Unit 3 Funds

1. Community Foundation Basics For Board Members Unit 3Funds

2. What are Funds? • Endowed fund – historic gift value is preserved and a portion of the earnings are granted each year. • Pass-through fund – all gifts and earnings are available to grant at anytime for the specified charitable purpose. • Community foundation can choose which type of funds it will offer • Component fund – an individual fund treated as part of a community foundation and permitted by the IRS to be included among the exempt assets of the community foundation. • Community foundation governing board must have total control over all assets – principal and income – of a component fund. • Component funds are accounted for individually within the larger pool of assets. • Fund agreement is legal document with donor to establish a fund. Endowed = Permanent Pass-through = Non Permanent

3. Fund Agreements • A legal agreement between the community foundation and the donor • Baker & Daniels templates include all of the legal language needed to conform with the IRS code as of 2007 and should not be changed with the following exceptions: • State that donor should have professional advisor review fund agreement before signing

4. Types of Funds • Unrestricted Fund (also called Discretionary Fund) • Designated Fund • Field of Interest Fund • Discretionary Scholarship Fund • Advised Scholarship Fund • Donor Advised Fund • Advised Agency Fund • “Community Project Fund”

5. Types of Funds(From Baker Daniels LLC) Unrestricted Fund (also called Discretionary Fund) Established to provide support for general, unspecified charitable purposes at the discretion of the Community Foundation, with no advice or recommendation from the Donor (or any persons designated by the Donor). Designated Fund Established to provide support for a specified public charity(e.g., the local art museum, symphony, or hospital), with no future or advice or recommendations from the Donor (or any person designated by the Donor). 

6. Types of Funds Field of Interest Fund Established to provide support for a specified charitable purpose (e.g., cancer research, the arts, public schools, impoverished children), with no future advice or recommendations from the Donor (or any persons designated by the Donor). Donor Advised Fund Established at the request of a Donor to the Community foundation to provide support for charitable and similar exempt expenditures or recipients recommended by the Donor or persons designated by the Donor to advise the Community Foundation. The recommendations must be advisory only, and the Community Foundation must be free to reject any or all recommendations

7. Types of Funds Discretionary Scholarship Fund Established to provide educational scholarships to individuals, with no advice or recommendations from the Donor (or persons designated by the Donor). Advised Scholarship Fund Established to provide education scholarships to individuals, where the Donor or persons designated by the Donor are to be involved in the selection of scholarship recipients. Under new Code provisions added by the Pension Act, the Donor (or his or her designee) may only participate in such selection as a member of a larger advisory committee, and the following additional requirements must be met: • Each and every member of the committee must be appointed by the Community Foundation (rather than by the Donor); • The Donor and his/her designees may not control or constitute a majority of the committee, and • All scholarship grants must be awarded pursuant to objective and nondiscriminatory procedures, approved in the advance by the Community Foundation’s Board of Directors, that are designated to satisfy Code section 4945(g)(1), (2), or (3).

8. Types of Funds Agency Fund Established at the request of a charitable organization (the “Agency”) to provide support for Agency’s exempt purposes, as recommended by the Agency. The Agency’s recommendations must be advisory only, and the Community Foundation must be free to reject any recommendations.

9. Community Project Funds • A group of individualsdetermine a solution to a community need (grassroots project) • The group does not have 501 (c)(3) status • They want to use the community foundation as an umbrella for donors to make charitable gifts • Can be a one-time project or a new program • Grants made to vendors for specific charitable purpose or program • Determine liability issues • Expenditure responsibility required • Community foundation is operating the program directly

10. You need a policy on this! • Well intentioned donors can create logistical and legal problems for community foundations by: • Entering into contracts with vendors • Engaging in activities without the proper permits – gambling • Creating unanticipated workload in acknowledging lots of small gifts • Lots of other things • Remember, you are the legal entity and are responsible for any activity conducted in your name! Donor Initiated Fundraising

11. Definitions of Fund Types • Fund Agreement Translation Sheet • Fiscal Agency versus Fiscal Sponsorship • Creating an Inactive Funds Policy

12. Does your board have a good understanding of your fund portfolio? Of the basic concepts in a fund agreement? What information would be useful to you as a board member? Do you hold any community project funds? Have you had a board discussion on your policy and practices regarding these funds? Do you need to construct a policy on donor-initiated fundraising? Or update an existing one?