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If you want to make a real difference in your community and build a lasting legacy, private foundations can be a valuable tool for accomplishing those goals. They allow you bring your charitable visions to life and retain control over how assets are distributed, while also offering significant tax benefits.

There are no hard and fast rules for the level of funding needed to start a family foundation. However, a good rule of thumb is that establishing a family foundation becomes viable when more than $1 million in assets is involved.

Generally, you’ll retain control over the grants the foundation makes. You might use grants to support issues you believe in, including causes related to the arts, education, the environment or social issues. However, the IRS forbids using foundation assets for personal benefit.

Tax planning is an important part of the creation of private foundations. You’ll receive income-tax relief and favorable capital-gains treatment of certain donated assets. In addition, donated assets are not treated as part of your estate for estate tax purposes.

Private foundations differ in important ways from public charities. While public charities solicit donations from multiple sources on an ongoing basis, private foundations are funded by you and/or your family.

What’s more, public charities use their money to carry out clearly defined activities. Family foundations, on the other hand, serve as grant-making organizations that provide funds to public charities and other organizations. By law, private foundations must make grants each year representing at least 5% of their average assets for the previous year.

To establish a private foundation, you first need to set up a corporation or trust. This entity must then apply to the Internal Revenue Service (IRS) for tax-exempt status and file forms in each state in which it plans to operate.

Once up and running, your foundation will need to navigate a complicated set of legal and regulatory rules. The rules governing private foundations include both federal- and state-specific requirements.

Private foundations need to complete a variety of annual compliance activities each year, including filing tax returns and paying federal excise tax based on investment income. Foundations also need to validate the tax status of grantees, calculate distribution requirements, document their activities and register fundraising events with state regulators. Many private foundations work with legal and financial professionals to ensure their activities comply with all laws and regulations.

You may choose to establish a mission and purpose for the foundation after reflecting on your personal values as well as community needs. Setting the right grant-making criteria is also crucial to making a difference in line with the foundation’s purpose. This may include a regional focus or a requirement that grants be focused on a specific cause.

Your foundation can further its mission by holding assets that earn market returns and drive social impact. For example, a foundation with an environmental focus might invest in a solar panel manufacturer both because its products help reduce greenhouse gas emissions and the company’s sales will benefit from a growing demand for clean energy products.

You can measure your foundation’s impact by setting clear goals, such as how much CO2 its clean-energy initiatives prevent from being produced. You also can collect feedback from community groups, ask outside experts to evaluate your efforts and publish reports about the social impact you have helped generate.

To be effective, your foundation will need strong leadership. Consider assigning board roles, including president, treasurer and secretary. Directors or trustees, who may be family members but also can include trusted outside individuals, manage the foundation’s investments, complete the required federal and state reporting, review grant applications and ensure grants are given to proper recipients.

Foundation leadership also may hire paid staff to manage day-to-day responsibilities. Family members can serve as staff, but it’s important to establish clear responsibilities and set pay at an appropriate level since the law requires that insiders be paid no more than what is “reasonable and necessary.”

With careful planning and oversight, your family foundation can be a powerful tool for making a lasting difference while maintaining control over how your charitable dollars are used.