About Community Foundations

Community Foundation Basics

What is a community foundation?

A community foundation:

• Operates as a nonprofit philanthropic organization with tax-exempt 501(c)3 status that is independent and is publicly supported.
• Builds permanent, named funds established by separate donors that are managed for a fee by the foundation.
• Distributes funds to local nonprofit organizations that serve a specific geographic area or region.

What is the role of a community foundation?

Often referred as a three-legged stool, a community foundation’s role includes fundraising, grantmaking, community leadership and building a lifetime pool of community-focused donors.

The functions of a community foundation include:

• Building and managing permanent, long-term endowments (gifts from donors that require the principal be intact and invested to create a source of income for the foundation.)
• Providing a centralized vehicle to help donors achieve their giving strategy goals
• Making broad-based grants to local nonprofit organizations (keeping the gift “local”)
• Serving as community leaders by leveraging resources and bringing together organizations to solve local community problems

How does a community foundation work?

Community Foundations are governed by a board of directors and managed by professional staff – (Executive Director and Fund Development).  Operating expenses are paid through management fees, grants and partnerships and from gifts from donors designed to build capacity to ensure long-term viability and sustainability.

Why should people work with community foundations?

Community Foundations remove the worry and complications of establishing a community giving component to a donor’s estate planning process.  Community foundations handle all tax filings and bookkeeping and ensure that donors receive the maximum allowable tax benefits at the state and federal level.  By pooling donations with other gifts, we multiply the financial strength of investments that provide long-term returns to donors and local communities.

Contributions from caring, local individuals, families, and businesses are given to community foundations in a variety of ways including establishing separate named funds for specific purposes:  to support local education or health, to fund a scholarship for local students, or to endow a local nonprofit organization.

What is the difference between a community foundation and other types of foundations?

Community foundations differ from private foundations (family foundations) in that they are supported from a broad group of individuals, families and corporations versus single individuals, families or businesses.  (Think Bill & Melinda Gates Foundation).  Also, private foundations are usually endowed with very large sums of money – in the millions.

Because community foundations are classified by the IRS as a publicly-supported charities (donations from a large group of supporters), they receive tax benefits not enjoyed by other types of foundations.

How do community foundations differ from other nonprofits?

Most nonprofit (United Way, Habitat for Humanity) provide direct and specific services to the community such as feeding the hungry, providing shelter or building homes.  Community Foundations have a broader mission that involves improving the lives of those who live within a specific area or community.

The biggest distinction between community foundations and nonprofits is that community foundations support an expansive group of nonprofits who provide much needed services and programs in their community versus a singular focus.   Some nonprofits also rely on annual fundraising campaigns that involve employee donations from local businesses and the money is used within that same year.

Community foundations focus on establishing permanent, long-term endowments. Most nonprofits do not attempt to manage endowments or long-term funding and often partner with community foundations to help manage these types of gifts.

Is there any conflict of interest between community foundations and professional advisors such as estate planners, attorneys or CPAs?

No.  The relationship between community foundations and professional advisors is crucial.  As part of the estate planning process, community foundations work very closely with professional advisors to create a personalized, simple giving strategy for donors at all income levels.

What is “planned giving?”

Planned giving is the process of creating a plan that allows donors to give to their favorite charity during or after your lifetime while meeting current income needs and providing for their heirs.  Community foundations know their local communities and can help donors match their interests with community-based nonprofits – while taking the worry and stress of managing charitable gifts.

What kind of gifts do community foundations accept?

Community foundations provide many ways donors can give including:

• Outright Gifts: Cash, stocks, real estate and other assets.
• Bequest by Will: Designate a portion of your estate in your will
• Charitable Lead Trust: Allows payments to a community foundation for a set amount of time before distributing remaining assets to individuals.
• Charitable Remainder Trust: Allows payments to one or more individuals, with remaining assets that can be transferred to community organizations.

What kinds of giving options are available to donors?

Donors can establish funds in their name, family’s name or the name of any person or organization(s) they wish to honor.  Once that fund is established, grants can then be distributed from that fund and awarded to local organizations.  Named funds can be created in any of these categories:

• Unrestricted Funds: Used to support the ever-changing needs of the community
• Field of Interest Funds: Used to support a specific area or cause important to a community (Arts,    Underserved Youth, Recreation)
• Donor Advised Funds: Designed to keep donors actively involved in causes that are most important to them by recommending eligible nonprofits for grants from the fund
• Designated Funds: Used to direct available grant dollars to specific organization(s) in perpetuity
• Non-endowed Pass-through Funds: Used for special projects that use the entire principal in the fund by a certain date.