Brochures Archives - Foundation Source

Getting Started – Your Guide to Working With Foundation Source

FS Web — Sat, 19 Oct 2024 06:01:03 +0000

Getting Started With Foundation Source

Your assigned PCA will help onboard your foundation to Foundation Source, facilitate our service offerings, and manage your overall experience with us.

The president of your foundation (or another designee) will be contacted by your foundation’s PCA within a day or two of signing up with us. The PCA will arrange for a short introductory phone session so that we can collect and confirm important details about your foundation and identify next steps. Following this call, a Start-Up Packet will be sent with forms that your PCA will be happy to help you complete.

Your PCA will provide guidance regarding the foundation’s governance, administration, and grantmaking. The PCA will also provide a video tour of Impactfully, your foundation’s dashboard, along with instructions for using it.

Financial Information

Foundation Source collects and aggregates financial information from all of your foundation’s investment accounts in order to prepare federal and state filings, calculate quarterly estimated tax payments, determine your annual payout requirement, provide donor tax receipts, and much more. (We will help you put the appropriate authorizations in place so that your financial institution(s) can provide duplicate monthly statements and establish connectivity with us for ongoing receipt of financial data.) Each account is tracked and reconciled by our Financial Operations team and then displayed on Impactfully, so that you can always view the foundation’s assets and expenditures. We will also establish a disbursement account in order to process grants, expenses, and taxes efficiently and promptly.

If you’ve come to Foundation Source as an established foundation and have engaged us to prepare the current-year tax return, our Implementations and Financial Operations teams will work with you and your financial advisors to gather and load your recent financial history onto our system. This information will enable us to reconcile your data to the prior year and, going forward, to calculate tax payments and prepare filings. We can also load your foundation’s entire granting history onto Impactfully so you always have it as part of your foundation’s records. Speak with your Private Client Advisor about engaging us to handle this for you.

WHERE’S MY CHECKBOOK?
One of the ways Foundation Source helps make managing your foundation easier is by processing all payments for grants, expenses, taxes, and other fees for you, so a separate checkbook is not necessary. Managing expenditures this way ensures that funds are disbursed for only valid IRS-approved uses and enables us to address compliance issues at the point of transaction, reducing the potential risk of IRS audits and penalties to your foundation. Additionally, our ability to record transactions as they occur provides you with up-to-date information.

Your Advisors

You may appoint one or more of your advisors, such as a trust officer or attorney, as an interested party to your foundation. That person may receive email notifications, be provided with limited access to your foundation’s dashboard, and (for those with an advanced level of access) even be authorized to act on your behalf to initiate grants and approve expenses. The Foundation Source team will be happy to coordinate with your financial advisor(s), outside counsel, and others at your request.

Your Foundation’s Online Dashboard

We provide your foundation with its own secure online dashboard at foundationsource.com, which functions as your virtual command center. This dashboard, Impactfully, can be accessed only by those who have been authorized with specific rights and privileges.

Authorized users can log on to make grants, submit expenses, view foundation reports and documents, and, if using our optional Foundation Source Applications and Outcomes modules, review applications for funding and reports on grants made. In addition, you’ll have access to the content, tools, and resources on the Foundation Source Resource Hub, a treasure trove of topics, thought leadership and inspiring client stories impacting philanthropy.

To get started, each authorized user will receive an email with a proprietary link enabling them to log on to the site and set up a username and password. This provides security to keep others from viewing your foundation records and initiating unauthorized transactions. Protect this information just as you would any other sensitive data. We recommend that users change their passwords periodically as an additional security precaution.

Foundation Officers, Directors and Trustees

Foundation Source establishes foundations as Delaware corporations. If your foundation was provided by Foundation Source, then there will initially be a sole director and officer of that corporation. Additional directors and officers may be nominated and elected at any time. Your PCA or assigned Philanthropic Director will be happy to discuss the various options, roles and responsibilities with you. Because Foundation Source prepared the template bylaws and resolutions that formed your foundation, we are able to provide support and documentation for your basic governance changes as well.

If your foundation was in existence before engaging Foundation Source, it may be a corporation or trust established in any state. It’s important that the current names and titles of foundation officers or trustees be provided to us for purposes of state and federal filings. Since your foundation formation documents were not provided by Foundation Source, governance changes and resolutions may require outside legal counsel.

In either case, please let us know as soon as possible when officers, directors or trustees are elected to or resign from the foundation so that we can keep your foundation’s records current and accurately reflect the governance structure on the federal and state filings.

Foundation Documents

Your private foundation is a legal entity and therefore has formation documents as well as tax and other related documents. We’ve provided a digital library on Impactfully where we will store your foundation documents—both those created by us and your own documents, which you may wish to upload and categorize. The IRS requires some foundation documents to be made available for public inspection, and we offer Foundation Source’s own address to fulfill that requirement. If you choose to have Foundation Source serve as your foundation’s address of public record, you will be given a list of specific documents that we must retain on the foundation’s behalf in order to serve in that capacity. Your PCA will help ensure that you have all the required documents.

It is important to keep minutes of your board meetings to track all of the foundation’s decisions and board actions, especially in the event that your foundation’s actions are ever challenged.

A Meeting Minutes Template is available in your documents repository on Impactfully to help frame your meetings and to make this recording easier. Ask your PCA or Philanthropic Director for additional guidance about running and documenting your meetings.

Foundation Funding

Contributions to your foundation can come in all shapes and sizes. Regardless of what form they take, they must be recorded as close to the time of the donation as possible.
For deposits of cash or securities to accounts for which we have connectivity, we will contact you to confirm who made the contribution (if the donor’s information has not already been provided). We use this information to send out donor receipts after the close of the year and, if necessary, to report donors on the foundation’s tax return. If the contribution consists of stock, we will also request the original cost basis for tax purposes if this information is not available on the account statements.

If the foundation plans to receive a contribution of an alternative asset, such as real estate, art or any other asset that would not show up in an investment account, please contact us immediately so that we can help guide the transaction and ensure IRS compliance, as well as record that information for tax purposes.

If you have questions about donating a particular asset to the foundation, contact your PCA so our legal team can assist you. If you are not sure about the implications of the donation on your personal tax situation, please consult your legal or tax advisor.

Making Grants

Generally, private non-operating foundations make grants to U.S. public charities in good standing with the IRS, to U.S. governmental entities such as public schools and libraries, and to religious organizations administered in the U.S.

Your foundation’s online dashboard provides access to our database of more than one million IRS-approved charities. When you locate a charity on the list, you
will find a great deal of information provided by the IRS. In addition, look for the link to information from GuideStar®, offering programmatic and financial data. A link to the Charity Navigator® report is also provided for organizations for which they have prepared an assessment. You may grant to any verified organization in the database without additional due diligence and request that we add other verified charities to the list.

Impactfully can be configured to enable and support your foundation’s grantmaking processes and preferences. You may make single payment grants, set up recurring grants to be paid on a set schedule to the same organization, and make pledges with multiple installments scheduled for payment over a set period of time. Your foundation may require grant approvals or votes from members of a grants committee before funds are distributed. Grant letter templates may be customized for your preferences, and you may even have several different letter templates. Your PCA and Philanthropic Director can assist you in developing the right approach to your foundation’s grantmaking, and coordinate customizations per your request.

Grant Certificates

The Grant Certificate program is an exclusive Foundation Source offering that enables you to share your philanthropy with others. Issued in any preset amount you desire, Grant Certificates enable people who are not officially on your foundation or who do not have granting privileges, such as children or business associates, to make grants to the charities of their choice from your foundation. Grant Certificates are sent to the recipients by mail or email, or they can be generated in hardcopy for personal presentation. Grant Certificate recipients are provided with temporary restricted access to the charity database and grantmaking pages of your foundation’s dashboard.

Like other types of donations, Grant Certificates count toward your foundation’s minimum distribution requirement. You can even put approval requirements in place to ensure that donations are aligned with the foundation’s mission and purpose. For more information about Grant Certificates, call your Private Client Advisor.

RESEARCHING A CHARITY’S EXEMPT STATUS
If you do not find a particular organization in the search results, you may enter a Charity Research request. Our legal department will contact the organization to verify its status and identify next steps for your foundation to make a grant.

Paying Expenses

The IRS allows private foundations to pay expenses required for running a foundation’s operations and programmatic activities, as long as these expenditures are properly documented and are ordinary, necessary, reasonable, and related to the foundation’s affairs.

A foundation can reimburse expenses incurred by authorized foundation members for travel, meals, conferences, office supplies, etc., in connection with the foundation’s activity, as long as such expenditures advance its charitable mission. Expenses considered “charitable” count toward the foundation’s annual payout requirement whereas those that are investment-related offset the foundation’s tax liability.

Your foundation’s dashboard provides an easy way to submit expenses for payment or reimbursement and enables you to record the nature and amount of the expense, provide the name and address of the payee, and upload supporting documents. Expense processing can be set up to require approval by committee members or other authorized parties.

Foundation Source will conduct a standard review of each expense submitted to ensure IRS compliance and then process payment to you, to another foundation member, or to a third-party service provider, as directed. We also collect W-9s in order to generate 1099s following the close of each year as required by the IRS.

We strongly recommend that every client adopt and adhere to an expense policy. (Foundations that are provided by Foundation Source have such a policy as part of their formation documents.) Please contact your PCA for assistance if you have expenses that seem to fall outside the scope of your foundation’s policy or have any questions about the eligibility of any expense.

Minimum Distribution Requirement

Private foundations are established with the primary objective of distributing funds for charitable purposes. As such, the IRS requires that each year your foundation distribute approximately 5% of the prior year’s average net investment assets. This is called the “minimum distribution requirement” (MDR). Grants and charitable or administrative expenses count toward this payout requirement (as “qualifying distributions”) but expenses pertaining to your foundation’s investments do not. Foundation Source tracks this amount closely throughout the year and displays the foundation’s progress on Impactfully. We will notify you if, near the end of your foundation’s fiscal year, the foundation has not yet met its MDR so that you can take appropriate steps to avoid potential penalties associated with the foundation’s failing to distribute the required amount. For a foundation in its initial year, there is no amount required to be distributed by year end, since there were no prior year assets.

Taxes and Compliance

Private foundations must file annual returns with the IRS each year (Form 990-PF and, under some conditions, the 990-T) and pay an excise tax of 1.39% on their net investment income. Foundation Source will prepare your foundation’s federal and state returns, calculate quarterly estimated taxes, and coordinate and process electronic payment of your foundation taxes.

IMPORTANT DATES

Your foundation’s return is due to the IRS annually in the fifth month after the close of its fiscal year, with a no-penalty extension available until the eleventh month after fiscal year end. Quarterly estimated taxes are due in the fifth, sixth, ninth, and twelfth months of each year. For example, the due dates for a foundation with a calendar fiscal year are:

Fiscal Year End:

December 31

Form 990-PF or No-Penalty Extension:

May 15

Form 990-PF, if placed on Extension:

November 15

Quarterly Estimated Taxes:

May 15, June 15, September 15, December 15

Providing all information required for the preparation of the return at least six weeks prior to each filing date guarantees that we will be able to prepare the foundation’s return in time for filing by the upcoming deadline; information provided closer to the due dates may delay preparation of returns. For a foundation with a calendar fiscal year, all information must be submitted to us by the following dates in order to ensure a timely return:

To file by May 15:

March 31

To file by November 15:

September 30

We greatly appreciate early submissions.

STATE FILINGS

In addition to federal taxes and filings, foundations have state-level filing obligations in their home states and other states in which they’ve registered. Many of these are annual requirements, such as corporate reports, tax returns and charitable registration renewals, which Foundation Source tracks and facilitates for your foundation.

Some state-level filings are not required, but foundations may choose to pursue them. These include sales tax exemption, DBAs and registration in multiple states. Please ask your PCA for more information about how Foundation Source can facilitate these optional filings.

COMPLIANCE

In order to stay in compliance with IRS regulations, foundations should avoid the pitfalls listed below, as penalties imposed can be significant for the organization and potentially its directors. Along with your PCA, the Foundation Source Tax and Legal team is always available to help you navigate these regulations, provide guidance and answer your compliance questions.

Avoid Self-Dealing Penalties
These are transactions between the foundation and its insiders, such as personal use of foundation funds, purchase of an asset by the foundation from an insider, and use of foundation funds to satisfy a personal pledge.

Taxable Expenditures
These are payments made for non-charitable purposes or grants made to non-charities.

Under-Distribution
Missing the foundation’s annual minimum distribution requirement (MDR).

Excess Business Holdings
Ownership of an active business, either by the foundation on its own or together with its insiders, that exceeds a certain threshold.

Jeopardizing Investments
Investments that lack reasonable prudence and jeopardize the exempt purpose of the foundation.

Specialized Services

Although granting to public charities will always be the cornerstone of private foundation activities, your foundation has many other options to achieve its philanthropic objectives.

Foundation Source Specialized Services brings together the services of our philanthropic, tax and legal experts, so you can use every IRS-sanctioned capability of your private foundation without adding infrastructure or additional staff. Ask your Private Client Advisor for more information about any of these Foundation Source Specialized Services.

Hardship/Emergency Assistance Grants

Provide funds directly to individuals and households for disaster relief, medical emergencies and financial hardship without seeking prior approval from the IRS.

Program-Related Investments (PRI)

Make loans, loan guarantees and equity investments to worthy nonprofit and for-profit entities. Unlike traditional grants, which go out the door never to return, PRI dollars are generally recovered in part or in whole, and may even earn an investment return for the foundation in the form of interest or appreciation.

International Grants

Give to organizations beyond U.S. borders.

Direct Charitable Activities

Run your own charitable programs without setting up a separate nonprofit.

Scholarships

Develop your own scholarship or fellowship program and handpick the recipients.

Awards and Prizes

Provide financial awards to recognize past achievement or prizes to spur future innovation.

When to Call Us

Call us any time you have a question, need guidance or would like to discuss your foundation and its plans and goals.

Working with Foundation Source will help you when:

You need help defining—or revisiting—the foundation’s mission and priorities
You’d like to increase family engagement, perhaps bringing the next generation on board
You’d like guidance on translating a general interest into a concrete grantmaking strategy
Board meetings aren’t as productive as you think they should be, or other foundation operations need to be redesigned
You want to explore ways to increase impact or assess results
The foundation could benefit from new ideas or approaches to philanthropy
You need to plan for change, such as leadership succession or a major change in assets

To be sure we have complete, up-to-date information for tax filings and other administrative matters, please contact us—in advance when possible—if any of the following occurs:

Your contact information changes
You have a question about something you would like to do with the foundation’s funds, or you have a concern about something you’ve already done
An officer, director or trustee is elected, removed or resigns
You open or close an investment account for the foundation
Your foundation plans to buy, sell or receive an asset that is not reflected on your bank or brokerage statements
Your foundation board approves resolutions or minutes
You plan to amend your bylaws, certificate of incorporation or trust documents
You plan to hire an employee or independent contractor

Foundation Source is pleased to partner with you in managing your private foundation. We are here when you need us and are working for you behind the scenes. We look forward to ensuring that you attain your philanthropic objectives and get more from your giving.

The post Getting Started – Your Guide to Working With Foundation Source appeared first on Foundation Source.

Philanthropy Expertise for Private Foundations

FS Web — Mon, 05 Feb 2024 03:53:08 +0000

Areas of Expertise

Governance

Establishing a board
Creating decision-making approaches
Facilitating a board meeting
Developing a succession plan

Leadership and Staff

Defining staff roles
Transitioning to new leadership
Professional development for board members and staff
Identifying opportunities to engage with other funders and nonprofits

Strategic Planning

Determining focus areas
Crafting a mission
Setting long- and short-term goals
Evolving foundation priorities

Sunsetting

Defining a model for spending down a foundation’s assets

Grantmaking

Cultivating and managing grantee relationships
Streamlining grantmaking processes
Building grant selection criteria

Program Development and Management

Maximizing the giving capabilities of private foundations
Creating programs with measurable impact
Developing philanthropy beyond grantmaking

Asset Growth

Adjusting giving goals when foundation assets increase
Meeting a suddenly higher minimum distribution requirement

Next-Generation Family Engagement

Engaging younger generations in the family foundation
Unifying diverse generations through the foundation

Monitoring and Evaluation

Measuring impact of charitable activities
Conducting an annual review

Corporate Philanthropy

Establishing and managing a corporate foundation
Introductory or advanced skill development in grantmaking, due diligence, communications, leadership transition and governance
Guiding the foundation through a company merger

PAS Offerings

Depending on a client’s level of engagement with Foundation Source, access to PAS guidance may be included in their service agreement with our firm. All clients have access to PAS beyond what is provided in their service agreements through custom engagements for an additional fee.

Custom Engagements

Clients of any asset level may request a custom engagement with PAS to address specific needs, such as strategic planning, board meeting facilitation and next-generation involvement. Pricing for custom engagements varies according to the scope of work required.

The post Philanthropy Expertise for Private Foundations appeared first on Foundation Source.

Getting Started with Your Private Foundation: Organizational Basics

FS Web — Thu, 16 Nov 2023 15:03:54 +0000

Naming the Foundation

RULES AND CONSIDERATIONS FOR PLAYING THE NAME GAME

If you haven’t named your new foundation, or if you’re considering a different name for your existing foundation, you’ll want to be thoughtful about what you choose. Before you brainstorm, be aware that the name game has some ground rules.

The names of private foundations (as well as public charities and for-profit companies) are regulated on a state-by-state basis. For example, Delaware requires that both for-profit and nonprofit corporation names contain one of the following 16 words or abbreviations: Association, Company, Co., Corporation, Corp., Club, Foundation, Fund, Incorporated, Inc., Institute, Limited, Ltd., Society, Syndicate, or Union. Beyond the basic legal requirements, the name of your foundation is a matter of personal preference. (If you have questions about the legal requirements, your Private Client Advisor can help.)

For family foundations, the most common choice is to name their foundations after their families. An eponymous foundation can associate your family’s name with philanthropic values as well as with a particular cause if you opt to fund a specific area of need. For example, the Bill and Melinda Gates Foundation has become synonymous with disease eradication, linking the Gates family name to the foundation’s philanthropic mission.

Of course, using your family name is not your only option. If your foundation has a specific charitable purpose, the name you choose could broadcast it (e.g., The Environmental Foundation), or it could be completely generic (e.g., The Harvest Foundation) if you want anonymity. Note, however: While a generic name can help to maintain a low profile, absolute anonymity is difficult to obtain because the identities of board members, officers and substantial contributors are on the foundation’s annual tax return and are a matter of public record.

AN EPONYMOUS FOUNDATION CAN ASSOCIATE YOUR FAMILY’S NAME WITH A PARTICULAR CAUSE

Choosing and Structuring Your Board

ASSEMBLING THE FOUNDATION’S GOVERNING BODY

One of the great things about having a private foundation is that the founder or founders decide who sits on the initial board to help set foundation policy, provide oversight and ensure accountability for performance.

THE BOARD’S RESPONSIBILITIES INCLUDE:

Determining mission and purpose
Engaging in strategic planning
Establishing policies and procedures
Approving and monitoring grantmaking

Providing fiscal oversight
Ensuring adherence to federal and state regulations
Representing the foundation to external audiences

The size of the board should be sufficient to provide effective oversight of the foundation, and its constituent members should possess enough expertise and experience to be an effective governing body. In some states, a foundation board may be as small as one member, usually the founder. Many foundations, however, are governed by the founder and spouse, and immediate family members. This arrangement confers certain advantages. Families, after all, are generally used to functioning as a unit. And because many foundations are set up with the explicit intent of uniting the family around a common philanthropic cause, immediate family members are a logical first choice for board membership, however, they might not have the skills necessary to run the foundation.

For a foundation to operate smoothly, it needs board members with the expertise to manage investments, review proposals and make funding decisions. If your immediate family lacks these capabilities, perhaps extended family can fill the gaps. There are, however, potential downsides to involving extended family. If you intend to include them, you may face the potentially thorny issue of who qualifies as family. Are spouses of blood relations eligible? What about domestic partners, children from other marriages, ex-spouses, etc.? What happens in the event of divorce or remarriage?

MANY FOUNDATIONS ARE SET UP WITH THE EXPLICIT INTENT OF UNITING THE FAMILY AROUND A COMMON PHILANTHROPIC CAUSE

As few families have all the expertise the foundation needs, some foundations recruit non-family members such as business associates, community representatives and trusted advisors who can lend their professional knowledge. And if you’re going to focus on a specific area of giving, outside experts who can offer insight into that particular charitable interest (for example, a doctor who specializes in childhood asthma) can make valuable contributions to your board.

To identify non-family board members, consider the skills you’re missing, connect with your trusted advisors for ideas and interview candidates before inviting them onto the board. Also clarify expectations such as roles and responsibilities, term limits and eligibility for officer positions.

TO AUGMENT THE BOARD’S EXPERTISE WITHOUT OPENING UP BOARD MEMBERSHIP, THE FOUNDATION MIGHT CONSIDER WELCOMING NON-FAMILY MEMBERS AND EXTENDED FAMILY IN AN ADVISORY CAPACITY. ADVISORS CONTRIBUTE THEIR KNOW-HOW AND INFORMED OPINION BUT LACK THE VOTING POWER AND PRIVILEGES THAT COME WITH BOARD SERVICE.

Determining a Foundation’s Mission – or Not

IF, WHEN AND HOW TO CREATE ONE

When Foundation Source clients first establish their foundations, they often ask us whether they should declare a mission to define their foundation’s philanthropic purpose. Our answer: A mission can be helpful but it’s not imperative.

From a legal standpoint, the IRS requires that private foundations have a statement committing their organizations to be dedicated exclusively to charitable purposes. To fulfill this mandate, many foundations adopt the broad statutory language that defines all nonprofits (e.g., “for religious, scientific, literary, educational or other charitable purposes”). Beyond this, there is no legal requirement to declare a mission.

So, in our view, the practice of adopting a formal mission is optional. Some foundations function effectively without one, such as those that serve diverse program areas for which an umbrella statement to unify them may not be possible. Others don’t adopt a mission until they’re well established and have taken time, either months or years, to determine their charitable priorities.

While creating a mission certainly makes good sense for those who know exactly what they want to accomplish, it’s not necessarily the best route for everyone at the outset. When new philanthropists settle upon an explicit mission too early in the life of their foundations – before they’ve found a compelling issue or cause that they’re truly passionate about – they often struggle to live within its constraints. Rushing to declare the foundation’s mission can result in ongoing frustration of constantly having to say “no” to enticing opportunities that lie outside your designated area of focus.

For these reasons, we generally recommend that you “get your feet wet” and let your foundation’s purpose reveal itself in due time. Rather than specifying your foundation’s mission on day one, try making grants to a wide variety of causes and nonprofits to find out what really motivates and excites you. What issues hold your interest? Where are you achieving the most impact? Once you know the answers to these questions, it will likely be easier to determine a mission.

Research shows that a clear, thoughtful mission results in collaboration, enthusiasm, positive dynamics – and the likelihood of continuity. In addition to informing the grantee community about your foundation’s purpose and goals, a focused mission:

Expresses the founder’s intentions for future generations
Ensures foundation members are clear about what the foundation aims to accomplish
Provides a reference point to assess the foundation’s accomplishments and prevents mission drift
Establishes an external identity that signals to other funders how they can collaborate with you
Lends credibility to the foundation, leading others to take your goals seriously
Shields your foundation from having to say “yes” to every grant request

If you opt for a mission, take your time and enjoy the process of developing it – and understand that it will evolve as your foundation grows and gains philanthropic experience. Be sure to revisit it regularly with your board and staff to ensure that it aligns with your initiatives and goals.

WHILE DECLARING A MISSION CERTAINLY MAKES GOOD SENSE FOR THOSE WHO KNOW EXACTLY WHAT THEY WANT TO ACCOMPLISH, IT’S NOT NECESSARILY THE BEST ROUTE FOR EVERYONE AT THE OUTSET.

Planning Your Foundation’s Meetings

WHEN, WHERE AND HOW TO GET TOGETHER

To ensure good governance, private foundations should hold at least one annual board meeting. In fact, the organizational documents of most foundations (e.g., bylaws, trust agreements) require foundations to conduct board meetings at least once per year, if not more frequently. This legal requirement can be fulfilled by meeting in person or, if your charter documents permit, conducting your meetings by phone or online. But beyond legal requirements, regular meetings are critical for making investment and grantmaking decisions, deciding policy, benchmarking progress toward foundation goals, and adjusting foundation strategies where warranted.

Your board will want to review the foundation’s financials, make any officer/director changes, go over the grantmaking budget, etc. It’s therefore imperative to decide early on when, where and how you will meet (and when it’s permissible for board members to miss those meetings). Some families choose to have their board meetings coincide with holidays or other family gatherings to minimize travel expenses and add a new level of richness to these times spent together.

Whether meeting in person or virtually, it’s important that the board take written minutes to help keep track of ideas, observations regarding investment performance, field reports, and other items that might otherwise be forgotten. And from a compliance standpoint, having a signed, formal and permanent record of the actions taken by the board of directors is an important safeguard because, in the event that the IRS ever audits your foundation, your meeting minutes will be among the first items they’ll request.

MINUTES GENERALLY INCLUDE:

A report on foundation activities since the last meeting
Review of potential grants and reports submitted on current grants
A financial report that compares the foundation’s budget to actual financial activity during the current fiscal year
An investment report on the performance of foundation assets and any changes to investment strategies

Review and approval or denial of all actions that require board approval based on applicable state and federal law
Review and approval or denial of proposals that are submitted to the board for review
Approval and ratification of any actions taken by officers since the last meeting
Approval, signature and submission of minutes from the last meeting

To make taking the minutes easy, Foundation Source has created a Meeting Minutes template. (Look for it on your foundation’s online console under “Documents.”) This handy tool enables you to quickly and conveniently capture the details of your board meetings. Once complete and approved, the minutes can be archived with your other foundation documents.

For foundations with a single board member, Foundation Source has also created a Consent of the Sole Board Member template. This can be used to memorialize the board member’s actions that are traditionally taken at a formal annual meeting where there are multiple board members. (This template is also under the “Documents” section of your foundation’s console.)

”Foundation Source provides the experience and expertise that make private foundations operate efficiently and effectively, not only from a standpoint of legal compliance, but also best practices for grantmaking. I’ve found [their employees] to be very knowledgeable in this complicated area and extremely attentive to the needs of my clients. Having access to this resource provides me with incredible added value when discussing what are frequently novel issues for those family foundations that are functioning creatively. For any family or individual who decides to form a private foundation... Foundation Source is the ‘go-to’ place.
DOUGLAS M. MANCINO, PARTNERSEYFARTH SHAW LLP, LOS ANGELES, CA

Determining the Lifespan of Your Foundation

DO YOU ENVISION A PERPETUAL PHILANTHROPIC LEGACY?

At Foundation Source, we recommend that our clients decide early on whether their private foundation should exist in perpetuity or be limited in duration (or “sunset”). Many of your future decisions will stem from this one.

For example, if you intend to have your foundation last for many years, you’ll need to plan for longevity by ensuring that you’ll have sufficient investment returns to maintain the endowment over the long term. You’ll also need to determine how younger family members will be brought onto the board and how you will ignite and engage their enthusiasm.

The Case for Perpetuity

A powerful motivation for establishing a foundation in perpetuity is that the shared philanthropic mission can span and unite multiple generations, bringing parents, grandparents and grandchildren together. It can also create an enduring family legacy. Through the foundation, the ideas and principles of the founders can extend beyond their lifetime, perpetuating their values.

An extended time horizon lends itself to addressing big challenges and intractable problems such as eradicating poverty, expanding health care coverage or improving education. By establishing their foundations to endure, donors enable future generations to take the long view and tackle projects where the outcomes may not be apparent for years, or even decades, to come.

The Case for Limiting Duration

Some donors choose to sunset their foundations, either during their lifetime or within a generation or two, because they want to witness the results of their philanthropy. Others choose to sunset due to concerns that future generations could act counter to the foundation’s original intent or because the next generation has shown little interest in participating in the foundation. A foundation with a planned sunset also makes sense for donors who have chosen to support issues requiring immediate infusions of cash (medical research, new technologies or land conservation), or where the cost of delaying funding may be too great (a natural disaster or the opioid epidemic) and larger grants in the short term would have greater impact.

Why Foundation Source?

Technology

AMPLIFY YOUR IMPACT

Our tech platform was built with one thing in mind: more effective philanthropy.

MDR Tracking
Streamlined Grant Workflows
Extensive Reporting

Expertise

YOUR PARTNER IN GIVING

Let us join you on your philanthropic journey with the experience and tools you need to reach your goals.

Tax and Legal Specialists
Philanthropic Advisory
Advanced Grantmaking Support

Administration

MODERN PHILANTHROPY STARTS HERE

Our tech-enabled solutions make giving – and having a foundation – easier.

Grant and Expense Processing
Compliance Monitoring
Tax Preparation and Filing

The post Getting Started with Your Private Foundation: Organizational Basics appeared first on Foundation Source.

Getting Started with Your Private Foundation: Governance & Policies

FS Web — Thu, 16 Nov 2023 13:33:51 +0000

The Three Duties

UNDERSTANDING THE CORE CONCEPTS OF CARE, LOYALTY AND OBEDIENCE

All of the policies that you’ll need (in fact, all of the actions you’ll ever take on behalf of the foundation) reflect, in substance and spirit, the fiduciary duties of care, loyalty and obedience. These duties set the tone for board service and reflect the standards that have grown out of corporate law. Put simply, here’s what these duties mean:

Duty of Care

The duty of care requires every director to act reasonably, in good faith and with prudence. Directors have the responsibility to be informed about an issue before making a business decision about it. Directors should use their best judgment in making decisions and be vigilant in fiduciary oversight. Of course, to do any of these things requires attendance at board meetings and keeping apprised of foundation actions. Directors should choose fellow board members carefully, and should monitor their actions. Finally, the duty of care requires that directors acknowledge that ultimate responsibility for the foundation rests with themselves.

Duty of Loyalty

The duty of loyalty also requires directors to act in good faith, but is very strict in that it expressly prohibits directors from unfairly profiting, directly or indirectly, from the foundation. Directors will need to put personal and professional interests aside if they conflict with the foundation’s greater good, and take pains to identify and avoid potential conflicts of interest.

Duty of Obedience

This duty necessitates abstaining from acts that are beyond the scope of one’s authority or beyond the permissible activities of the foundation.

In sum, these duties require the board to act in the best interest of the foundation and not the personal interests of the directors. If a director breaches any of these fiduciary duties, he or she may be found personally liable to the foundation and the state or federal government.

To ensure that every board member understands these duties, it is essential that the board members familiarize themselves with the foundation’s charter documents that define its philanthropic mission and every member’s responsibility in achieving it. These documents typically give guidance as to how the foundation should be governed and how new board members are to be elected (or existing members replaced).

Further guidance can be found in the foundation’s articles of incorporation, which date from the foundation’s legal birthday: its establishment as a corporation. The articles of incorporation typically contain a statement of the foundation’s charitable purpose and outline its legal powers and authority.

Bylaws are also created when the foundation is established. These are legally binding rules that outline how the board will operate and should be used to guide actions and decisions. Bylaws are not static, however, and should be reviewed regularly to ensure that they accurately reflect how the foundation works. If the bylaws no longer reflect the needs of the foundation, the board has the authority to amend them.

Foundations established by Foundation Source receive a “starter kit” of charter documents including articles, bylaws, audit committee, and policies around expenses, conflicts of interest, investments, board meetings, and membership. (You can find these documents under the “Archives” and “Miscellaneous” tabs of your foundation’s online console.)

Along with these core concepts, the board is responsible for the following:

Determining mission and purpose
Engaging in strategic planning
Establishing policies and procedures
Approving and monitor in grant making

Providing fiscal oversight
Ensuring adherence to federal and state regulations
Representing the foundation to external audiences

What Laws Govern Foundations?

TWO KEY TERMS AT THE HEART OF MOST REGULATIONS

Although private foundations are considered the most flexible of all charitable vehicles, they are subject to federal, state and IRS regulations. Most of these regulations are intended to ensure that in return for the tax exemption they receive, private foundations benefit the public, and not the individuals who created them.

For our clients, Foundation Source monitors foundation activity and alerts them and their designated advisors when we spot something questionable. Even so, to help identify and steer clear of potential dangers, it’s important to understand two key terms: self-dealing and disqualified persons.

Self-Dealing

Self-dealing is any prohibited transaction between the foundation and its insiders or “disqualified persons” (we’ll define that term next). Generally, foundations and their insiders must avoid the following six activities:

Sale, exchange or lease of property between the private foundation and a disqualified person.
Loan of money or other extension of credit between a disqualified person and the private foundation.
Furnishing of goods, services or facilities by a disqualified person to the private foundation and vice versa.
Payment of compensation and/or reimbursement of expenses by the private foundation to a disqualified person (see exception page 7).
Personal use of or any benefit from income or assets belonging to the private foundation. This includes retaining foundation assets, such as artwork, on private premises.
Agreement by the private foundation to pay a government official or to actually make such a payment.

Exceptions to these rules are provided by the Internal Revenue Code for certain transactions that benefit the foundation. Practical examples of these exceptions include:

Rent-free office space provided to the foundation by the foundation’s creator or another disqualified person.
Reasonable salaries for directors, officers and other disqualified persons who render certain professional services, and reimbursement of reasonable expenses incurred in service to the foundation.
Loan of funds to the foundation at no interest.

In some cases, a foundation manager’s participation in (or failure to prevent) an act of self-dealing could result in serious penalties to him or her personally.

Disqualified Persons

Whether a transaction between a private foundation and another party is an act of self-dealing depends on whether the other party is a “disqualified person” with respect to the foundation. Disqualified persons include:

A substantial contributor to the foundation, or any person who has contributed in aggregate more than $5,000 to the foundation, where that amount represents more than 2% of total contributions made to that foundation since its inception, as of the close of any given year.
Foundation managers, which include a foundation’s officers, directors, trustees, and individuals having similar powers or responsibilities.
Owners of more than 20% interest of an organization that is a substantial contributor to the foundation.
Family members of those listed above, which include an individual’s spouse, ancestors, lineal descendants, and the spouses of his or her lineal descendants.
Organizations in which any of those listed above collectively hold, directly or indirectly, more than a 35% interest.

MOST OF THESE REGULATIONS ARE INTENDED TO ENSURE THAT IN RETURN FOR THE TAX EXEMPTION THEY RECEIVE, PRIVATE FOUNDATIONS BENEFIT THE PUBLIC, AND NOT THE INDIVIDUALS WHO CREATED THEM

What Written Policies Do Foundations Need?

FORMALIZING THE GROUND RULES FOR YOUR FOUNDATION

Although they lack the formality of bylaws, written policies are an important way to codify your foundation’s expectations for board members and general rules for daily operations. First, a bit of reassurance: For foundations established by Foundation Source, we automatically provide three of the five essential policies and guidelines listed below (investment, conflict of interest and expense), and a fourth (document retention) is available upon request. In other words, you don’t have to worry about creating these policies yourself. You do, however, have to live by them, so consider making modifications to suit your individual foundation goals and preferences.

Here’s a closer look at the policies we recommend:

An investment policy that includes investment objectives, benchmarks for assessing investment performance, and types of investments that are or are not permissible for the foundation.
A conflict-of-interest policy that identifies when professional or personal interests compete, and that sets rules for managing these potential conflicts (e.g., when to disclose, when to abstain from voting).
An expense policy that describes the types of expenses and travel that are considered reasonable and necessary for accomplishing the foundation’s charitable mission.
Written document retention guidelines specifying how long to retain documents and records, especially as they relate to grantmaking and board decision-making.
A compensation policy (if you intend to pay board or staff) that details the process used to determine the compensation of the executive director and other key employees.

A SOUND INVESTMENT POLICY PLACES A REASONABLY HIGH PRIORITY ON PROTECTING PRINCIPAL AND AIMS TO EARN ENOUGH INCOME, WITH SUFFICIENT LIQUIDITY, TO MEET THE ANNUAL 5% MINIMUM DISTRIBUTION REQUIREMENT

What Rules Govern Foundation Investments?

IT’S ALL ABOUT BEING RESPONSIBLE

Private foundations have tremendous control and discretion over the investment of their assets.
They are free to invest in a broad range of income-producing vehicles including publicly traded securities, private stock, real estate, artwork, or other tangible property—with few restrictions as long as they exercise responsible stewardship.

Because a foundation is expected to use its funds for charitable purposes, the IRS rules governing private foundation investments ensure that foundation assets are not squandered by reckless mismanagement. Generally, management of the portfolio is looked at as a whole rather than on an investment-by-investment basis. A sound investment policy, therefore, places a reasonably high priority on protecting principal and aims to earn enough income, with sufficient liquidity, to meet the annual 5% minimum distribution requirement.

In creating an investment strategy, board members should determine what constitutes an acceptable level of risk, taking into account whether the foundation plans to exist in perpetuity (in which case the foundation may be able to tolerate more volatility) or spend down its endowment over a certain number of years.

Here are some of the elements that contribute to a successful investment policy:

Officers responsible for investments should be financially savvy themselves or delegate investment management to financial experts.
If the foundation investments extend beyond the realm of cash, stocks, bonds, and mutual funds into limited partnerships, hedge funds, real estate, and other “alternative assets,” the foundation should consult an advisor with a working knowledge of the Internal Revenue Code and Treasury Regulations so as to avoid unfavorable tax treatment and potential violations.
The foundation should also plan activities so as to reduce the foundation’s excise tax rate from 2% to 1% in years when it realizes significant investment income, such as from large capital gains. Foundation Source does this planning on behalf of our foundation clients, reducing their excise tax rate whenever feasible.

”Foundation Source provides the experience and expertise that make private foundations operate efficiently and effectively, not only from a standpoint of legal compliance, but also best practices for grantmaking. I’ve found their employees to be very knowledgeable in this complicated area and extremely attentive to the needs of my clients. Having access to this resource provides me with incredible added value when discussing what are frequently novel issues for those family foundations that are functioning creatively. For any family or individual who decides to form a private foundation...Foundation Source is the ‘go-to’ place.
DOUGLAS M. MANCINO, PARTNERSEYFARTH SHAW LLP, LOS ANGELES, CA

Why Foundation Source?

Technology

AMPLIFY YOUR IMPACT

Our tech platform was built with one thing in mind: more effective philanthropy.

MDR Tracking
Streamlined Grant Workflows
Extensive Reporting

Expertise

YOUR PARTNER IN GIVING

Let us join you on your philanthropic journey with the experience and tools you need to reach your goals.

Tax and Legal Specialists
Philanthropic Advisory
Advanced Grantmaking Support

Administration

MODERN PHILANTHROPY STARTS HERE

Our tech-enabled solutions make giving – and having a foundation – easier.

Grant and Expense Processing
Compliance Monitoring
Tax Preparation and Filing

The post Getting Started with Your Private Foundation: Governance & Policies appeared first on Foundation Source.

Getting Started with Your Private Foundation: Grantmaking Basics

FS Web — Thu, 16 Nov 2023 13:30:30 +0000

Where to Begin

UNDERSTANDING THE 5% MINIMUM DISTRIBUTION REQUIREMENT

Before we address what foundations can do, let’s discuss what they must do. The IRS requires private foundations to distribute a minimum of 5% of the previous year’s net average assets annually. This is colloquially known as the “minimum distribution requirement” or “MDR.”

Although there is no limit to how much a foundation can give, it must distribute at least the MDR in order to avoid penalties. (The penalty for failing to pay out the distributable amount is 30% of the shortfall.) Foundation Source calculates and tracks satisfaction of the MDR for each of our foundation clients. Any grants and other qualifying distributions that exceed the required amount can be carried forward to satisfy the required payout in future years for up to five years.

Foundations have no payout requirement in the first year of existence.

THE IRS REQUIRES PRIVATE FOUNDATIONS TO DISTRIBUTE A MINIMUM OF 5% OF THE PREVIOUS YEAR’S NET AVERAGE ASSETS ANNUALLY

It is a common misconception that only charitable grants count toward satisfying the distribution. In fact, the minimum distribution requirement can be satisfied not only with grants, but also with qualifying expenses.

Qualifying Distributions Include:

Grants to public charities, nonprofits and individuals (including scholarships or emergency aid).¹
Non-investment-related administrative expenses that help achieve the foundation’s charitable purpose. (Foundation Source fees fall into
this category.)
Equipment that helps the foundation achieve its charitable purpose.
Direct charitable activities (e.g., research, publications, technical assistance, running conferences, communications).
Program-related investments (loans, loan guarantees or equity investments made to an organization for projects related to the foundation’s philanthropic purposes).

Expenses That Do Not Count Towards the MDR:

Investment management fees
Bank charges
Custodial fees
Compensation and other expenses related directly to investment oversight
Legal fees related to investment counsel

Creating a Spending Plan

DETERMINING THE FOUNDATION’S GRANTMAKING BUDGET

A spending plan documents how foundation funds should be disbursed. Creating one now helps
set guidelines for current and future board and family members. Your spending plan should balance philanthropic objectives with fiscal realities, and you’ll also want to give some thought as to how the foundation’s goals and finances might evolve over time. Here are some of the questions you might consider for both present and future needs:

Do we plan to exceed the 5% minimum distribution requirement?
Does the foundation need to stay solvent for future generations, or will we spend down our resources?
Do we want to grow the foundation’s endowment, or are we satisfied with keeping up with inflation?
What returns can we expect on our investments, and will they keep pace with our distributions?
Do we have cash flow and cash reserves to meet operational needs?
Is the foundation fully funded, or will it receive additional assets?

Once you’ve answered these questions, you’ll want to turn your attention to your spending plan for your grantmaking. How much will the foundation give to the nonprofits that the founder, board and/ or family have previously supported (your “historical” interests)? How much should be set aside for targeted programs that the board and/or family will undertake collectively, and how much should be put on hold in reserve for special opportunities that might present themselves? Do you want to establish a discretionary fund that enables board members to individually fund their favorite causes and projects?

A foundation with a $50,000 minimum distribution requirement might initially divide it up this way:

10K

Historical/Board Interests

25K

Mission/Targeted Programs

10K

Special Opportunities

5K

Individual Discretionary Funds

Discretionary Funding

NOT ALL FOUNDATIONS APPROACH EVERY GRANT AS A TEAM EFFORT

Unless there are restrictions in the charter documents to prohibit it, some foundations give board and/or family members a set amount of funds each year to donate as individuals. There are advantages and disadvantages to permitting discretionary funding. On the plus side, allowing individuals to make discretionary grants fosters enthusiasm and engagement because they can fund organizations of personal interest; it can incubate new programs and projects, and expand the foundation’s geographic footprint. It also provides a way of thanking the board for their time and effort in lieu of compensation.

On the negative side, discretionary grants can divert resources and focus from a common mission, confuse nonprofits and the public about the foundation’s priorities, and might even deter personal giving. One potential compromise that many foundations adopt is to make the most of the grants collectively, but allocate some funds for discretionary grantmaking by individual board members.

Whether you choose to give collectively or individually, you will need guidelines for determining how funding decisions are made.

Examples of some funding decisions you may face:

Are discretionary donations subject to board approval?
Must they be within certain areas of interest?
Are there certain organizations or causes that are off-limits?

Grantmaking Strategy

ESTABLISHING GROUND RULES TO MAXIMIZE THE FOUNDATION’S IMPACT

New philanthropists often choose to “get their feet wet” by making grants to a wide variety of causes, letting the foundation’s purpose reveal itself over time. However, even during this period of experimentation, it is possible to maximize your social impact and lay the groundwork for more focused, strategic grantmaking.

The following questions will help you develop a system for identifying potential grantees, evaluating proposals and defining the terms and conditions of your gifts.

Do you want to seek or be found?

Will you actively search for organizations to support, or will you publicize your areas of interest and solicit proposals from nonprofits? Would you like to do both?

Where are the foundation’s boundaries?

Will you consider making grants only in a certain geographic region, area of philanthropic interest or for a specific issue? For example, you might decide to make grants solely to projects in your hometown, county or state. Alternatively, you could decide to fund only nonprofits in the performing arts or charities that work directly with the homeless.

How long will your foundation fund any one organization?

Some foundations provide one-time grants without the possibility of continuation in order to constantly fund new ideas and deter grantees from becoming dependent on the foundation’s support. Other foundations offer multiple-year funding, providing a steady flow of support over time.

What types of grants will your foundation give?

Will your foundation give unrestricted grants, or will they be focused on specific programs? General operating support allows the grantee to determine
how the funds will be used. Charities particularly value this kind of support because it provides funding for any activity—including the grantee’s operating expenses and overhead. A project grant, by contrast, provides support for a specific set of charitable activities that the organization plans to undertake.

YOU MIGHT DECIDE TO MAKE GRANTS SOLELY TO PROJECTS IN YOUR HOMETOWN, COUNTY OR STATE. ALTERNATIVELY, YOU COULD DECIDE TO FUND ONLY NONPROFITS IN THE PERFORMING ARTS OR CHARITIES THAT WORK DIRECTLY WITH THE HOMELESS.

Finding Worthy Grantees

IDENTIFYING PARTNERS TO FURTHER THE FOUNDATION’S GOALS

Foundation Source clients have access to an online directory that enables them to search for charities by name, category, geographic location or keyword. This directory includes information on more than one million nonprofits and verifies that the organization is in good standing with the IRS. It also provides financial data and comparative data from Guidestar® and Charity Navigator®. For foundations that are not clients, Foundation Source offers GrantSafe®, a free, online service that lets any foundation confirm the IRS exempt status of any public charity.

Although it’s easy to find eligible nonprofits with a simple web search, it’s harder to evaluate the many funding opportunities and identify the ones that best align with your philanthropic goals. To become a more knowledgeable donor, you’ll need to delve a little deeper. Visit each nonprofit’s website and as you browse, keep these questions in mind:

Does the organization have a clearly articulated mission statement?

Vague, ambiguous intent often leads to vague, ineffectual action.

What type of activities and programs does the organization undertake?

Do its programs and projects seem likely to advance its mission?

Who is on the board?

Ideally, the board is comprised of a mix of people who support the organization through fundraising and program expertise. It’s a red flag if members of the board are not giving to the organization.

How long has the organization been in operation?

What is its history of accomplishment?

How many people are served by the nonprofit?

The size of the target population should give you some indication of how the organization compares with other nonprofits working within the same arena.

Does the nonprofit provide evidence of its success?

Although nonprofits often struggle to quantify results, an organization should have more to offer than a few touching testimonials.

Has the nonprofit been embroiled in controversy or scandal?

Google the organization to see if it has been in the news. A bad reputation in the nonprofit world, whether or not it’s deserved, can undermine an organization’s effectiveness.

Of course, if you don’t know what you’re looking for just yet, you might benefit from personalized help. Foundation Source’s Philanthropic Directors can help you translate your convictions, passions and values into a defined grantmaking program. When you’re ready to take your foundation to the next level, they can help you refine your grantmaking strategies and identify where your foundation’s work can make a real and appreciable difference.
Foundation Source clients are also privy to a network of fellow philanthropists and experts. Through the Foundation Source Resource Hub, clients can access a treasure trove of content, including stories about how other clients are using the capabilities of their foundations to pursue their goals, and curated content from both our internal experts and the larger philanthropic community.

Beyond this, you may want to pursue these suggestions for finding causes and issues that are of personal interest:

Read newspapers. What gets you fired up? What makes you angry?
Read publications that cover the nonprofit world (The Chronicle of Philanthropy, The Nonprofit Times, Philanthropy) as well as reports distributed by community groups, and subscribe to the Foundation Source Blog.
Attend philanthropy conferences and educational events.
Interview staff and clients in nonprofits that interest you.
Participate in your local Regional Association of Grantmakers (www.givingforum.org).
Join an affinity group (a group of grantmakers interested in a common cause). Find a directory at the Council on Foundation’s website (www.cof.org).

Why Foundation Source?

Technology

AMPLIFY YOUR IMPACT

Our tech platform was built with one thing in mind: more effective philanthropy.

MDR Tracking
Streamlined Grant Workflows
Extensive Reporting

Expertise

YOUR PARTNER IN GIVING

Let us join you on your philanthropic journey with the experience and tools you need to reach your goals.

Tax and Legal Specialists
Philanthropic Advisory
Advanced Grantmaking Support

Administration

MODERN PHILANTHROPY STARTS HERE

Our tech-enabled solutions make giving – and having a foundation – easier.

Grant and Expense Processing
Compliance Monitoring
Tax Preparation and Filing

The post Getting Started with Your Private Foundation: Grantmaking Basics appeared first on Foundation Source.

Premier Services

FS Web — Sun, 26 Mar 2023 04:47:17 +0000

Premier Services Include:

Onboarding for new foundations: Foundation creation (Delaware incorporation) and filing of IRS Form 1023 for exempt status; and coordination with your financial, legal, and tax advisors
Onboarding for existing foundations: Import formatted investment, financial, and grant history (using your data file that includes EINs); and coordination with your financial, legal, and tax advisors to ensure a seamless transition
Impactfully: A secure, web-based platform for managing day-to-day foundation activities, such as collaborating with foundation members, researching nonprofits, making grants, submitting expenses, reviewing tax documents and investment balances, and generating reports
Federal and state filings: Prepare and file 990-PF return, quarterly estimated taxes, Form 1099 for independent contractors for expenses processed through Foundation Source system, donor substantiation receipts, and filings required by the state of formation
Compliance monitoring: Monitor grantee’s IRS status, help clients understand jeopardizing investments, self-dealing, taxable expenditures, affiliations with other nonprofits, etc.
Transaction processing: Donations to the foundation, grant payments, grant letters, expenses, and fees
Grant certificates and grants to individuals for emergency, hardship, and medical distress relief
5% minimum distribution tracking
Investment tracking and complete account reconciliation of all financial transactions
Foundation recordkeeping: Grant history, funding and income, expenses and fees, etc.
Standard board book preparation
Online reports library for grant activity, expenses, and transactions
Philanthropic Advisory Services, includes up to 10 hours of access.¹
Applications: Online grants management² module
Outcomes: Online impact management module
International Grantmaking Expenditure Responsibility³
Grant agreements⁴
Program-Related Investments⁴
Recoverable grants⁴

Specialized Services:

(available for an Additional Fee)

Prior tax returns (established foundations)
Amended tax returns
990-T preparation (UBIT return)
Financial audit support
Enhanced budgeting, accounting, financial reporting services
Fundraising programs
Unformatted data imports requiring custom work
Compensation guidance
Scholarship programs
Award programs
Set-asides
Custom board book preparation
Payroll facilitation services
Enhanced philanthropic advisory services engagements
Outsourced CFO services
Equivalency determination with third-party provider
Obtaining foreign government agency or instrumentality determination
Foundation name changes and doing business as (DBA) filings⁵

The post Premier Services appeared first on Foundation Source.

Your Partner in Giving

FS Web — Tue, 21 Feb 2023 19:05:17 +0000

FS-2025-DDS-0325

DOWNLOAD PDF TO SEE MORE

The post Your Partner in Giving appeared first on Foundation Source.

Processing Your Foundation’s Disbursements

FS Web — Mon, 30 Jan 2023 01:19:58 +0000

Disbursement Accounts at Webster Bank

Our standard procedure is to open a disbursement account at Webster Bank, N.A., which will be providing banking services under our master agreement that establishes a highly integrated process. This simplifies the transfer of funds from your foundation’s financial accounts, reduces work for foundation members, and ensures a faster turnaround for making grants and paying expenses. (Foundation Source does not receive payment or other financial incentives from Webster Bank for referring clients who open these accounts.)

Here’s what you can expect when opening a disbursement account at Webster Bank:

We will work with you to complete the simple documentation needed to open the Webster Bank disbursement account.
Webster Bank will not charge any fees for this account.
Funding for the account is initiated by the client. Deposits may be submitted electronically or by sending a check to Foundation Source.
Depending on your foundation’s activity level, you may decide to fund the Webster Bank disbursement account periodically or as needed in advance of distributions. Foundation Source will provide notifications when the account balance is insufficient to meet distribution needs and, if the foundation chooses, notifications when transactions are processed. Note: Foundation Source relies on this account being sufficiently funded in order to process your grants, expenses, tax payments, and service fees without delay. Insufficiently funded accounts may result in complications with grantees and vendors, delays, and possible penalties from the IRS if tax payments are late.
If your foundation uses this account for payroll disbursements, you will need to maintain a minimum account balance to sufficiently cover these automatic payments. (The minimum balance amount is based on the foundation’s payroll obligations.)
Foundation Source’s authority will be limited to moving cash from the disbursement account at Webster Bank.
This account will be an interest-bearing account that is FDIC insured up to current applicable limits.
Duplicate statements and view-only online access are available to you upon request.
Wire and ACH payments are available and will require additional authorizations if requested.

Disbursement Accounts at Financial Institutions Other than Webster Bank

While a Webster Bank disbursement account is the best and most efficient solution, there is no obligation to open one. If the foundation would like to maintain a disbursement account at another financial institution, Foundation Source can accommodate that for an additional fee.

Here’s what you can expect when working with an alternate financial institution:

We will ask you to designate one “primary account” for all cash disbursements along with a designated contact person(s).
Foundation Source will prepare a “Transfer Funds Request” for the foundation as disbursements are requested, and diver it via email or fax, as agreed upon during setup.
The designated person at the foundation will be responsible for initiating the funds transfer from the foundation’s “primary account” financial institution to a Foundation Source disbursement account.
We will ask you to authorize Foundation Source to receive duplicate statements for this account.

THINGS TO CONSIDER:

Your foundation and the person designated for transferring its funds will bear a greater degree of responsibility if the foundation opts to use its own disbursement account rather than one at Webster Bank.
Your financial institution may require written or verbal confirmations of the transfer requests, which may be inconvenient and could potentially delay the funds transfer.
If the designated person is unable or unavailable to initiate the transfer request, your grants, expenses, tax payments, and service fees could be delayed, which may result in complications with grantees and vendors, and possible penalties from the IRS if tax payments are late.
Depending on your financial institution’s policies, your foundation may incur wire or other transaction fees for each transfer.
The foundation will be charged an additional annual fee of $1,500.

Disbursement Activities

GRANT TRANSACTIONS

Grant transactions are initiated through Foundation Source Online only by users who are authorized by the foundation to do so. By default, we send a confirmation email to both the grant initiator and the Foundation Representative, with a copy sent to the primary advisor/broker linked to the foundation. Grant requests are kept in a pending status while we verify the status of the recipient charity and the availability of funds in the primary account.

Once the grant request is approved and processed by Foundation Source, and funds to cover the grant are received, payment is sent to the charity. The charity also receives a detailed letter with grant specifications, terms, and conditions. This package is sent directly to the charitable organization or, upon request, to the person who initiated the grant for personal delivery to the charity.

EXPENSE TRANSACTIONS

IRS tax rules require that all foundation expenditures be ordinary and necessary for carrying out the foundation’s charitable purpose, appropriate and reasonable, and properly documented. Further, all expenses should comply with the foundation’s own expense policy. If the foundation conducts any activities other than grantmaking, we also look to see that these activities have been vetted with the IRS (via the IRS Form 1023 submission when it first sought tax exempt status) or reviewed by a qualified attorney. Foundation Source will verify that any expense report submitted for reimbursement to a foundation member, or any invoice submitted for payment to a third party, has been submitted by someone who is authorized by the foundation to do so, and that the invoice contains sufficient information for tax and compliance purposes.

If we determine that an expense strays into a gray area with respect to the regulations, we will contact the foundation to explain the IRS rules or to obtain more information as appropriate.

Once the expense is approved and processed by Foundation Source, and funds to cover the expense are received, payment is sent along with any required documentation.

TAX TRANSACTIONS

The IRS requires foundations to pay an excise tax of 1.39% on interest income, dividends, and realized capital gains. The excise tax is reported on IRS Form 990-PF and must be paid annually at the time for filing that return, or in quarterly estimated tax payments if the total tax for the year is $500 or more.

Unless other arrangements have been made by the foundation, Foundation Source automatically calculates the quarterly estimated taxes on behalf of the foundation and makes the tax payments.

Once calculated, Foundation Source sends an email notification of the transaction to the foundation president or other officer or trustee designated to receive such notifications. The foundation will have a three-day grace period to approve or question the payment. After the third day, it will automatically be submitted for processing, unless the payment exceeds $10,000, then a formal approval is required. There are no forms that require additional signature.

For payments due with the 990-PF return or an extension, the calculated amount is paid automatically once the return or extension is completed. Once submitted for processing and funds are received, payment is made to the IRS electronically.

STATE FILING FEE TRANSACTIONS

Most states require annual corporate reports and/or tax filings with accompanying fees. Unless other arrangements have been made by the foundation, Foundation Source prepares those reports and requests the funds for required fees.

FEE TRANSACTIONS

Fees assessed by Foundation Source are related exclusively to the services we provide in accordance with the Foundation Services Agreement, any Engagement Letter signed by the foundation and Foundation Source, and/or any current Notice of Fees.

The post Processing Your Foundation’s Disbursements appeared first on Foundation Source.

Your Family Office and Foundation Source

FS Web — Wed, 04 Jan 2023 06:05:20 +0000

How We Work with Your Family Office

Your designated staff person serves as the liaison between the family and our foundation management services. Your office gets a dedicated Private Client Advisor who is always just a phone call away to answer questions, resolve issues, and implement special requests. Our foundation professionals are also available to connect directly with the family upon occasion, as you deem appropriate.

THE FAMILY’S FOUNDATION

The family governs their foundation, sets strategy, and makes all granting and investment decisions. They will relate to you, as family office staff, for foundation matters.

FOUNDATION SOURCE

Working in the background, we provide all the services that are required to keep the foundation running smoothly and compliantly on a day-to-day basis. We will coordinate with you on administrative matters for the foundation.

Foundation Source Services Include:

ADMINISTRATIVE SUPPORT

Our professional staff handles the details that keep the foundation running smoothly, relieving the family office of the administrative burden while mitigating risk exposure. We take care of the following:

Grant processing and disbursements
Expense processing
Active compliance monitoring of foundation activities
Tracking the foundation’s progress toward meeting its annual 5% minimum distribution requirement
Foundation accounting and reconciliation
Tax work (990-PF and related filings) plus state filings

SPECIALIZED ONLINE TOOLS

You and the family have access to Impactfully, a secure, customized, web-based “command center” that centralizes the foundation’s activities. Developed specifically for the needs of private foundations, this award-winning technology simplifies foundation control, communication, and collaboration. Designated family members and family office staff get instant access and total transparency into foundation activities. Features include:

Individually customized viewing rights and granting permissions
An integrated database and specialized tools for charity research and grantmaking
Online tracking and reporting, including investment balances across all accounts

PHILANTHROPIC ADVISORY SERVICES

Foundation Source Philanthropic Directors are experienced professionals who are available to provide philanthropic advice to your staff or directly to the family via occasional phone consultations. When the foundation requires more extensive support, our Philanthropic Directors can provide in-depth, custom engagements. These could include:

Defining–or revisiting–the foundation’s goals and priorities
Translating a general interest (e.g., homelessness or clean water) into a concrete grantmaking strategy
Increasing family engagement, including bringing the next generation on board
Planning for change, such as leadership succession or a major change in assets

FOUNDATION CREATION

If the family doesn’t already have a foundation, but is thinking about establishing one, we are happy to work with the family’s attorney to coordinate services. Alternatively, we can provide the foundation entity and file IRS Form 1023 for recognition of exempt status. We’ll also provide articles of incorporation, bylaws, and investment, expense, and conflict of interest policies, which can be modified by the foundation.

In Summary

We have decades of experience supporting private foundations. We know that foundations and their needs come in all shapes and sizes. Our goal is to take the time to understand your office and your family, so we can help forge the best path forward. In the end, the family wants to make a difference with their philanthropy…and it’s our mission to help them do just that.

The post Your Family Office and Foundation Source appeared first on Foundation Source.

Your CPA Practice and Foundation Source

FS Web — Wed, 04 Jan 2023 05:33:29 +0000

How We Work with You and Your Clients

YOUR FOUNDATION CLIENTS

Your clients continue to govern their foundations, set strategy, and make all granting and investment decisions. They will continue to work with you and their existing wealth advisor and attorney.

YOUR FIRM

You’ll gain access to the foundation’s reconciled asset and transaction data through our online platform. We do all the “behind-the-scenes” administrative work while your firm maintains its role as the primary tax advisor and preparer for the foundation. We make it easier for you to:

Calculate quarterly excise taxes
Prepare and file federal returns (990-PF and related filings) and state filings

HOW WE HELP

While supporting you as the foundations’ tax advisor, we also provide all the other services that are required to keep foundations running smoothly and compliantly on a day-to-day basis. Your clients will be supported by a dedicated Private Client Advisor who will serve as the primary contact and coordinate all services provided by Foundation Source.

Foundation Source Services Include:

ADMINISTRATIVE SUPPORT

Our professional staff handles the details that keep your clients’ foundations running smoothly, so they can focus on their philanthropic goals. We take care of the following:

Grant processing and disbursements
Expense processing
Active compliance monitoring of foundation activities
Tracking the foundation’s progress toward meeting its 5% minimum distribution requirement
Foundation accounting and reconciliation
Coordinating with you to facilitate your tax work

SPECIALIZED ONLINE TOOLS

Every foundation gets access to Impactfully, a secure, web-based “command center” that centralizes administration. Developed specifically for the needs of private foundations, this award-winning technology platform simplifies foundation control, communication, and collaboration. Designated foundation members get instant access and total transparency into foundation activities. Features include:

Individually customized viewing rights and granting permissions
An integrated database and specialized tools for charity research and grantmaking
Online tracking, and reporting, including investment balances across all accounts

PHILANTHROPIC ADVISORY SERVICES

Foundation Source Philanthropic Directors are experienced professionals who are available to provide philanthropic advice to the foundation via periodic phone consultations. If the foundation requires more extensive support, our Philanthropic Directors can provide in-depth, custom engagements.

FOUNDATION CREATION

If a client doesn’t already have a foundation, but is thinking about establishing one, we are happy to work with the family’s attorney to coordinate services. Alternatively, we can provide the foundation entity and file IRS Form 1023 for recognition of exempt status. We’ll also provide articles of incorporation, bylaws, and investment, expense, and conflict of interest policies, which can be modified by the foundation.

In Summary

We have decades of experience supporting private foundations. We know that foundations and their needs come in all shapes and sizes. Our goal is to take the time to understand your practice and your clients, so we can help forge the best path forward. In the end, your clients want to make a difference with their philanthropy… and it’s our mission to help them do just that.

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