Frequently Asked Questions
- How do community foundations differ from private foundations?
- How do community foundations differ from other nonprofit organizations?
- What is an endowment?
- What is the difference between setting up a private foundation and the benefits of creating a donor advised fund at the West Bend Community Foundation?
- How are funds invested and administered?
- How does a gift keep giving?
- May I designate where my charitable monies will go?
- How much is needed to establish a donor advised or other named fund?
- Can I give anonymously?
How do community foundations differ from private foundations?
A community foundation is supported by a broad and ever-widening group of unrelated individuals, families, corporations, and institutions. The only thing that connects all of our donors is a desire to improve local communities. Because of their broad base of support, community foundations are classified by the IRS as publicly-supported charities. This gives community foundations tax advantages not enjoyed by private foundations. Community foundations are also allowed to treat all funds within their control (known as “component funds”) as part of a single corporation. This gives them administrative advantages over private foundations as well. Private foundations, by contrast, are generally supported by a single individual, family, or business. Rarely does it make sense to establish a private foundation if the principal endowment is not large. Today, of course, the world’s largest foundations — Gates, Ford, Kellogg — are all still private foundations. To prevent abuse and self-dealing, private foundations have been subjected since the 1970s by the IRS to numerous penalty taxes and legal requirements. For a more detailed comparison of the differences between private and community foundations, click here. Because community foundation are controlled by large, diverse, and unrelated boards of directors and the possibility of abuse is slim, the IRS does not impose any tax penalties or burdensome legal requirements on community foundations.
How do community foundations differ from other nonprofit organizations?
Most nonprofit organizations have a specific mission. By contrast, a community foundationâ€™s mission is very broad: to improve the quality of life in a given area. This breadth of mission reflects our ability to make grants in any field of interest with a charitable benefit to local communities. This flexibility allows us to serve a wider group of potential donors on the one hand and, on the other, a wider group of nonprofit organizations whom we consider our partners in improving local communities. Area nonprofits benefit from having a local community foundation because the community foundation helps money stay in a community. Community foundations benefit local nonprofits in other ways, too: besides having local grant money available, some nonprofits ask the community foundation to manage an endowment on their own behalf. We call such funds “agency endowment funds.” As it grows, a community foundation gradually becomes the center for all charitable giving in a community. We help make connections between the people who want to give and the people who need their support.
What is an endowment?
An endowment is a fund whose contributions are expected to remain intact as a source for permanent funding. An endowed fund â€œfurnishes incomeâ€ through investment earnings which support ongoing charitable distributions to public tax exempt organizations or other charitable purposes. The principal is preserved to off-set inflation by limiting grants to a percentage of the fund balance calculated with its own earnings.
What is the difference between setting up a private foundation and the benefits of creating a donor advised fund at the West Bend Community Foundation?
Creating a private foundation subjects the donor to a number of regulatory requirements, such making an exemption application to the IRS, as well as ongoing administrative and fiduciary responsibilities, reduced charitable deductions, required annual distributions and a lack of privacy. The West Bend Community Foundation, through its affiliation with the Greater Milwaukee Foundation, makes philanthropy easy.
How are funds invested and administered?
A diversified investment portfolio is managed together with other funds administered by the Greater Milwaukee Foundation by professional investment managers. Investment guidelines emphasize the protection of corpus with the generation of income with moderate risk over the long term. The Board of Directors reviews investment performance.
How does a gift keep giving?
Giving through the West Bend Community Foundation means that you can give back to the community through permanent income-earning endowment funds. The permanence of endowment means your gift can last for generations because such gifts work towards building a corpus of funds – money retained in perpetuity. The funds are pooled and invested, with the return on investment used to make grants to support a wide range of local initiatives. This way, the original donation becomes a constantly growing source of funding.
May I designate where my charitable monies will go?
All donors decide how their gift is to be used at the time the gift is given. Through a donor advised fund you retain the right to make recommendations for your specific charitable interests. Donors who are not advisors may still have funding restrictions. You have the satisfaction of knowing that you and your dollars are giving to qualified charitable organizations in the community as you envision.
How much is needed to establish a donor advised or other named fund?
The minimum is $25,000.
Can I give anonymously?
Yes. The Community Foundation respects the donor’s privacy if he or she does not wish to be recognized.