Community foundations are tax-exempt Section 501(c)(3) public charities made in certain locations to boost the residents’ quality of life through charitable giving. While private foundations are the typical choice for those with substantial wealth, Kevin Canterbury of Arizona explains that community foundations present the perfect options for smaller donors.
According to the latest data, the United States of America boasts 833 community foundations that give away billions of dollars to improve neighborhoods’ lives every year.
Community Foundations: A Low-Cost Charitable Giving Method
Private foundations attract the likes of Bill Gates, Warren Buffet, and anyone with a mind-blowing number of assets. However, community foundations help small donors create a family legacy.
Despite their lesser-known status, they are a viable, low-cost alternative to the private foundations that garner the attention of the press.
Staff at community foundations have an intimate and thorough understanding of local problems. Thus, by working with donors and their advisors, they can craft an optimal gift plan that meets the needs of the donor, foundation, and region.
The Types of Community Foundation Funds
When donors are charitably giving through community foundations, they can expect two major types of funds — donor-advised and endowment-type.
· Donor-Advised Funds
Donor-advised funds are donation vehicles set up by a public charity that deals with charitable giving on donors’ behalf. They are flexible, relatively low-cost, and organized, making them a frequently chosen option for many smaller donors wanting to give to charity.
Those who choose donor-advised funds when donating to community foundations get the extra benefit of the staff’s local knowledge and their relationships with local beneficiaries.
With this type of fund, donors recommend which organizations should receive the grants, how much they would receive, and when they would receive it.
Generally speaking, donor-advised funds have relatively low minimum payments of anywhere from $5,000 to $10,000, depending on the particular fund. And for every year the donation is made, the donor obtains a charitable tax deduction, even if the money won’t be given to that specific charity until later.
· Endowment-Type Funds
The other fund type offered by community foundations is endowments. It allows donors to support charities for generations through an ever-lasting and growing pot. In other words, it’s a permanent fund source that is invested for long-term growth.
Every year, a portion of the funds (around 5%, usually) are given to fulfill the donation’s purpose. The rest is left to grow, ensuring more is available for distribution later.
Normally, endowment-type funds are split up into several sub-groups for different reasons, such as:
- Scholarship funds — Utilized to pay for the education of students who meet specific requirements.
- Field of interest funds — These can be used for many particular problems, such as healthcare or the environment.
- Designated funds — They are used to support at least one pre-designated charity in the geographic region.
- Unrestricted funds — These are used to meet any unforeseen needs of the community, like relief from natural disasters. Donors without a specific area of interest or don’t want a named fund tend to choose this option.