This corporate foundation awards grants of up to $5,000 to fund projects at schools located in markets where the parent company has a presence.

As many as 2,000 schools submit applications for projects annually, and last year, the foundation made over 300 grants. The foundation’s program was achieving its intended objectives, but the large volume of applications and grants was making the process extremely time-consuming and difficult for staff to manage.

COLLABORATION

Foundation Source moved the entire grantmaking cycle online with Applications, our online grants management system that makes it easy to accept, organize, track, and reply to charitable requests. Applications is available as an add-on to Impactfully, our award-winning web platform for managing a foundation.

Using Applications, we were able to set up a public-facing website for the foundation where grant-seekers can review funding criteria, fill out a customized grant application, and then submit it electronically. Through Impactfully, foundation reviewers, who are given “limited views” to see only the applications that were assigned to them, then score the application.

Because the foundation uses a blind application review process, Foundation Source manages the way information is displayed so that the school’s name and other identifying details are hidden from reviewers. To ensure that the schools are eligible to receive grants from the foundation, we also vet them and add them to our database. With Impactfully, the foundation can easily organize and manage the applications, centrally communicate about them, and generate data and reports. Automated responses make it convenient to acknowledge receipt of applications and inform grant-seekers of their status.

OUTCOME

Foundation Source has streamlined the entire application process, saving the foundation significant time and administrative effort. The foundation is very pleased with their new process, but we revisit it each year and continue to refine it based on their evolving needs.

The post Reducing a Corporate Foundation’s Workload for a High-Volume Program appeared first on Foundation Source.

The post 10 Rules Every Foundation Should Know About Compliance appeared first on Foundation Source.

• Payments to charities for tickets to events, membership benefits, discounts, etc., that will be distributed to company employees who are not both serving as directors, officers, employees or volunteers of the foundation and receiving the tickets or benefits in that capacity.
• Payments to sponsor events where the company will reap advertising benefits (more than the mere recognition permitted in connection with a qualified sponsorship payment).
  • Benefits that cross the line from mere recognition to advertising:
    – Price information or other indications of saving or value
    – Endorsements
    – Inducement to buy/sell/use a service, facility, or product
    – Logos or slogans that are qualitative or comparative
• Grants to domestic or foreign charitable or governmental organizations with which the company is seeking a business relationship.
• Grants to charities in satisfaction of the company’s own pledges.
• Matching a company employee’s grants to charities in satisfaction of the company’s matching grants program, where the company is legally obligated to do so under its own program.
• Cause-related marketing programs.
• Grants that have any element of:
  • Lobbying
  • Voter registration drive
  • Electioneering
• Grants to company employees in connection with emergencies, disasters, or hardships that are not “qualified disasters,” as defined by the IRS (this usually means a presidentially declared disaster)
• Payments for purposes that are not considered charitable per the IRS

In sum: Whether an activity or payment should be funded by the company or the foundation depends upon the nature and extent of any benefits that the company might expect to receive in return for the payment. If the benefits are more than just “incidental or tenuous” under IRS rules, then the payment must be made by the company (not by the foundation) to avoid self-dealing violations and resulting penalties, which must be paid by the self-dealer (never by the foundation).

II. Activities that maybe funded by the foundation

• Domestic and foreign grants to organizations that further charitable purposes and that provide only a “tenuous and incidental” benefit to the company, such as:
  • Grants that will result in publicity, goodwill, and enhanced employee morale for the company
  • Grants that bestow naming rights
    – For example, if the foundation were to make a grant to a hospital, which agrees to name a wing after the company rather than the foundation
  • Matching a company employee’s grants to public charities under the foundation’s—not the company’s—matching grant program
• Grants to charities for whom company employees have volunteered their services; the grants can fund the charity’s programs relating to an employee’s volunteer activities
• Grants to charities in communities in which the company’s o ices or facilities are located
• Permissible recognition of the company in connection with the foundation’s grants:
  • The credit could read as follows:
    – The foundation (most conservative if the foundation is the only contributor) – The foundation, sponsored by the company
    – The foundation and the company (in any order, especially if both contribute) – The company, through the foundation
  • Permissible acknowledgements could include:
    – Logos and slogans that do not have qualitative or comparative descriptions of the company’s products, services, or facilities
    • However, counsel may advise if a company logo or slogan containing qualitative or comparative descriptions is permissible because it is an established part of the company’s identity
  • A list of the company’s locations; website address; contact information
  • Value-neutral descriptions of the company’s product line or services
• Payments to charities for tickets to events, membership benefits, dinners, etc., that will be used by foundation officers, directors, or staff to further a foundation (not a company or personal) purpose.
  • For instance, if the foundation funds the production of an opera, it would be reasonable for foundation personnel to attend opening night to evaluate how the grant funds were deployed
  • The foundation should not provide such tickets to the spouses or other family members of the foundation’s officers and directors (or any other disqualified persons) who do not serve the foundation in an official capacity
  • If it would be helpful to the charity sponsoring an event, the foundation may provide tickets to members of the community who may be potential donors or volunteers of the charity
    • However, tickets must not be provided as a reward to those doing business (or considering doing business) with the company
• Payments in fulfillment of the foundation’s own pledges (as opposed to pledges made by the company or by its executives).
• Emergency and hardship grants to individuals who are not company employees.
• Emergency grants to company employees in connection with a “qualified disaster,” as defined by the IRS (this usually means a presidentially declared disaster).
• Scholarship grants to individuals (NOTE: IRS pre-approval of grant procedures is required, and special rules apply to scholarships established for company employees and/or their children).
• Grants to educational institutions from which the company may wish to recruit employees or at which its employees may wish to enroll, so long as the company does not receive any preferential treatment in hiring or employee admissions.

III. Transactions to be avoided by the foundation

• Self-dealing would result if the foundation and the company were to split the cost of an event ticket by having the foundation cover the charitable portion of the ticket price and having the company cover the portion allocable to the value of goods and services received (for example, entertainment, food, and beverage at a charity dinner).
  • This prohibition against splitting the ticket cost would apply to any other disqualified person as well
  • The company may, however, purchase tickets separately, in parallel with any foundation grant, so long as the company is not paying less for the package resulting in receipt of tickets than would be required without regard to any foundation grants
• If the foundation receives a valuable perk, like ski lift tickets, in exchange for a grant, the foundation must not give the perk to a company executive or a disqualified person (such as a foundation officer or director or their family members), as a self-dealing violation might result.
• The foundation must not lease space either to the company or to any other disqualified person (even if the rates are fair or advantageous to the foundation). Note that the company will be deemed a disqualified person on account of being a “substantial contributor” to the foundation.
• The foundation must not loan funds to the company or any other disqualified person (even if the rates are advantageous to the foundation)
• Except with respect to certain qualifying redemptions of company stock, the foundation must not enter into a sale (or exchange) with the company or any other disqualified person. Accordingly, the foundation must not purchase stock from the company or any other disqualified person, and may sell stock to the company only in very limited circumstances.
• The foundation must not reimburse the corporation for its share of office supplies or equipment; however, the company may provide such supplies and equipment to the foundation at no charge
• The company must not benefit from the use of the foundation’s assets.
  • For example, the company cannot hang foundation-owned artwork in the company’s board room
• The foundation must not make grants, sponsor events, or run programs intended to market the company’s products or services, generate meaningful business opportunities, or provide the company with preferential treatment over others. For example:
  • A foundation grantee cannot be required to purchase products or services from the company
  • The foundation cannot make a grant to a company client as a reward for being a good client
• The foundation must not make a grant to a charity in satisfaction of a pledge made by the company, a company executive, or any other disqualified person.
• The foundation must not make payments to certain high-ranking government officials (with narrow exceptions)
• The foundation must not make payments for purposes that are not considered to be charitable, religious, scientific, literary or educational per the IRS.
• The company must not sign any agreement or pledge on behalf of the foundation, or commit its resources.
• Company’s executives who are not serving on the foundation must not approve the foundation’s donations and should not be able to require the foundation to make donations to a particular charity (although recommending potential grantees should be fine).
• The foundation must not reimburse the company for the wages of its employees who miss work to perform volunteer activities for the foundation.
• The foundation may not pay out-of-pocket expenses incurred by company employees when they undertake volunteer activities for the company.
  • Reimbursement of certain expenses incurred by foundation employees or volunteers may be permissible
• Self-dealing concerns are heightened if the foundation sponsors internships at the company.
  • Such programs are closely scrutinized by the IRS
  • Benefit to company vs. benefit to student interns

IV. Transactions that should be approached with caution

• The company or any other disqualified person may lease space to the foundation, provided that it is leased without charge.
  • If there is a no-charge lease, the foundation may pay a third-party vendor, such as a utility company, for expenses related to the foundation’s use of the space
  • Under no circumstances may the foundation pay these expenses directly or indirectly to the company or any other disqualified person for the payment to be passed along to the vendor
• The company or any other disqualified person may share space with the foundation, and the foundation may bear its fair share of third-party expenses arising from its use of the space, provided that:
  • The foundation and the company or other disqualified person enter into a written agreement containing a set of guidelines for sharing space, facilities, expenses, etc.
  • Areas on able method is used to ensure that the foundation pays only its fair share of expenses—it must not pay any expenses properly attributable to the company or any other disqualified person
    • For example, the foundation’s share of utility expenses may be calculated by applying a percentage based on the square footage occupied by the foundation in proportion to the entire space
  • Record keeping procedures need to be instituted to track the fair allocation of third-party expenses, time diaries, etc.
  • The foundation must directly pay the third-party vendors (who must not be disqualified persons); under no circumstances may the foundation directly or indirectly pay its share of these expenses to the company or any other disqualified person to be passed along to the vendor
• The company or any other disqualified person may loan funds to the foundation, provided that the loan is without interest and for a foundation-related purpose.
• The foundation may have its company stock (if any) redeemed, provided that certain conditions are satisfied. Please contact Foundation Source for additional information if this becomes relevant, as counsel likely will be needed to ensure that no violation results.
• The foundation may provide supplies, facilities, or equipment to the company, provided that:
  • Goods/services/facilities are made available to the general public on at least as favorable of a basis
    as they are to the company
  • A substantial number of people are actually using the goods/services/facilities in question; and
  • The foundation’s furnishing of such items is related to carrying out the charitable purpose(s) that is the basis for the PF’s exempt status
• The foundation may pay the company for certain services rendered to the foundation by the company’s employees, provided that: (1) the services are “personal services” per IRS rules, meaning that the services are professional and/or managerial in nature, (2) the services are reasonable and necessary, and (3) the amount paid for the services is not excessive.
  • Employees must keep records on time spent on company and foundation matters
  • If the foundation expects to make payments to the company or any other disqualified person for such services, the foundation should contact Foundation Source beforehand for additional information to help the foundation ensure that the above conditions are satisfied
• Some foundations and their sponsoring companies have the same or similar logos, which should be fine, provided that the logo doesn’t contain qualitative or comparative descriptions of the company’s products, services, or facilities.

V. Recommendations

• If the foundation wishes to make a grant to a charity where a company executive or any other disqualified person has a personal connection (for example, serves as a board member):
  • The connection should be disclosed to the foundation’s board
  • Some foundations adopt a policy requiring the individual with the personal connection to abstain from voting on the grant
  • The grant should be general and unrestricted grant or should not be earmarked by the foundation for the salary of the related individual
• A company usually staffs its foundation with company employees who are considered volunteers of the foundation. To help insulate the company and foundation from the other’s liability and prevent accidental self-dealing, the company employee/foundation volunteer should keep their roles separate and specify the capacity in which they are acting.
  • For example, in speaking with a potential grantee, the foundation staff member should be clear that they are communicating with the grantee as either a foundation staff person or as a company employee
• The company’s accounting team should determine whether the company’s donation of its own products directly to a public charity (rather than through the foundation) would provide better tax results for the company than the donation of such products to the foundation for distribution to other charitable organizations.
• Some foundations adopt a policy of disclaiming token gifts of nominal value that are provided in return for a grant. However, if token gifts are kept and given to disqualified persons, they may not present a problem if the gifts have no more than nominal value.
• The foundation should convene Board meetings at least annually and should maintain records of its meeting Minutes (or unanimous consents adopted in lieu of meetings). Foundation Source can provide a Minutes workbook, which contains an agenda and can be taken to Board meetings for completion.
• The foundation should consider authorizing certain individuals to enter grants and expenses and authorizing other individuals approve the same.
• If an executive of the company (or any other donor) makes a donation to the foundation, the donor may recommend that the donated funds be granted to a particular charity but should not require the foundation to do so. Requiring the foundation to grant the donated funds to a particular charity can lead to many complications that may impact the donor’s ability to claim a deduction and may prevent the foundation from counting its expenditure of the funds towards meeting its annual 5% minimum payout requirement.

The post Corporate Foundation Guidelines appeared first on Foundation Source.

To ensure continuity of your board, you know that you need a plan in place for members’ retirement— whether they leave as planned (e.g., after decades of service) or unexpectedly (e.g., relocating to a new city). Under any circumstances, a change in board membership can be disruptive. At the very least, others will need to take up the slack. At worst, the departure of an experienced, skilled board member could prove destabilizing, reverberating throughout the foundation and compromising your work.

Rather than scrambling to deal with the fallout of a board member’s departure, it’s clearly preferable to plan for succession, passing on your organization’s institutional knowledge to the next generation of leadership while the experienced members are still actively involved. Other reasons to plan now include:

• The need for training: Successors need competence building so they’re ready to take the reins and keep the foundation efficient at the time of the transition.
• The benefit of the process itself: Planning for succession necessitates an assessment of your current operations and perhaps a more focused discussion of your shared expectations for board membership. What qualifies someone to join your board? Do you have formal criteria for board service?
• The peace of mind: Having an agreed-upon, detailed succession plan assures everyone on the foundation that the next generation of board members will be qualified and well prepared. It also helps new leaders feel legitimated and empowered to carry on the work of the foundation.

Rather than scrambling to deal with the fallout of a board member’s departure, it’s clearly preferable to plan for succession, passing on your organization’s strengths to the next generation of leadership while the experienced members are still actively involved.

Obstacles to Planning

However necessary, succession planning isn’t always easy. The process can expose vulnerabilities and bring long-simmering controversies to the surface, even as it brings a fresh perspective and perhaps even badly needed improvements. Besides these inherent challenges, many foundations have other common obstacles to tackling succession planning:

• If it ain’t broke… Foundation boards that are happy with their current operations may be reluctant to even think about changing their composition. If they’re having a great time working on the foundation, the current members may want to hang on as long as they possibly can.
• The foundation is the “landing pad”: At some foundations, board membership is considered the “second career” for retirees or an alternative career for younger people who don’t join the family business. If board membership is reserved for these members of the family, why devote much thought to training and bringing on the next generation?
• Disengagement: You can’t train the next generation of family if they aren’t interested in and invested in the work of the foundation. Families may need to begin by cultivating their children’s interest in philanthropy and then, as they mature, translating that interest into involvement in the foundation.

Making a Plan

Your foundation might need not just one succession plan, but two: a short-term plan that covers the unexpected loss of key officers (chair, treasurer, etc.) and a long-range plan that covers expected board attrition.

The Short-Term Plan

Let’s pretend that a key member of the foundation is sucked off the face of the earth. Who would take over his or her work? How would the foundation move forward? To help the foundation withstand such a shock to the system, the board may want to designate one or two individuals to temporarily cover in the event that anyone on the board is unable serve. Such a plan might also detail how long these interim replacements will serve until permanent replacements are selected.

Succession planning presents an ideal opportunity for a foundation to assess its current bench of talent, reinforce its strengths, and cultivate its future.

The Long-Term Plan

Succession planning presents an ideal opportunity for a foundation to
assess its current bench of talent, reinforce its strengths, and cultivate its future. Some foundations go so far as to create a year-by-year plan designating who will come off the foundation board and who will come on, taking into account considerations around retirements, term limits, qualifications for service, etc. Getting this specific enables the foundation to coordinate training, mentorships, and planned wind-downs. You might not want or need to be this detailed, but the elements of a successful plan should probably include:

• Self-Assessment: This is an ideal time for the board to undertake a SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats). What expertise do you already have, and where are the gaps? Your succession plan can name key people to serve as mentors to rising board members, ensuring that current strengths aren’t lost over time. And you can build out your recruitment and training program to address organizational weaknesses. If necessary, you might decide to look outside of the family for new talent that meets important needs, such as professional expertise or special knowledge of a current or proposed funding area.
• Eligibility Requirements: Becoming a board member of a family foundation is a lot like acquiring a position in a family business. It’s an honor, a privilege, and a big responsibility. So, what qualifies someone for board membership? Some boards consider board membership a rite of passage for children and invite the next generation to join when they reach a certain age. Others wait until specific skills or milestones have been achieved, like completing a site visit, attending a specified number of board meetings, or volunteering a certain number of hours.
• Formal Training: In addition to creating training opportunities within the foundation, make sure you prepare rising board members by providing formal training whenever possible. If young people will one day take the reins, consider giving them a chance to learn about philanthropy with their peers, independent of the foundation. Listed below are a number of good training resources devoted to youth philanthropy:
  • 21/64 (www.2164.net) is a nonprofit organization that specializes in intergenerational transitions. They bring young philanthropists together to discuss their family legacies and next-generation issues.
  • Resource Generation (www.resourcegeneration.org) is a network comprised of young people of wealth that provides education and resources to philanthropists and activists with progressive values.
  • The Council on Foundations (www.cof.org) runs next generation retreats for foundation members ages 18 – 35 at its annual family foundation conference.
  • Emerging Practitioners in Philanthropy (www.epip.org) provides peer support, mentoring and social events for young foundation professionals, foundation trustees, staff at philanthropy support organizations and graduate students studying philanthropy.

A Single-Source Solution

As board membership evolves over time, you might want to consider other options for administering your foundation. By having a provider external to your organization, you’ll ensure continuity and stability during periods of transitions. When seasoned board members or staff depart, you won’t lose key data or momentum; and as new members take their place at the table, important tasks won’t fall between the cracks.

Choosing a provider that offers comprehensive services such as Foundation Source offers an additional slate of benefits. By bringing together the services of attorneys, philanthropic advisors, tax experts, and foundation operations specialists, you can get a convenient, scalable solution for every foundation need in one place. Our online management platform ensures operational transparency and facilitates collaboration, even for members in different area and zip codes. Moreover, since Foundation Source takes care of grant processing, tax preparation, record-keeping, and other time-consuming tasks, you’ll have the bandwidth to focus on your mission.

Although planning for the next generation of foundation leadership can be challenging, it is also an opportunity for organizational growth. In our experience, foundations can emerge from this process with continuity, newfound purpose, and renewed dedication to their philanthropic goals.

The post Succession Planning for Board Members appeared first on Foundation Source.

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The post Private Foundations vs Donor-Advised Funds appeared first on Foundation Source.

As children and grandchildren grow up and move away to different corners of the country or even around the globe, maintaining a viable, effective foundation depends on maintaining family engagement. The foundation will need to ask the following questions to define (or reaffirm) a workable mission that reflects the collective interests and passions of the dispersed family board:

• Should we strictly maintain our original scope and intent? Under this scenario, the dispersed members could take less of an active role while those family members still based in the home community would take the lead. An advantage to this approach is that those family members who choose to serve on the board are fully committed; the obvious disadvantage is that it necessitates letting go of the vision of the foundation as a unifying family enterprise.
• Should we chart a new direction? Geographic dispersal of family members may occasion the need to develop a secondary focus that is not regionally specific. Alternatively, the foundation might expand its existing programs to where the board members now live. Expanding the foundation’s programs to new locations could help inform strategies in the original target community.
• Should we permit discretionary grants? Discretionary grants can keep family members interested in the foundation’s work by providing an opportunity to grant in their home communities or to programs outside the foundation’s primary focus. A key advantage of allowing discretionary grantmaking is that it enables the foundation to extend its reach, contacts, and resources. However, discretionary grants tend to take up increasingly more of the foundation’s funds over time, and could eventually necessitate the foundation to scale back support of its core mission.
  How can we enhance our internal communication?
• Technology can help a board facilitate communication and collaboration, and can be an inducement for younger, tech-savvy members to participate in the foundation. Foundation Source clients have instant access to their foundations from anywhere in the world where there is Internet connectivity by logging in to the private, password-protected website that we provide for them. Our online capability facilitates the flow of information across multiple locales and time zones, providing foundation members with instant access and total transparency into foundation activities.

Moving from Founder-Led to Family-Centered

When the founder is no longer capable of leading the foundation, the board might be ill-prepared to move forward. In many cases, even though there are other family members who serve on the board, they may be accustomed to deferring to the founder’s vision and way of doing business. Without the founder to drive the agenda, the remaining board members are forced to work in a more collaborative manner. To keep the foundation on track, you will need to ask:

• Is the founder’s original philanthropic intent “written in stone” or can we modify it to meet changing circumstances? To answer this question, it’s best to hold a retreat that involves all parties to discuss the next iteration of the foundation. This could be the ideal time to review the foundation’s core mission and evaluate its current strengths, weaknesses, opportunities, and challenges.
• How can we best work together? When the founder was alive, he or she may have called the shots. Now, everyone’s perspective must be taken into consideration. To avoid becoming derailed by unproductive family dynamics, the foundation will need to develop new rules of engagement, including formal policies and procedures that ensure family members do not step on each other’s toes or work at cross purposes.
• What additional assistance do we need? During a time of transition, some foundations look outside of the family for new talent that meets important needs, such as legal expertise or special knowledge of a proposed funding area. Some foundations will even decide to hire an executive director. To better distribute the workload, some foundations invite close family friends, advisors, or business associates to take on additional tasks. To keep everyone’s eyes on the mission, others outsource these needs to private foundation specialists, like Foundation Source. We handle the foundation’s administrative, tax, and legal burdens, so members can focus on mission.
• Do we need to invest in board training and skill development? To minimize transition deficits, successors may need training and competence-building. To develop a comprehensive board education plan, analyze the type of information board members need to be effective and make sound decisions.

Maintaining a viable, effective foundation depends on maintaining family engagement.

Family Growth

When the founder established the “family foundation,” eligibility requirements were probably abundantly clear. However, as the family grows and changes through marriage, births, adoptions, divorce, re-marriages, etc., questions arise.

• How do we define “family”? Do spouses qualify for board membership? In the event of divorce, are they expected to resign, or do they continue to serve? Do step-children have the same standing as direct descendants? What about children from a former marriage?
• What are the implications for governance? If foundation membership swells beyond original expectations, there are both positive and negative repercussions. Although the foundation’s bandwidth might improve (the saying, “many hands make light work,” comes to mind), it will also take more of an effort to coordinate everyone’s efforts. Moreover, inviting more perspectives and opinions might lead to squabbles that impair the foundation’s efficacy (“too many cooks spoil the broth”). For these reasons, even foundations that have plenty of manpower look for ways to utilize their members’ time more effectively.
• What are the implications for grantmaking? When more people are controlling the disbursement of the grant funds, it might be difficult to please everyone—let alone arrive at some degree of consensus. And, if the foundation allows discretionary grantmaking, dividing the pot among a larger number of family members means everyone will have less to give away. To address these conundrums, the foundation will need to come to agreement on its decision-making model. Will grantmaking decisions be made by a single leader, majority vote, or consensus? If the foundation historically did not allow discretionary grantmaking, will that change? If so, what percentage of its budget will be allocated to programmatic and discretionary grants?

If foundation membership swells beyond original expectations, there are both positive and negative repercussions.

Retirement of a Trusted Family Advisor or Key Staff Member

Many foundation boards worry that operations will be crippled by the departure of a long-time foundation advisor or staff member. Whether it’s an executive director, accountant, attorney, or administrative assistant, the expertise and familiarity gained by performing a key role year after year seems almost impossible to replace. Here are some considerations as you determine how to meet the foundation’s needs going forward:

What are our available options? Before you rush to find a replacement for the advisor or staff member, take the time to assess the foundation’s current needs and gaps in skills. After determining the type of support you need, research the various available staffing options, which could include redeploying internal talent, hiring a salaried employee, or outsourcing some of these functions to a foundation management firm.
Do we have untapped internal talent? Some foundations use this period to encourage members to take on new responsibilities, such as undertaking due diligence review of grantees. When members try out new roles during a period of transition, the results can reveal a wealth of information about family members’ level of interest and potential to lead the foundation in new capacities.

It may seem impossible to replace a key advisor or staff member, but assessing the foundation’s current needs along with available resources may reveal viable solutions.

Bringing the Next Generation Onto the Foundation

To ensure the future of the foundation, there are two necessary conditions: The older generation must be willing to give up some control, and the next generation must be both enthusiastic about the foundation’s mission and prepared to advance it. Accommodating the needs and interests of both constituencies can challenge the equilibrium and efficacy of the foundation. Younger members can reinvigorate the foundation, but their creativity and new ideas must be grounded in an understanding of the foundation’s legacy. You can assess your foundation’s next-generation engagement efforts with these questions:

• Should board membership be assumed or earned? The process by which new board members are invited is very important in cultivating enthusiasm. Like most of us, young people tend to prize that which is difficult to win. That’s why many families wait until specific milestones have been achieved, like attending a specified number of board meetings or volunteering a certain number of hours, before inviting a young person to join the board. Whether board membership is earned based on ability, interest, or commitment, or simply conferred when the young person reaches a specific age, celebrate it as an important event that the next generation eagerly anticipates.
• Are we open to trying new philanthropic strategies? With “philanthropreneurs” such as Mark Zuckerberg and Bill Gates as their models, many next-generation foundation members are inspired by an entrepreneurial approach to giving. If the foundation has always made straightforward grants to public charities, new approaches, such as program-related investments, grants to individuals, and direct charitable activities might fire their imagination and enthusiasm. Because Foundation Source supports these and other advanced giving strategies, our clients are able to experiment with new grantmaking techniques for accomplishing their missions without exposing themselves
  to compliance violations.
• Do we provide opportunities to practice informed grantmaking? You can teach the basics of grantmaking, including how to find and vet grantees, by encouraging children to shadow board members. Older children might even be allowed to do some supervised grantmaking of their own. Foundation Source clients use our online Grant Certificates to enable young people not officially on the foundation to make grants up to a specified limit to organizations of their choice. And, to introduce teens to board service, many foundations establish a junior board with its own projects, site visits, and meetings. Some junior boards are given their own funds and permitted to develop and define their own mission; others are asked to present their grant recommendations to the foundation board for final approval. Either way, this is a wonderful way to introduce the next generation to the foundation’s processes for making its funding decisions.
• Should experienced board members serve as mentors? To prepare the next generation for board duties, many families institute an extended apprenticeship program, pairing young people with more experienced board members to act as mentors. The mentors can teach their successors- in-training about the foundation and its work while helping them to explore how their unique contributions can enliven and invigorate the foundation.
• Are we engaging them on the right subject? Don’t assume that grantmaking is the only topic of interest to new members. Very often, young adults are also interested in the foundation’s finances. (Impact investing is especially popular right now.) Letting young adults see how assets are managed and talking to them about the board’s fiscal goals can be powerful tools for engagement as well as an entry point for teaching financial basics.
• How are we engaging the passions of our younger members? Engagement needn’t be a one-way street. Although you certainly want younger members to understand and commit to the core mission of the foundation, providing a small amount of money in the form of discretionary funds offers the opportunity for young adults to connect grantmaking to their own interests. Having their own funds to contribute not only teaches them how to make grants, but also generates new program ideas for the foundation. Foundation Source makes discretionary granting easy. Young people can make grants online from any locale up to their allotted amount. As soon as they’ve reached their discretionary limit, they’re automatically prevented from granting any more.

Younger members can reinvigorate the foundation but their ideas must be grounded in an understanding of the foundation’s legacy.

Sudden Growth of Foundation Assets

When a foundation experiences rapid growth, such as when it becomes the beneficiary of a bequest or upon the sale of a family business, the amount that the foundation is required to distribute each year will also grow. Although the increased payout requirement does not take effect until the completion of the next fiscal year, the foundation will need to bring its grantmaking and operations in line with its larger endowment. To do so in an organized fashion, the board will need to answer these questions:

• What do we want to accomplish as a foundation? This is an ideal moment to reflect on the foundation’s history and perhaps dream a little bigger. To ground your aspirations and test their feasibility, you may want to convene funders who are already working in your new areas of interest.
• How do we expand our scope? Some foundations choose to deepen their areas of interest. For example, a foundation that focuses on housing the homeless might decide to direct more funding to the root causes of the problem. To see where the foundation would get the biggest return for its grant dollars, you might want to hire an outside expert to undertake a “field scan” to reveal who else is working on the issue, their successes and failures, gaps in funding, and what is known/unknown about the problem.
• Do we want to start accepting external requests for support? To meet an increased distribution requirement, a foundation that formerly did not consider outside requests for funding may decide to open up its process to a wider audience. Developing funding guidelines and a formal application process enable foundation members to receive ideas from a wider range of organizations.
• How will we increase capacity without adding too much overhead? More assets and increased grantmaking may necessitate more work than volunteer board members can undertake. If the workload becomes onerous, consider entrusting the administration to a foundation management company. Outsourcing can reduce busywork, allowing everyone on the foundation to spend more time where it counts—on effective, innovative philanthropy.

You might want to hire an outside expert to undertake a “field scan” in your proposed area of interest.

We Can Help

No matter what your foundation’s turning point, Foundation Source has the resources and experience to support it. We’ve brought together the services of attorneys, philanthropic advisors, tax experts, foundation operations specialists, and client advisors all under one roof, and coordinated them so you can get everything you need to manage your foundation in just one phone call.

And because we adapt our services to fit your evolving needs, you can count on your partnership with Foundation Source to last for years to come. As you evolve and change, you’ll never misplace key data, lose momentum, or endure growing pains during transitions. Whatever comes, we’re a constant, steadying presence that can help your foundation maintain its efficacy throughout its life cycle.

1. Contact Foundation Source

Once you have identified a prospect, contact your regional Foundation Source Managing Director, or call 800.839.0054. We’ll help you evaluate the client’s needs, determine what services are appropriate, create a custom proposal, and outline next steps.

2. Schedule a Follow-up Meeting

You may want to schedule a follow-up meeting to introduce Foundation Source to the client or prospect. We’ll work closely with you on any required follow-up activities.

3. Complete Our Services Agreement

Once there is interest in moving forward, we’ll prepare an agreement for the client’s execution. We’ll work with you and the client to get the foundation up and running on our platform.

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The post Foundation Transitions appeared first on Foundation Source.

Planning for new leadership offers opportunities for family foundations to achieve a range of objectives that are important to the foundation’s future. Answering the following questions can guide successful decision-making:

Assess Needs

• What is the goal of succession?
• What are the foundation’s needs in a leader, particularly relative to family dynamics, grantmaking focus, and geography?
• What are the roles and responsibilities of the current leader?
• How will these roles and responsibilities change with a new leader?

Consider Process

• What will be the process for search and selection?
• Who will be involved in choosing the next leader? Will it be the current president, a committee, or the entire board?
• If the choice is subject to a vote, must it be unanimous, or will a simple majority suffice?

Re-articulate Goals and Mission

• Will the foundation examine its core mission?
• Will the foundation undertake an evaluation of current strengths, weaknesses, opportunities, and challenges?
• Will the foundation’s original philanthropic intent evolve to meet changing circumstances?
• How much of a say will the new leader have in determining grantmaking priorities?

Identify New Talent or Cultivate Existing Talent

• If the board is very small, or if more than one board member leaves, how important is it to expand the board?
• Are there current board members with interest and potential to take on new or expanded responsibilities?
• If grants are community based, how important is it to consider community representation on the board?
• Are there particular skills or expertise needed on the board?

Plan for a Seamless Transition

• When will this change in leadership happen? Is the foundation planning around a specific date?
• If relevant, what will the role of the former leader be after the foundation chooses a new leader?
• Will the former leader be providing training, support or mentorship for the new leader?

Conclusion

Succession is a critical juncture for the board and the extended family. It can be an opportunity to reflect and reimagine the organization’s future, and a time to consider the desired leadership skills to guide the foundation in a continued or new direction. Planning for a smooth, thoughtful and strategic transition is vital. With proper planning, foundations can emerge from leadership transitions stronger-than-ever—with renewed purpose, continuity and dedication to their philanthropic goals.

A sudden change in foundation leadership can have negative consequences that reverberate both with the family and with your grantee organizations.

The post Succession in Family-Led Board Foundations appeared first on Foundation Source.

Pros

1. Reducing conflict

Board members don’t always share the same convictions, political ideology, or priorities. And when the foundation’s board comprises family members, these divisions may be sharp enough to imperil productivity and cause hurt feelings. Giving everyone his or her own funds to distribute can help keep the peace and preserve collective decision-making by providing an “escape valve” for dissent.

2. Fosters enthusiasm and engagement

Allowing individuals to support organizations of personal interest is an obvious way to keep them committed to the foundation.

3. Incubates new programs and projects

These individual “side projects” can serve as philanthropic laboratories, testing out organizations and projects outside of the foundation’s typical areas of focus.

4. Expands the foundation’s geographic footprint

Dispersed family members can make grants where they reside, making participation more relevant for them while bringing the foundation’s work to a much broader constituency. Having a broader footprint can also lead to new and useful partnerships in other areas of the country.

5. Provides rapid response capability

Because discretionary grants don’t need to wait for unanimous board approval, the foundation can respond quickly to urgent situations.

6. Provides a training ground

Discretionary grantmaking gives incoming members some valuable hands-on experience and training.

7. Rewards service

In lieu of compensation, some foundations give board members agency over their own pool of funds.

57%

of foundation source clients surveyed provide discretionary funds for members.

Cons

1. Diverts focus and resources from common mission

If foundation members are primarily focused on their own grantmaking, they may not be able to devote sufficient attention to the foundation’s core mission. Also, if too many funds are siphoned off for individual expenditures, the remainder might not be sufficient to achieve the foundation’s primary mission.

2. Confuses nonprofits and the public

If the foundation makes numerous grants that don’t align with its publicly stated purpose, expect some confusion—as well as a lot of proposals that fall outside the foundation’s mission.

3. Lacks accountability and could diminish impact

Because discretionary grants are often made without full board approval, it’s difficult to ensure that the foundation’s funds are being used consistently with its mission.

4. Might deter personal giving

If the foundation’s funds are used for individual charitable endeavors, board members might be less inclined to give out of their own pockets.

5. Increases compliance risk

When individuals are given control of grant funds, the opportunity for inadvertent self-dealing increases. For example, a board member might be tempted to grant to an organization that offers free tickets to a popular show. Without the scrutiny of the entire board, board members may stray into questionable legal territory, thereby exposing themselves and the entire foundation to potential violations.

6. Avoids necessary conflict

Discretionary grantmaking enables board members to sidestep conflict while denying them the opportunity of working things out together. For many foundations, conflict is a necessary and productive part of finding common ground. Avoiding conflict does nothing to resolve disagreements, which might fester while they’re ignored.

37%

of foundations allocate 5% or less of their budget to discretionary grantmaking.

Respondents told us that discretionary grantmaking typically accounts for less than a quarter of the foundation’s grantmaking funds. 29% said it accounts for 10%-25%. However, 15% said their foundations allocate 100% of their budgets to discretionary grantmaking.

A Balanced Approach

If your foundation is interested in pursuing discretionary grantmaking, you’ll probably want to put limits around it. For example, your foundation could decide to make almost all of your grants collectively but allocate some funds for discretionary grantmaking by individual members. Here are some other ways to make sure discretionary grantmaking is an added attraction to your foundation and not a distracting sideshow:

1. Develop a policy

Articulate your foundation’s reasons for pursuing discretionary grantmaking, and draft policies around how these grants are made. What percentage of the grant budget will be allocated to discretionary grants? Are there any prohibited issues or geographic restrictions for these grants? What is the approval process?

2. Keep your mission paramount

To prevent discretionary projects from distracting from the foundation’s core focus, ask foundation members to agree on one ground rule: Discretionary grants should be consistent with the foundation’s mission.

3. Make matching grants

Want to ensure that individuals spend the foundation’s funds as carefully as they’d spend their own money? Instead of giving each member foundation funds
to disburse, use your discretionary fund to match each member’s individual, personal gifts.

4. Reward personal commitment

To avoid having discretionary funds displace personal giving, consider a policy of awarding this type of funding to board members who give up their personal time to serve as volunteers.

Discretionary funding therefore becomes a recognition of personal commitment instead of its surrogate.

5. Make it a limited-time offer

How will you know whether your discretionary funds have been a success or failure? Rather than making a permanent commitment to discretionary funding, give it a trial run and assess its impact. Decide upfront whether the trial period will be one, two, or three years, and determine how you’ll measure its impact.

6. Put “guardrails” around grantmaking

If you’re contemplating instituting discretionary giving, consider engaging Foundation Source.

Our online technology enables individual members of the foundation to grant from any internet-en- abled device in any locale. Once an individual reaches their allotted discretionary amount, the system prohibits further grantmaking. And because the system can be configured to the needs of your foundation, designated individuals can be provided with viewing rights, providing complete transparency. As part of our comprehensive outsourced services, we alert members when we spot potential conflict-of-interest and self-dealing issues with pending grants, helping to prevent compliance violations before they occur.

Although discretionary grantmaking isn’t necessarily the right choice for every foundation, with careful planning and thoughtful implementation, it can provide numerous benefits.

35%

of our clients provide $20K per individual.

When asked how much they provide (or will provide) to each individual, here is how respondents replied:

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Generally speaking, as spelled out in Section 4941, the IRS prohibits all financial transactions between a private foundation and its “disqualified persons” (insiders). All such transactions are considered self-dealing, and such violations can result in tax penalties and even the loss of the foundation’s exempt status.
Who is considered an insider? Any and all of the following:

Foundation managers (directors, officers, trustees, and those with similar powers or responsibilities)

• Substantial contributors and individuals or entities with a 20% or greater interest in an entity that is a substantial contributor
• The family members of all such individuals
• Certain entities partially or wholly owned, directly or indirectly, by disqualified persons

However, Section 53.4941(d)-3(c)(1) of the Treasury Regulations provides an interesting exception to the prohibition against financial transactions: It permits compensation for personal services rendered in carrying out foundation affairs, provided that the services provided are reasonable and necessary, and the compensation is not excessive. Compensation that meets these standards can be counted as a charitable expenditure, contributing toward the 5% annual distribution requirement that foundations must make¹.

For the foundation to furnish compensation, the services rendered must be both “necessary” for the foundation to carry out its tax-exempt purpose and “personal” in nature. Although the term “personal services” has not been well defined by the IRS, the Treasury Regulations provide examples indicating that it includes investment management, legal, and banking services. Further, it is generally understood to include professional and managerial services rendered by an insider in his or her capacity as an officer, director, trustee, or executive director of the foundation.

Personal services typically fall into one of three categories:

Board, officer, or trustee service
To qualify for compensation, personal services would need to have the function of oversight: review foundation investments and finances, chair committees, plan ways for the foundation to achieve its mission, etc.

Professional advisor
A board member, officer, or other insider (or his or her relation) who is also a CPA, attorney, or financial planner might be compensated for rendering his or her professional services to the foundation.

Staff services
The foundation’s executive director or other staff, such as a program officer.

So, how does a foundation determine what constitutes “reasonable” and “necessary” compensation? Well, this is where it gets a little tricky.

Standards for Determining “Reasonable”

The rules are a lot easier for public charities, where, under the “excess benefit transactions” regulations, the compensation paid to a disqualified person is presumed to be reasonable, provided that certain procedures are followed; if the procedures are followed, the burden shifts to the IRS to rebut that presumption. Private foundations don’t have a clear set of procedures to follow. The Treasury Regulations applicable to public charities do, however, set forth procedures for determining reasonable compensation that the private foundation sector has adopted as best practice.

The standards set forth in the Treasury Regulations require that the amount of compensation is comparable to what would ordinarily be paid by similar organizations for like services. This depends on the individual’s job description, the skill or knowledge required to perform the job, the amount of time needed to fulfill the functions required and the salaries paid for comparable positions. In practice, this means that foundations need to benchmark any proposed compensation against what other for-profit and nonprofit companies pay similarly qualified candidates. Foundation Source facilitates a benchmarking service for its client foundations.
It probably goes without saying, but this benchmarking process must be undertaken before any compensation is paid. Moreover, the process must be conducted so that it meets these requirements:

• The compensation is approved in advance by an authorized body of disinterested individuals.
• The authorized body obtained appropriate comparability data prior to making its determination as to reasonableness.
• The authorized body concurrently made its determination and adequately documented the basis for that determination

Essential elements of the benchmarking analysis include the consideration of relevant factors, which might include:

• The size of the organization
• The employment history of the candidate and any special qualifications (e.g., licenses and certifications)
• The geographic location of the foundation (some regional employment markets pay more than others)
• The specific job duties and responsibilities
• The time commitment (is it a full-time job?
• The total value of the compensation package, including benefits

Finally, when determining reasonableness, it’s important to consider the total compensation paid to all insiders and how this amount compares to the foundation’s assets and level of annual grantmaking. If the foundation appears to be paying its insiders disproportionately, the IRS and/or the Attorney General might start to wonder whether the organization is genuinely dedicated to charitable purposes.

Proceed With Caution

Foundations and their insiders that fail to meet the “reasonable and necessary” and “personal services” requirements with respect to compensation face an array of possible self-dealing and/or taxable expenditure penalties:

Self-dealing penalties

If the services rendered by the insider are not personal in nature, or the amount paid is found to be excessive, the IRS may impose a penalty on the insider who engages in the act of self-dealing. The penalty, payable by the insider personally, not the foundation, will be equal to ten percent of the “amount involved.2” The IRS also could impose an additional five percent penalty on any foundation manager who was aware that the transaction was self-dealing yet participated in it nonetheless. The insider must return any impermissible compensation, with interest, to correct the self-dealing violation, and if the self- dealing act is not undone or corrected in a timely manner, the IRS may impose punitive second-tier taxes, currently 200% of the amount involved. Similarly, a second tier tax of 50% may be imposed on any foundation manager who refuses to correct the violation. Finally, the IRS may seek revocation of the foundation’s tax-exempt status if it believes that the violations around compliance constitute a pattern of self-dealing that essentially nullifies the foundation’s purpose as a charitable enterprise.

Taxable expenditure penalties

Section 4945 of the Internal Revenue Code imposes penalties on a foundation’s “taxable expenditures,” which include expenditures that do not further charitable purposes. If the foundation pays compensation that is deemed unreasonable, a taxable expenditure would result, subjecting the foundation to a penalty in the amount of 20% of the portion that is considered unreasonable. Further, a foundation manager that agrees to pay unreasonable compensation, knowing that the payment is a taxable expenditure, could be personally liable for a penalty in the amount of five percent of the unreasonable compensation. In addition to these penalties, the violation must be corrected, which could necessitate that the individual return to the foundation the portion of the compensation deemed unreasonable—with interest. If the taxable expenditure is not corrected in a timely manner, the IRS may impose confiscatory second-tier taxes on the foundation, currently 100% of the amount of the expenditure. Similarly, a second-tier tax of 50% may be imposed on any foundation manager who refuses to correct the violation.

Excessive compensation can lead to additional headaches for the foundation. As discussed earlier, compensation that meets IRS requirements may be counted toward the foundation’s annual minimum distribution requirement; excessive compensation does not. As a result, the foundation might not have met its distribution requirement during the years that the compensation was paid, giving rise to yet more penalties. To make matters even worse, correcting a self-dealing violation necessitates both the insider and the foundation to file penalty returns with the IRS. A penalty return reporting only self-dealing may not be open to public inspection, but a penalty return reporting a taxable expenditure is a public document, available to anyone who cares to see it.

The bottom line for foundations is that it is possible and even a fairly common practice to pay insiders for their work on the foundation, as long as you follow the rules. However, given the complexity and nuances of the process, it’s important to ensure that your foundation undertakes all the steps necessary to remain in compliance.

The post Compensating Foundation Insiders appeared first on Foundation Source.

These foundations, which make up the bulk of the private foundation community, typically make grants to public charities. They can conduct their own direct charitable activities
(and make grants to individuals, award scholarships, make grants to international organizations that aren’t recognized as 501(c)(3) charities, etc.), but running their own programs is not their primary focus. Generally, a non-operating foundation must make an annual distribution equal to roughly 5% of its prior year’s average net investment assets. Distributions that count toward this requirement include grants to charities, certain related expenses, and, with the exception of investment expenses, necessary and reasonable administrative costs (including Foundation Source’s annual fee).

The primary difference is the extent to which resources and operations are dedicated directly to charitable activities.

Dollars and Cents: A non-operating foundation is usually funded by contributions from the individual and/ or family that established it; they rarely engage in fundraising. Contributions of cash are deductible at up to 30% of the donor’s adjusted gross income (AGI). Donations of non-cash assets are deductible at up to 20% of AGI. Generally, the amount of the deduction is fair market value for donations of publicly traded stock held by the donor for more than 12 months and, for other assets, at the lesser of fair market value and cost basis.

Operating Foundations

In contrast to non-operating foundations, an operating foundation must be significantly involved in its own projects in a continuing and sustaining fashion. In a sense, an operating foundation is a hybrid of a public charity and non-operating private foundation in that its primary focus is on active and direct conduct of charitable pursuits funded from private sources. To ensure that operating foundations are adequately engaged in directly carrying out their charitable activities, they are required to spend a calculated amount each year directly for the active conduct of their charitable operations (direct charitable expenditures). The required annual distribution amount is determined by reference to income, character of assets and sources of revenue via a two part test (discussed below). Essentially, an operating foundation makes direct charitable expenditures by conducting its own charitable projects rather than by making grants to other organizations. (For instance, rather than give a grant to a food bank, an operating foundation might purchase food directly and hire a driver to deliver it.)

Dollars and Cents: Although an individual or family typically establishes the operating foundation, it may receive contributions from the general public and other foundations. In contrast to a non- operating foundation, cash contributions to an operating foundation are deductible as if they were made to a public charity—up to 60% of the donor’s AGI for contributions of cash. Gifts of long-term appreci- ated securities and other appreciated capital gain assets generally are deductible at up to 30% AGI (generally at fair market value).

Even if a donor intends to conduct a direct charitable activities, there are compelling reasons to consider a non-operating foundation instead.

When contemplating establishing a private foundation, the choice between operating and non-operating might seem straightforward: If direct charitable activities and services are likely to be the primary and continuous focus, the tax benefits and a more flexible distribution requirement (and the lack of an excise tax if the foundation fails to meet the requirement), might point toward an operating foundation. However, even if a donor intends to conduct direct charitable activities, there are compelling reasons to consider a non-operating foundation instead.

It’s Labor Intensive and Costly

Whereas a non-operating foundation typically accomplishes its charitable purpose by making grants to nonprofits directly conducting their own charitable programs, an operating foundation directly conducts its own charitable activities, which may entail hiring contractors, employing program sta , leasing space, paying utilities and insurance premiums, and purchasing supplies and other assets used in its charitable operations. In other words, there are considerable operational costs and overhead associated with an operating foundation. Classic examples of operating foundation projects include establishing and running a museum, conducting scientific research, and developing low-income housing. Typically, an operating foundation’s work is likely to have a single defined focus.

There Are Financial Tests

Income Test: This first annual test requires an operating foundation to make direct charitable expenditures greater or equal to the lesser of 85% of its annual adjusted net income (ANI), or 4.25% of its investment assets on its self-initiated charitable programs. Generally, ANI represents a foundation’s investment income, such as interest, dividends, rental income, net short term (but not long term) capital gain, less its investment related expenses.

Asset Test: Essentially, the asset test measures the portion of the foundation’s assets devoted directly to the active conduct of its charitable activities. Put simply, to meet the test, at least 65% of a foundation’s assets must be devoted directly to the active conduct of its exempt purpose.

Endowment Test: To satisfy the endowment test, a foundation must make direct charitable expenditures in an amount not less than 3.33% of its investment assets.

Support Test: To satisfy this test, at least 85% of the foundation’s financial support (other than gross investment income) must be received from the general public and from five or more exempt organizations that are not disqualified persons with respect to each other or the recipient foundation. In sum, this test determines whether a foundation has broad support and a limited amount of support from gross investment income.

In exchange for accepting the lower tax-deductibility of a non-operating foundation, donors get a host of benefits.

The income test and one of the three other tests are applied each year for a four-year period that includes the current and past three years. An operating foundation has a choice of methods to calculate its compliance with these tests:

• Aggregate all income, assets, and distributions over a four year period using one of the asset, endowment, or support tests for all four years plus the income test); or
• For each of the three years meet anyone of the asset, endowment, or support tests plus the income test.

If an operating foundation fails to qualify for a particular year, it is treated as a non-operating foundation for that year. However, it can return to operating foundation classification as soon as it again qualifies under both the income test and one of the other three tests. New foundations generally must meet the income test in their first year.

Opting for a Non-Operating Foundation

Non-operating foundations may conduct their own charitable activities (and do a lot more besides) without all of the restrictions and tests that apply to an operating foundation. For non-operating foundations, it isn’t necessary to prove that direct charitable activities account for the bulk of the foundation’s distributions.
In fact, to comply with IRS regulations, a non-operating foundation need only demonstrate that a direct charitable activity has a charitable purpose.

In exchange for accepting the lower tax deductibility of a non-operating foundation, donors get a host of benefits including:

Expanded scope: Non-operating foundations don’t have to restrict their work to one area— or even a few. Instead, they can give in as many di erent issue areas and to as many organizations as their board desires.

A vast array of grantmaking techniques: Whereas operating foundations typically can’t count grants to nonprofits or individuals toward their various tests, non-operating foundations may count these grants toward their minimum distribution requirement. They may also count qualifying distributions such as administrative expenses, program-related investments, and more.

Lower (or no) staffing costs: Non-operating foundations may outsource their administrative and advisory needs to specialized firms like Foundation Source, and typically don’t incur the extensive overhead that results from running charitable operations comprising the foundation’s primary area of focus.

More efficient philanthropy: Although the do-it-yourself approach is ideal for certain circumstances, it’s frequently more efficient to work through an established nonprofit with effective, road-tested programs rather than “reinventing the wheel.”

Another reason to opt for a non-operating foundation is the comparative ease of compliance, administration, and operations—all of which are made even easier with comprehensive, outsourced services from Foundation Source. Our administrative, tax, legal, and philanthropic experts become the foundation’s “virtual” staff, taking care of everything from grants processing and payment to tax preparation and filing. We even provide real-time monitoring of foundation activity and alert foundation members to possible compliance issues.

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