Transcript GIFT Boot Camp Unit 1 - CF Basics-2014

A SIGNATURE PROGRAM OF
INDIANA GRANTMAKERS ALLIANCE
COMMUNITY FOUNDATION BOOT CAMP
UNIT 1
COMMUNITY FOUNDATION
BASICS
DEFINITION, ROLES AND HISTORY
DEFINITION OF A U.S. COMMUNITY FOUNDATION
 Nonprofit, tax exempt
under section 501(c)3
 Goal of building
permanent endowment
funds
 Independent, nonsectarian governing
body
 Focused within a
defined geographic area
 Publicly supported by
many unrelated donors
 Grantmaking is not
limited by field of
interest or to specific
populations
ADDITIONAL CHARACTERISTICS OF U.S.
COMMUNITY FOUNDATIONS
 Responsible and accountable to the community
 Governing body representative of the area
served
 Has a well-defined, articulate mission
 Meets public support test
 Variance power
COMMUNITY FOUNDATIONS – THE REALLY BIG PICTURE
GOVERNING BOARD
Sets Goals, Direction, Policy
STAFF
Implementation, Operations
DONORS
 Individuals
 Corporations
 Private foundations
 Charitable
organizations
GIFTS come in
different forms
 Cash
 Appreciated
Securities
 Real Estate
 Closely held
securities
 Personal property
 Life insurance
 Retirement assets
 Wills and bequests
These are community
foundation ASSETS
GIFTS are placed into
a FUND
 Unrestricted
 Donor Advised
 Field of Interest
 Designated
 Scholarship
 Agency
Funds are governed
by the FUND
AGREEMENT
INVESTMENTS
PAYOUT/DISTRIBUTIONS
 Investment
Policy
 Spending
Policy
 Grants for charitable
activities
 Administrative fees to
support CF operating
budget
Community
foundation
FISCAL
RESPONSIBILITY
Fulfilling DONOR INTENT
Through this activity, a community foundation gains connections, visibility, knowledge, creditability,
influence and resources to provide COMMUNITY LEADERSHIP
COMMUNITY FOUNDATION ROLES
 Permanent Endowment Building
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Develop relationships with donors
Invest and protect the principal of donor gifts
Distribute earnings from these gifts based on charitable intent of the donor
Build a permanent resource for the future
 Broad Flexible, Grantmaking
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Understand community needs
Re-direct charitable dollars over time and as community needs change
Strengthen existing organizations
Bring new and innovative charitable organizations into existence
Can be proactive or responsive
 Community Catalyst
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Convener, facilitator and collaborator
Promoter of philanthropy
HISTORY OF COMMUNITY FOUNDATIONS
 1914 - The first community foundation was established in
Cleveland, Ohio. Within five years, community foundations
formed in places like Indianapolis, Chicago, Boston,
Milwaukee, and Minneapolis.
 1969 - the Tax Reform Act of 1969 contributed to the rapid
growth of community foundations as private foundations
becoming more strictly regulated and community foundations
became a more attractive option for many donors.
 In the 1990s, commercial financial services firms, such
as Schwab, Fidelity and Vanguard, began to offer donoradvised funds.
HISTORY OF COMMUNITY FOUNDATIONS
 Historically, the tradition was that donors
left bequests to community foundation
endowments.
 In recent years there has been tremendous
growth in donor advised funds (DAFs) and
other funds which support more active
giving, where living donors advise the
foundation about granting the funds.
 There are over 800 community foundations
in the United States and about 1,400
existing around the world.
PROVIDED BY CF INSIGHTS
GIFT HISTORY
Created in 1990 by Lilly Endowment Inc.
 Establish permanent charitable assets across
Indiana
 Support local communities and build civic
participation
 Series of 5 grant phases over first several years
 Additional programs – Taking Stock, CAPE, SRD,
interns
 Unique program in community foundation world
 Currently Indiana has 74 legal entities covering all
counties in Indiana
 All Indiana CFs - Over $2 billion in assets
TAX CODE BASICS
WHAT DOES CHARITABLE MEAN?
Charitable (generous)
IRS Charitable (tax deductible)
Nonprofit
Charitable
TAX-EXEMPT ORGANIZATIONS – 501(C)
 Charitable – 501(c) (3)
 Civic leagues – 501(c)(4)
 Business leagues, chambers of commerce, real
estate boards – 501(c)(6)
 Social, recreational clubs – 501(c)(7)
 Fraternal benefit societies & associations – 501(c)(8)
 Cemetery associations – 501(c)(13)
 Credit unions – 501(c)(14)
 Veterans organizations – 501(c)(19)
Note: These types of organizations may have a related
501(c)(3) organization (foundation) for its charitable
activities.
CHARITABLE – 501(C) (3)
 From US Tax Code…”organized exclusively for religious,
charitable, scientific, testing for public safety, literary, or
educational purposes, or to foster national or international
amateur sports competition, prevention of cruelty to
children or animals…”
 Contributions are deductible as itemized charitable
deductions and also qualify for the gift tax and estate tax
charitable deductions
CHARITABLE – 501(C) (3)
1. Public charities (other than private foundation) under
Code section 509(a)
• Traditional public charities – 509(a)(1) – hospitals, educational
organizations, churches and governmental units. Community
foundations are this type of charity.
• Publicly-supported organizations – 509(a)(2) – receive at least 1/3
total support from governmental units, general public and/or fees
from related activities and not more than 1/3 from investment
income (the “public support test”). Supporting organizations –
509(a)(3) – take their tax status from the charity(ies) they support
2. Private foundations
Section 501(c) – Tax Exempt
Organizations
Public Charities
501(c)(3)
Mutual Benefit Orgs
• 501(c)(4)-Civic leagues
• 501(c)(6)-Business leagues,
chambers of commerce, real
estate boards
• Others
Traditional
Charities
509(a)(1)
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Hospitals
Schools
Churches
Government
Community
foundations
Private Foundations
501(c)(3)
Publicly
Supported
Charities 509(a)(2)
• One-third of charity’s
support is from the
general public
Supporting
Organizations
509(a)(3)
WHAT IS “VARIANCE POWER”?
Variance Power:
A distinguishing characteristic of community
foundations, the variance power permits the
community foundation’s governing body to
redirect resources in component funds if it
determines that the donor’s restriction is
unnecessary, incapable of fulfillment or
inconsistent with the charitable needs of the
community or area served.
UMIFA (UPMIFA)
 The Uniform Management of Institutional Funds Act (UMIFA) was a
pioneering statute, adopted in 1972, providing uniform and fundamental rules
for the investment of funds held by charitable institutions and the
expenditure of funds donated as “endowments” to those institutions.
 In 2007, UMIFA was changed to include the word ‘prudent’ (UPMIFA). The
UPMIFA (UMIFA in Indiana) now allowed the boards of institutions with
endowment funds to spend principal of endowment funds when considering
the following elements:
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Duration and preservation of the endowment fund
Purposes of the foundation and the endowment fund
General economic conditions
Possible effects of inflation or deflation
Expected total return from income and appreciation of investments
Other resources of the foundation
Investment policy of the foundation
PENSION PROTECTION ACT (PPA) OF 2006
Senate Finance Committee review of abuses in
the charitable sector:
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Abuse of donor-advised funds
Over-valuation of non-cash gifts
Control by donors over scholarships
Personal benefit by donors
Misuse of supporting organizations
And other problems!
CONFLICT OF INTEREST
 Board members have a legal obligation to act in the best
interest of the organization
 A “conflict of interest” occurs when personal interests
prevent a board member from making an impartial decision
 Can be financial or non-financial
 Written conflict of interest policy ensures that public trust is
not violated
 Policy should include procedures on • Disclosure
• Recusal from discussion or voting
KEY LEGAL DOCUMENTS
Articles of Incorporation:
A document filed with the secretary of state by
persons establishing a corporation establishing the
purpose of the corporation.
Bylaws:
Rules governing the operation of a nonprofit
corporation, developed according to state law
requirements. Bylaws provide the methods for
selecting directors, creating committees, and
conducting meetings.
KEY LEGAL DOCUMENTS
Minutes
Official written record of the community foundation’s
business. All important decisions made by the community
foundation should be documented in the board minutes as
stated in the National Standards section on Mission,
Structure and Governance. Examples include approval of:
 new policies
 new funds
 changes in funds
 budget adoption
 payout percentages, etc.
 board member abstentions and recusals
 grant and scholarship recipients
KEY ORGANIZING MATERIALS
Strategic Plan:
 Sets forth direction and goals over a multi-year
period; guides the development of the Annual
Work Plan
Annual Work Plan:
 Outlines specific activities and tasks that support
the Strategic Plan; guides the development of the
Annual Budget
Annual Budget:
 Defines the revenue and expenses needed to
accomplish the Annual Work Plan
NATIONAL STANDARDS FOR COMMUNITY
FOUNDATIONS
The National Standards include:
 Definition of a U.S. Community Foundation
And standards in each of these categories:
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Mission, Structure and Governance
Resource Development
Stewardship and Accountability
Grantmaking and Community Leadership
Donor Relations
Communications
*The standards referral sheet is a separate handout