Establishing a foundation can be a good way for you to use your wealth to create a legacy of philanthropy. You can do some good in the world, be recognized for it, and enjoy tax savings. A private foundation is one manifestation of tax-exempt charitable organization recognized by the Internal Revenue Service (the other is a public charity).
A foundation is a nonprofit organization that is typically created by a single donation. And although the donor can continue to fund the foundation, a foundation is designed to survive in perpetuity without the need for further funding. Trustees are established to run the foundation who invest the funds, and the earnings on the invested donations are then used to fund charitable operations.
Private foundations have the option of creating their own charities and funding them through grants, (a "private operating foundation") or using those grants to fund other charities ("private non-operating foundations").
When you contribute to a foundation, your donation is tax-deductible. There are other tax benefits as well. When you donate an appreciated property to a fund, no capital gain is realized. If your donation was appreciated stock in publicly traded companies, you can claim a charitable deduction for its full market value. These donations do not typically implicate the imposition of estate taxes, either.
You can also provide some income to family members—the foundation can compensate them if they provide services to the foundation.
To get these benefits, you must be willing to issue grants every year amounting to at least 5% of the net investment assets. And foundations are subject to an excise tax of between 1 and 2%.
If you're interested in immortalizing your name through charitable giving, a foundation may be right for you.