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Community foundations have become the fastest growing sector of philanthropy. In 2000 alone, the 664 community foundations across America received new gifts over $4 billion and now hold more than $31.5 billion in assets.

In many cities, financial and estate planners are responsible for referring in 90% of these new donors. Many advisors, however, still consider community foundations the “best kept charitable secret.”

What follows is the history, structure, primary products, and benefits of locally-based community foundations with a specific emphasis on how financial and insurance advisors can develop a close working relationship.

Community foundations have existed since 1914. The first one, the Cleveland Foundation, was founded by Cleveland banker Frederick Goff. Goff envisioned a foundation that could administer the endowed charitable interests of numerous individuals while being able to change with the times and achieve economies-of-scale through the pooling of investments and management.

Many of the charitable trusts administered by his bank did not specify a particular charity and many were too small to justify independent management. Goff brought together several banks in Cleveland to create a joint trust–the banks invested the assets while a community board oversaw grants.

Even today, a community foundations primary purpose is to manage and distribute philanthropic capital to a broad range of charitable causes and organizations.

Community foundations may operate under a corporate or trust form and are governed by a diverse group of community leaders. Charitable assets are generally held in component funds that typically bear the donors family name.

Foundation staff oversee the general administration of charitable contributions to, and charitable distributions from, the respective funds. The structure is analogous to hundreds of private foundations managed under one central public charity platform.

While the funds are not private foundations themselves, they are similar in many ways as you can see in Table 1.

Funds may take a number of different forms. For example, Unrestricted Funds are created to meet the most pressing community needs at the time.

Field-Of-Interest Funds make grants in a specific geographical or topical area of interest. A Field-Of-Interest Fund might have as its purpose “to benefit children’s and animal welfare organizations in a particular county.”

Alternatively, Designated Funds benefit one or more specific nonprofit organizations. These are usually designed to create a fund endowing a donors annual charitable giving or for the creation of a perpetual income for a charity.

Finally, Scholarship Funds are created for specific high schools and school districts, universities, geographic areas, occupations, or professions.

Donor Advised Funds, recently the most popular vehicle, are the principal private foundation alternative. The donor or other appointed advisors may recommend distributions of income or principal to U.S. public charities.

In many cases, the community foundation will allow the advisor to appoint successor advisors (e.g. children, grandchildren, etc.) for many generations. Individuals, families, nonprofit organizations and businesses can create donor-advised funds.

The community foundation administers all aspects of grant making–due diligence on nonprofit agencies, check issuance and investments, etc. The community foundation provides all-inclusive investment management as well.

Key Benefits

Knowledge. Community foundations focus on community needs through their grant making activities. This knowledge is valuable to the donor who wants an objective nonprofit evaluation or recommendations for the best possible grantees in a particular field or area.

Perpetual Monitoring/Stewardship. One of the community foundations main purposes is to monitor the nonprofit organizations receiving grants from its funds to ensure that they are in perpetual compliance with the donors original interests.

Simplicity. Unlike establishing and maintaining a private foundation, a fund in the community foundation is very simple to create and operate.

Flexibility. Virtually any type of charitable interest can be facilitated through a community foundation and these interests can be funded with a wide array of assets (e.g. closely-held shares, Sec. 144 stock, real estate, life insurance, etc.).

Efficiency. Small and large gifts are aggregated for investment purposes to achieve economies-of-scale. Most community foundations charge an annual administration fee ranging from .5%-1.5% of assets for all-inclusive services.

Tax Advantages of Public Charity Status. Community foundations qualify as public charities by virtue of the fact they receive “public support” from many donors. Charitable contributions to community foundations, therefore, are eligible for the maximum charitable deduction. Gifts of appreciated property, such as publicly traded securities and real estate, are deductible up to 30% of AGI using the assets full fair market value.

Recognition or Anonymity. Donors may either receive public recognition or remain completely anonymous.

Objectivity. Acting as a conduit or facilitator of philanthropy, community foundations are the means, not the end. Thus, they can work objectively to design a plan that is best for a donors needs.

Many community foundations are launching family philanthropic services that include family meetings, site visits, philanthropic letters of intent, and next generation training. So, for many families, it is very similar to having a retained “private foundation” staff.

As a financial advisor you should be aware that many community foundations have an alliance with American Funds, Merrill Lynch, or other financial services partners where, under oversight of the respective Investment Committees, assets may be managed by the financial advisor.

Furthermore, many foundations are adept at receiving various types of insurance policy arrangements, real estate, partnerships and closely-held stock. Since 664 independent community foundations exist, there are 664 different sets of policies and thresholds, but most tend to work best with funds between $25,000 and $3 million. Certainly there are thousands of examples of much smaller or much larger funds as well.

Financial professionals should make sure that local community foundations do not continue to be the “best kept charitable secret.” Visit www.communityfoundationlocator.org to find the foundation serving your community.

Discover the resource you have in your community for any charitable question you or your clients might have.

Bryan K. Clontz, CFP, CLU, ChFC, AEP, is vice president of advancement at The Community Foundation for Greater Atlanta. You can e-mail Bryan at bclontz@atlcf.org.


Reproduced from National Underwriter Life & Health/Financial Services Edition, December 3, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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