report and verifications from applicant’s family doctor, specialty doctor and employer. A TLC committee of three reviews the records and either approves or denies application. If approved, TLC assigns client a predetermined level of financial need, a public Web site to communicate with client’s personal network of family, friends and co-workers; and a caseworker.
How it works: Donors make tax-deductible contributions online through an assigned PayPal account. TLC makes some household expense benefit payments monthly to clients and pays some major treatment costs to care providers. If a client dies, TLC pays a $5,000 memorial benefit then allocates unspent contributions to other clients. TLC’s administrative expenses get covered by a 5 percent deduction from corporate and individual partner sponsorships.”
As you can see, they have designed their processes to meet the IRS requirements. They received a favorable ruling from the IRS in late 2006. At this point, I feel confident that donations to TLC are tax-deductible. To be clear, I’ve not seen their financial statements or tax returns (not posted yet) and cannot attest to their operations, but perhaps others can comment if they have had any direct experience with donating or receiving funds through the organization?
I want to thank the family of Pat Medved, who brought TLC to my attention. Pat’s been diagnosed with stage 4 lung cancer and he and his wife Bernie had found Lighthouse. You can read Pat’s profile on TLC here. Pat’s brother Jerry is a partner with Foundation Source, and it was Jerry who asked Foundation Source to check out TLC to reassure his family that this was a legitimate operation. Foundation Source was more than happy to do so. Many thanks to the entire Medved family for letting us share your discovery with the world.
2/6/09: Pat Medved passed away last week. His brother Jerry shared the link to a wonderful description of Pat’s life, and you can click here to read it. You can also go to www.gaffneycares.com to leave condolences for the family.
Services will be held at 11 AM, Sat Feb 14 at St. Leo’s in Tacoma with a reception to follow at the Titlow Lodge in Tacoma. In lieu of flowers, Please offer donations to Franciscan Hospice.
