The concept of a community foundation is as ingenious as it is simple and it is a means to build, over time, substantial endowment funds for a community through contributions large and small.

Because these contributions are endowed, they are never spent. Instead, they are permanently invested to produce income. The income earned is then used to help meet the community's charitable needs and interests, from social work to art and culture. So gifts to a community foundation continue to benefit your community forever. This is philanthropy in its broadest sense.

A community foundation does not usually conduct programs of its own. Rather, it supports new or existing programs of other nonprofit organizations and agencies. It can also serve as a neutral convener, bringing diverse opinions and players together for the good of the whole community. In this sense, the community foundation can also serve as a catalyst for addressing issues facing a community.

But a community foundation's principal function remains that of serving donors and their community by building permanent endowed funds for philanthropic purposes.

Donors like you may set up individual funds, in your own name or the name of a loved one, and have essentially as little or as much control as you wish in determining which charities benefit from your fund.

Or, you may choose to contribute to a variety of existing funds, set up to serve particular purposes. Each community foundation also has a general endowment fund, the income from which is distributed by the community foundation's board of directors to address needs and opportunities in your community as they change over time.

A community foundation is governed by a local board of directors chosen for their knowledge of the community and designed to be representative of a broad cross-section of the community. The directors further possess expertise in the many areas of management necessary to carry out the stewardship functions of the foundation.

A community foundation is a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code. All contributions are tax deductible to the maximum amount allowable for gifts to a public charity. Indeed, because community foundations are classified as public charities under the tax code, some donors are able to claim larger tax deductions on gifts to community foundations that they are on gifts to their own private foundation.

A community foundation represents a wide variety of ideas and interests of individual donors who have united in a common purpose and the bettering of their community both now and in the future.

Whatever your charitable intentions, there are ways to achieve them through a gift to your community foundation.

The Uniqueness of Community Foundations
Community foundations are the fastest growing area of philanthropy today. To illustrate:

• More than 400 community foundations exist nationwide.
• Indiana leads the nation with 95 community foundations and affiliate funds. Every county of the state is served by a community foundation or an affiliate fund of a community foundation.
• Thousands of individuals have realized the unique opportunity community foundations offer to fulfill their philanthropic wishes. Thus, in the past decade assets nationwide have tripled to more than $10 billion.
• Indiana community foundation assets are growing at more than twice the national rate and over $300 million has been added to the state's community foundations in the last four years alone.

Private foundations and corporations have devised programs to stimulate the development of local community foundations and to encourage individuals and families to create endowments for all kinds of charitable purposes through the community foundation vehicle.

The largest of these programs by a private foundation is the GIFT Initiative ("Giving Indiana Funds for Tomorrow") funded by Indiana's Lilly Endowment Inc.

Community Foundation Characteristics
A community foundation typically is an organization that holds, invests, and administers a collection of separate funds (usually endowments) established by donors to meet the philanthropic goals of the donors and the needs of the community being served.

• Donors contribute money, stock or other assets, usually to the community foundation's permanent endowment. In doing so, the donors can identify a wide variety of charitable causes and community needs or establish unrestricted funds to meet the ever changing needs.
• Funds are pooled and investments are overseen by the governing board.
• The governing board and its distributions or grants committee consist of a representative group of community leaders.
• Community foundations usually do not engage in fund raising campaigns directed toward attracting large numbers of small contributions.
• Operating needs are typically satisfied through corporate and business support, board member support, fund management fees, and grants or operating endowments.
• Planned gifts and bequests form a primary tool for endowment development, although increasingly donors are establishing funds during their lifetimes. Often attorneys, financial planners and bankers utilize the community foundation vehicle to fulfill their client's wishes.

The community foundation provides flexibility. You may select from several types of funds. You may make your gift with cash; shares of stock, including those that have appreciated in value; closely held stock; life insurance; or even real estate.

Gifts to the community foundation can reduce your tax burden. Income taxes are reduced through the deductions allowed by the IRS for contributions to a public charity, which is how a community foundation is classified. If appreciated assets are donated, in most instances you eliminate the capital gains tax you would incur if you sold the assets. And in the instance of contributing funds through your estate, estate taxes are avoided.

Your community foundation provides professional administration. For unrestricted and field-of-interest funds, the community foundation continually assesses the changing needs of your community and awards grants to agencies best addressing those needs, sparing you, the donor the work of this investigation while assuming your gift has the maximum impact. In the case of designated funds, the community foundation easily handles the issuance of annual grants to the organizations you specify when you establish the fund.

Your community foundation provides an alternative to a private foundation. Donors who want the individual involvement of a private foundation without the accompanying administrative complexities, restrictions, and expenses can accomplish the same result by establishing donor-advised funds within a community foundation. Establishment of a fund is easy, convenient, and inexpensive.

Ways to Give to a Community Foundation
Gifts of Cash
Gifts of cash are the most popular for many people who make smaller contributions to a community foundation. Whether your gift is in honor or in memory of a friend or loved one, or to meet your personal charitable wishes, the cash gifts contributed each year help the foundation grow and expand its support of the local community.

Securities
Contributions of securities are attractive to people who have held stocks or bonds for a long period of time, especially when the appreciation is so great that the capital gains tax would take a substantial portion of the value if they were liquidated. With gifts of appreciated securities you are able to make a significantly larger contribution to the community foundation than the actual or original cost of those securities, so both you and the foundation, and ultimately, the community, benefit.

Life Insurance
It may surprise you to know that your life insurance policy can be used as a charitable gift. You may have been paying premiums on life insurance for years, but now the protection is no longer needed or you may own a paid-up policy. Because the policy has value and you want the foundation to benefit, you may donate the policy to the community foundation, making the foundation both owner and beneficiary of the policy. You will receive an immediate tax deduction usually in the amount equal to the cash surrender value.

Testamentary Gifts
A testamentary gift is a specific bequest in your will or testamentary trust. Such gifts are exempt from estate tax.

Charitable Remainder Trusts:
These trusts are arrangements between you, a trustee, and the community foundation. You transfer cash, property, or securities to the trust but retain for yourself or beneficiaries the income from the trust for life or a specific number of years. The charitable deduction is determined by the age of the beneficiaries and the percent of income taken. After the death of the last beneficiary, the foundation receives the assets and will establish the fund of your choice.

Charitable Lead Trusts
Donors may name one or more charities to receive a specified percentage of income annually from a trust for a specific number of years, and then the trust assets are returned to the donors or their heirs. When properly planned, this often avoids substantial federal estate taxes.

Types of Funds Available Within a Community Foundation:
Agency Endowment Funds
Agency Endowment Funds are created for the benefit of charitable organizations or agencies that prefer to establish funds within the Foundation rather than create and manage their own funds. They are a practical and administratively efficient way for nonprofit groups to ensure sustained, future funding.

Agency Endowment Funds allow a charitable organization to take advantage of the community foundation characteristics of permanence, of pooling funds for better investment return, and of reduced administrative costs. The organization thus places its endowment within the community foundation and each year receives income from the fund.

Donor Advised Funds
These are basically unrestricted funds, but donors have the privilege of suggesting the organizations to receive grants. While the ultimate decision must remain with the foundation's board, the foundation listens closely to its donors and does its best to honor their recommendations as long as they are consistent with the foundation's charitable objectives.

Donor Designated Funds
Designated Funds can be tailored for donors who want to support one or more specific organizations today but recognize that the world may change. If, in the future, an organization ceases to function or exist, the foundation can then redirect income from the fund to organizations with a similar mission.

Field of Interest Funds
These types of funds are established by donors who wish to contribute to an area of concern (e.g., youth, family welfare, etc.) but do not want to designate a particular organization. The foundation makes grants that meet current needs in the chosen fields.

Nonpermanent Funds
Non-permanent funds are given to the foundation but will be totally distributed to organizations over some periods of time. Donors may restrict these funds to specific organizations or they may be given for more general purposes.

Operating Endowment
Funds from this type of endowment benefit the community foundation by supporting its operations. A gift to the foundation's operating endowment provides the foundation with annual operating funds.

Scholarship Funds
Many contributors create endowed Scholarship Funds to honor or memorialize an individual or serve a specific purpose that is important to the donor. Scholarships can enable students to pursue traditional higher education or vocational training. Income from the endowment provides the scholarships each year.

Unrestricted Funds
Donors with varied philanthropic interests find that a fund in the community foundation is a simple and flexible way to accomplish their charitable objectives. An unrestricted gift to the foundation is an excellent way to provide resources for grantmaking and help make a positive difference in the community.

©2003 Indiana Grantmakers Alliance, Inc.
32 East Washington Street, Suite 1100
Indianapolis, Indiana, 46204
Phone: (317) 630-5200 | Fax: (317) 630-5210
Email: info@indianagrantmakers.org