There are some special situations which are sometimes not viewed as development opportunities for community foundations but are, in fact, situations in which a community foundation can be of assistance to prospective donors. This law firm is available, if a community foundation’s legal counsel is not experienced in such matters, to provide the legal representation for a community foundation necessary in those situations. As long as both sides are fully aware that the primary client of the firm is the community foundation, the firm can do the whole transaction. However, the firm prefers in these special situations that the donor also have legal counsel.
Foundation Funds as Alternatives to Commercial Charitable Funds
In recent years, commercial financial entities, such as Fidelity and Vanguard, have begun offering the use of charitable funds which operate very much like community foundations to their customers. These commercial products operate very much like community foundation Nonpermanent Donor Advised Funds. A major difference is the charitable grantmaking expertise available at a community foundation. More importantly, if a donor has long term charitable intent, a commercial fund cannot be extended beyond the life of donor as is possible with community foundation funds with favorable estate tax consequences.
When a Business Client Is Charitably Inclined
Businesses are often inundated with requests for contributions. This can result in an unfocused program of charitable giving and significant administrative expense. Some companies may be unable to budget a consistent flow of charitable dollars.
By establishing a Nonpermanent Donor Advised Fund at a community foundation, a business can simplify and focus the giving process. The community foundation handles the administrative paperwork, check writing, investment oversight and grantmaking at a low cost.
A Nonpermanent Donor Advised named for the business donor, can provide a dependable and committed source for charitable grants, even during years when cash flow at the donor business is tight. In good times, the company can add to its fund, thereby providing flexibility to even out the highs and lows inherent in most business cycles.
If a Prospective Donor is an Investment Holding Company
If a prospective donor has sold the assets of his business and is left with an investment holding company which cannot be liquidated without severe tax consequences, a community foundation can help. Because a charitable remainder trust (CRT) is exempt from federal income tax, a CRT can be used as a vehicle in the liquidation of an investment holding company to avoid the tax at the shareholder level and maintain a significant income stream for the donor/shareholder.
A donor may consider establishing a supporting organization of a community foundation if the client is contemplating a multi-million dollar gift and wants a significant amount of control over the donated assets. Supporting organization status gives an organization many of the advantages of private foundation status. As a separate entity, a supporting organization has its own directors, makes its own decisions and has its own federally tax exempt status as a public foundation because it has one of several qualifying close relationships with the Foundation.
Supporting organizations are not as cost efficient as an endowment Donor Advised Fund, because they require their own Determination Letter from the IRS and separate accounting and tax reporting and other administrative services. A community foundation can minimize the cost disadvantage by providing those services to the supporting organization under an Administrative Agreement.