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.