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Starting A Foundation: Guidance for Advisors

Starting A Foundation: Guidance for Advisors. Hilary Pearson President & CEO Philanthropic Foundations Canada October 2008. Outline of Presentation. Overview The Canadian foundation sector Starting A Foundation Why Give? Giving Options Key Questions Advice for Advisors.

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Starting A Foundation: Guidance for Advisors

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  1. Starting A Foundation: Guidance for Advisors Hilary Pearson President & CEO Philanthropic Foundations Canada October 2008

  2. Outline of Presentation • Overview • The Canadian foundation sector • Starting A Foundation • Why Give? • Giving Options • Key Questions • Advice for Advisors

  3. Overview:The Foundation Sector in Canada • Over 9,000 registered grant making Canadian foundations (all types)* • Of these, half are family foundations • Others include community, institutional, corporate and special purpose foundations • Assets of private foundations total about $15 billion (another $14 billion for public foundations) • Few have assets of more than $50 million • Majority of family foundations have assets under $10 million • 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.

  4. Types of Foundations • Public foundations (about 4,800) • Community foundations (150 + across Canada) • Institutional foundations (hospitals, universities etc.) • Donor-advised foundations • Private foundations (about 4,500) • Mostly family • Some independent (not controlled by families) • Key difference between public and private foundations: • Control by individual or family at time of registration (Board membership)

  5. Family Foundation Profile • Family foundations are diverse • Most are over $1 million but under $10 million in endowment • Typically run by family board • Governed by federal regulations • Must give to registered charities (not individuals) • 3.5% minimum annual distribution • Annual report tto Canada Revenue Agency • No restrictions on investment strategies other than • No control of a business • Excess business holdings rules

  6. Looking Ahead • Baby boomers keenly interested in philanthropy • Steady increase in foundation creation • 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 • Just beginning to see impact of elimination of capital gains tax on gifts of public securities

  7. Trends in Giving • New options for structured giving are multiplying … • Growth in family foundations • Growth in donor-advised funds • 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.

  8. Starting A Foundation Why Give? • Long-term giving: a more structured giving, typically a fund, endowed or periodic • Long-term giving is an opportunity: • to give back to community • for personal engagement • to involve the family • to create a legacy • to make a unique contribution

  9. Starting A Foundation Giving Options • Setting up a Fund at a public foundation • local community foundation • public foundation focused in particular areas, eg. Tides Canada • public foundation offered by financial institution or wealth manager, eg. TD Private Giving • institutional foundation, eg. Sick Kids in Toronto • Starting a private foundation • To make grants that reflect your interests • To manage your assets directly • To set-up a board of family or other close advisors

  10. Starting A Foundation Key Questions for Donors • How much capital do you need? • No minimum requirement • Rule of thumb: $1 Million or more in initial capital • Depends on operating budget • What are typical start-up costs? • Legal and accounting expertise to incorporate, register and organize • Office and supply costs • Web site development • Staff salaries

  11. Starting A Foundation Key Questions for Donors • How much time do you want to spend on the foundation? • Typical functions: governance, investment management, grant application review, site visits, grant administration, evaluation, reporting • What are typical administration costs? • No widely accepted benchmark • Can range from .75% to 1.5% of endowed assets (not including investment fees) • Depends largely on staffing levels

  12. Starting A Foundation Key Questions for Donors • How do you set up a board? • 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? • A personal choice • Considerations: family size, sibling relationships, role of in-laws and succession planning

  13. Starting A Foundation Key Questions for Donors • What do you need to do to create the charity? • 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 months

  14. Starting A Foundation Key Questions for Donors • What are the tax benefits? • 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

  15. Starting A Foundation Advice for Advisors • Know the donor’s wishes • Level of engagement? Family role? • Familiarize yourself with the mission/goals of the foundation • Proactive or reactive? Broad or deep? Innovation or implementation? • Understand the strategy • Perpetuity or spend-down • Risk appetite • Succession • Who is the client? • Donor? Family? Board? • What are the investment preferences and parameters? • Long term versus near term maximization? • Is socially responsible investing important?

  16. Conclusion • The field is developing quickly in Canada • 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

  17. Resources • Starting A Foundation 2nd edition, Philanthropic Foundations Canada, 2008, www.pfc.ca • 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 • Foundation Management in Canada: an Introduction for Trustees, 3rd edition, HSBC Asset Management, 2002 • Establishing a Private Foundation, Imagine Canada, 2002, www.imaginecanada.ca

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