Clients who wish to leave a portion of their estate to their private foundations (PFs) must carefully consider the self-dealing rules, particularly when a donor carries a significant percentage of their wealth in illiquid assets, such as family business interests or tangible personal property like art or other collectibles. Non-pro rata distributions often are appropriate for these assets because some beneficiaries may be more capable of managing them than others. This is especially true for closely held business interests and real estate that otherwise might be owned by a charitable beneficiary as a PF.

Notwithstanding estate-planning counsel’s encouragement to plan for the lifetime dispositions of these assets, the client may fail to ac…