Transcript CCAE PRESENTATION

Starting A Foundation:
Guidance for Advisors
Hilary Pearson
President & CEO
Philanthropic Foundations Canada
October 2008
Outline of Presentation
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Overview
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The Canadian foundation sector
Starting A Foundation
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Why Give?
Giving Options
Key Questions
Advice for Advisors
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Overview:
The Foundation Sector in Canada
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Over 9,000 registered grant making Canadian foundations
(all types)*
Of these, half are family foundations
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Others include community, institutional, corporate and special
purpose foundations
Assets of private foundations total about $15 billion (another
$14 billion for public foundations)
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Few have assets of more than $50 million
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Majority of family foundations have assets under $10 million
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From 2006-2008, the number of private foundations increased
by 7%
Source: Imagine Canada
Note: The total number of CRA registered public and private foundations is over 9,300.
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Types of Foundations
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Public foundations (about 4,800)
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Community foundations (150 + across Canada)
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Institutional foundations (hospitals, universities etc.)
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Donor-advised foundations
Private foundations (about 4,500)
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Mostly family
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Some independent (not controlled by families)
Key difference between public and private foundations:
– Control by individual or family at time of registration (Board
membership)
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Family Foundation Profile
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Family foundations are diverse
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Most are over $1 million but under $10 million in
endowment
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Typically run by family board
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Governed by federal regulations
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Must give to registered charities (not individuals)
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3.5% minimum annual distribution
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Annual report tto Canada Revenue Agency
No restrictions on investment strategies other than
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No control of a business
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Excess business holdings rules
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Looking Ahead
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Baby boomers keenly interested in
philanthropy
Steady increase in foundation creation
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Family foundations in U.S. grew by 22% from
2001 to 2005
Fastest growing type of giving
New tax incentives in Canada since 2007 are
fostering private foundation growth
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Just beginning to see impact of elimination of
capital gains tax on gifts of public securities
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Trends in Giving
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New options for structured giving are multiplying …
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Growth in family foundations
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Growth in donor-advised funds
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Within community foundations
Through financial institutions
Stand-alone donor-advised funds
… Increasing the need for donor education
– Need for standards
– “how-tos” and best practices
– Advice from consultants and financial planners.
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Starting A Foundation
Why Give?
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Long-term giving: a more structured giving, typically a fund,
endowed or periodic
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Long-term giving is an opportunity:
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to give back to community
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for personal engagement
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to involve the family
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to create a legacy
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to make a unique contribution
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Starting A Foundation
Giving Options
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Setting up a Fund at a public foundation
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local community foundation
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public foundation focused in particular areas, eg. Tides Canada
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public foundation offered by financial institution or wealth manager, eg. TD
Private Giving
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institutional foundation, eg. Sick Kids in Toronto
Starting a private foundation
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To make grants that reflect your interests
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To manage your assets directly
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To set-up a board of family or other close advisors
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Starting A Foundation
Key Questions for Donors
 How much capital do you need?
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No minimum requirement
Rule of thumb: $1 Million or more in initial capital
Depends on operating budget
What are typical start-up costs?
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Legal and accounting expertise to incorporate, register and
organize
Office and supply costs
Web site development
Staff salaries
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Starting A Foundation
Key Questions for Donors
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How much time do you want to spend on the
foundation?
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Typical functions: governance, investment management, grant
application review, site visits, grant administration, evaluation,
reporting
What are typical administration costs?
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No widely accepted benchmark
Can range from .75% to 1.5% of endowed assets (not including
investment fees)
Depends largely on staffing levels
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Starting A Foundation
Key Questions for Donors
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How do you set up a board?
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No legal parameters other than minimum of 3 if incorporated
In practice, ranges from 0% to 100% family members
Others include advisors, outside experts
What about family involvement?
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A personal choice
Considerations: family size, sibling relationships, role of in-laws and
succession planning
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Starting A Foundation
Key Questions for Donors
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What do you need to do to create the charity?
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Choose a legal structure: non-profit corporation or
trust
Register with appropriate federal or provincial
authorities
Register as a charity with Canada Revenue
Agency
The charitable registration step can take 3 to 9
13
months
Starting A Foundation
Key Questions for Donors
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What are the tax benefits?
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Same as if donation is made to a public charity or
foundation.
Federal and provincial tax credits
Applied to any donation of cash or publicly-traded
securities
Securities have additional benefit of being free of
capital gains tax if donated to any charity
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Starting A Foundation
Advice for Advisors
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Know the donor’s wishes
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Familiarize yourself with the mission/goals of the foundation
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Perpetuity or spend-down
Risk appetite
Succession
Who is the client?
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Proactive or reactive? Broad or deep? Innovation or implementation?
Understand the strategy
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Level of engagement? Family role?
Donor? Family? Board?
What are the investment preferences and parameters?
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Long term versus near term maximization?
Is socially responsible investing important?
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Conclusion
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The field is developing quickly in Canada
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New sources of information being released,
although few comprehensive guides
PFC web site has collected many stories and
examples of practice.
PFC newsletter provides monthly review of new
ideas and practices in philanthropy.
PFC has developed and published a guide to
Starting a Foundation
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Resources
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Starting A Foundation 2nd edition, Philanthropic
Foundations Canada, 2008, www.pfc.ca
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Registering a charity for Income tax purposes
(T4063) and Application to register a Charity
under the Income Tax Act (T2050), Canada
Revenue Agency www.cra-arc.gc.ca/charities
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Foundation Management in Canada: an
Introduction for Trustees, 3rd edition, HSBC Asset
Management, 2002
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Establishing a Private Foundation, Imagine
Canada, 2002, www.imaginecanada.ca
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