A Few Things We've Been Asked Before...
Click or touch any question in the list below and the answer will open beneath.
WHAT IS A COMMUNITY ENDOWMENT?
A community endowment is a tax-exempt public charity created by and for the people of the community and governed by a volunteer board of trustees. A community endowment provides convenient bridges between donors and charities: they act as catalysts for community improvement by working with a wide variety of partners. A community endowment is a permanent entity. Endowed funds in a community endowment will continue to benefit a community forever. An alternative and interchangeable term is “Community Foundation.”
WHO RUNS A COMMUNITY ENDOWMENT
Typically, the community foundation has an independent governing body representing the broad interests of the community with members of the board serving limited terms. The board is responsible for seeing that a reasonable rate of return is achieved on all funds entrusted to the foundation.
HOW DOES THE ENDOWMENT GET ITS FUNDS?
A community endowment actively seeks new, typically large contributions of permanent endowment from a wide range of donors who are generally residents of the area and provides assistance to those donors in fulfilling their philanthropic interests. In the early years, a start-up community foundation may also conduct a modest annual campaign to support the cost of its initial operations.
WHO RECEIVES GRANTS FROM A COMMUNITY ENDOWMENT
The unrestricted funds of the endowment are awarded in a competitive process to non-profit agencies in the community. Typically, a community endowment will establish guidelines and processes for distribution and work with applicant agencies on appropriate projects. Some funds are accepted by community endowments with restrictions placed by the donors who designate the agency or nature of the grants to be made.
HoW CAN A COMMUNITY ENDOWMENT HELP ITS COMMUNITY BEYOND MAKING GRANTS?
A community endowment also provides leadership on community issues by serving as a facilitator, convener or mediator around significant community discussions. If it has the staff capacity, it may also provide technical advice to area nonprofits.
WHO INVESTS THE ENDOWMENT'S MONEY?
Generally, the endowment will hire professional management for its portfolio investment. The endowment establishes the philosophy and policies for investments, but the professionals handle day-to-day decisions.
How Are These Investment Experts Picked?
The Board of Directors of the Community Endowment has an investment committee that carefully selects fund managers to bid for the management of all or portions of the portfolio. Managers are regularly evaluated and replaced if they fail to meet Endowment’s standards.
WILL THE ENDOWMENT EVER CHANGE DONOR'S INSTRUCTIONS?
A common governing instrument, called a fund agreement, covers all gifts and funds in the endowment. This agreement includes a “variance power” to modify the use of restricted funds if such restrictions become unnecessary, incapable of fulfillment or inconsistent with the charitable needs of the community or area served. Those are the only conditions under which an endowment modifies the terms of a gift.
WHAT HAPPENS IF THE COMMUNITY ENDOWMENT GOES OUT OF BUSINESS?
The community endowment is a public charity and as such, under the supervision of the Attorney General of the State. If something happens to the community endowment, it would be the decision of the Attorney General regarding its future.
TO WHOM IS THE COMMUNITY ENDOWMENT ACCOUNTABLE?
A community endowment files an annual return with the IRS, which is a publicly available document. In addition, most states require a state information return, which I also publicly available. The endowment is primarily accountable to the people of the area it serves and should publish an annual report that is available to all.
DO I NEED A LAWYER TO CONSIDER A GIFT TO THE ENDOWMENT?
The fund agreements that establish donor-named funds in the endowment are made available to each donor during preliminary conversations with endowment staff. It is always recommended that the donors’ individual counselors review charitable gift plans.
HOW MANY COMMUNITY ENDOWMENTS ARE THERE?
It is estimated that there are more than 1,000 community endowments throughout the country. They serve small communities, counties, whole regions of the state, whole states, and in some cases, multiple state areas.
WHEN WAS THE FIRST COMMUNITY ENDOWMENT STARTED?
In 1914, Frederick Goff, a Cleveland, Ohio attorney and president of the Cleveland Trust Company, started the first community endowment as a component of his bank. He had two goals: To create a philanthropic vehicle to facilitate donor’s charitable intentions in perpetuity even if their original purpose became obsolete (variance power); and second, to establish a system whereby people of modest means could also engage in large scale philanthropy if they pooled their contributions.
HOW MUCH MONEY DO COMMUNITY ENDOWMENTS SPEND?
In 1993, the grants from community endowments were about $1 billion, based on total assets of almost $10 billion.
HOW WOULD I USE MY LOCAL COMMUNITY ENDOWMENT?
A family may choose to establish a named fund that bears their family name and continues their community giving in perpetuity. A community group may decide to establish a fund in honor of, or memory of, a friend or community leader. A business may choose a community endowment to help with its grant making, thus saving time and personnel for the business, yet assuring support for their selected charitable interests. Some donors choose to make their community philanthropy anonymous and the endowment is a perfect partner to help them. Nonprofit agencies often establish their endowments within a community endowment to guarantee their donors that the principle of the gift is never disturbed and the earnings will forever come to the agency.
WHAT'S THE DIFFERENCE BETWEEN THE UNITED WAY AND A COMMUNITY ENDOWMENT?
A United Way typically served only its member agencies, which is a small percentage of the community health and human service organizations. It makes annual distribution for general operating support to these agencies based on its annual fund drive proceeds. The community endowment supports all areas of the community—arts and culture, education, health and human services, recreation and civic affairs—and has no members who are guaranteed annual gifts. It distributes earnings in a competitive grant making process, generally on a one-year only basis. The community endowment distributes only the earnings from its endowment and not all of the money that it holds. The community is well served to have both a United Way and a community endowment.
HOW LONG DOES IT TAKE TO ESTABLISH A FUND?
It is a simple process involving a meeting with a representative of the endowment and the donor to review the fund agreement form and determine the donor’s desires and the most suitable way to accomplish them. Once the donor and other appropriate counselors of the donor approve the form, the initial contribution is made and the fund is established. Generally, the fund needs to be approved and accepted by the board of the endowment at its next meeting.
HOW MUCH DOES IT TAKE TO ESTABLISH A NAMED FUND?
Each endowment establishes its own requirements. The Mt. Lebanon Community Foundation requires a minimum of $25,000 to establish a named fund.
MUST ALL GIFTS BE CASH?
No. The endowment is able to accept gifts of appreciated securities (which are particularly advantageous to the donor,) real property, or in some cases, personal property. Some endowments also accept business and partnership interests. The community endowment offers the maximum charitable deduction available for estate and gift planning opportunities. The endowment is generally able to provide information on giving techniques and assist donors to evaluate the most effective ways to accomplish their charitable goals.