As a lesser-known but viable alternative to a private foundation, a community foundation offers a number of philanthropic—as well as tax-related—benefits, especially for smaller donors.

Creating a family legacy through charitable giving receives a lot of press when the likes of Bill Gates and Warren Buffett commit to leaving huge amounts of their fortune to charity. We typically think of a private foundation as a solution for someone with substantial assets, or as a commercial gift fund sponsored by various fund families. However, another option that is not that well known but can work for smaller donors is your local community foundation.

What is a community foundation?

A community foundation is a tax-exempt Section 501(c) (3) public charity created for a specific geographic region to improve the quality of life for its residents through lasting charitable giving. There are over 800 community foundations in the United States giving away $7 billion each year. Community foundations offer a low-cost alternative to private foundations and provide access to experienced staff with knowledge of local issues to help donors and their advisors design a gift plan that meets the donors’ needs. Community foundations offer different types of funds to meet each donor’s needs. A donor-advised fund allows the donor to stay involved in recommending the charities they wish to support. An endowment-type fund allows the donor to establish a fund in perpetuity to support causes in the community for generations. These funds can be set up in the name of an individual or family, or they can remain anonymous.

Donor-advised funds

A donor-advised fund is a charitable giving vehicle established by a public charity that manages charitable donations on behalf of individuals, families, and organizations. It offers an organized, inexpensive, and flexible way to give to charity as an alternative to creating a private foundation. Several large custodians and fund families offer donor-advised funds. Community foundations also provide donor-advised funds under their umbrella with the added benefit of their valuable local knowledge and relationship with local beneficiaries. As the name implies, the donor “advises” or recommends which charitable organizations will receive grants, when they will be made, and for how much.

The sponsoring organization has final approval on the grants based on certain guidelines, including the determination that the recipient charity is a qualified tax-exempt organization under Section 501(c)(3). Donor-advised funds can be established very easily and usually have fairly low minimums ($5,000 to $10,000, depending on the fund). The donor gets a charitable tax deduction in the year in which the donation is made, even if the funds aren’t granted to charities until later years.

Grants can be as much or as little as the donor wants—from zero to the entire fund—and can be designed to pay out in full at the donor’s death or carry on for one or more generations, depending upon the fund.

Private foundations

Private foundations are normally considered endowment funds, but they have a payout requirement of 5% per year. The donors can stay involved in the charitable decision-making throughout their lifetimes and can create a board of directors consisting of family members and others who will identify the grant recipients and the amounts to give in the future. Private foundations are normally set up to continue in perpetuity.

Flexibility in giving
A community foundation can offer the best of both worlds: the flexibility of commercial donor-advised funds plus the permanence offered by private foundations.

If you are interested in working with a community foundation, start by meeting with the foundation staff. They will help you understand the types of funds they offer and how each works. Although these may vary between foundations, they have similar characteristics. The community foundation staff can also help identify nonprofits in the area that address the causes most important to you.

If you do not want to stay involved with the grant-making decisions, choose an endowment fund. In this case, the grant-making responsibilities are managed by the grants committee and board of directors of the community foundation. There are several different types of funds in this area:

• Field-of-interest funds. These allow you to target a specific community need or area of interest. For example, if you want to set up a memorial fund to honor a parent who was an artist, you could create a fund that supports arts organizations.

• Designated funds. These can provide ongoing support for your favorite charity or multiple charities. This is a simple way to be sure the support happens annually and endures beyond your lifetime. The community foundation manages the funds and awards annual grants.

• Unrestricted funds. As the name implies, these funds envable the board of directors of the community foundation to identify and respond to the community’s needs as they change over time.

This is a good option for someone who wants to make a gift that will impact the community but doesn’t have a special area of interest and doesn’t want a named fund.

Working with your community foundation

A community foundation is a good solution if you:
• Care deeply about the local community
• Are interested in creating a local personal or family legacy
• Have considered creating a private foundation but are concerned about the cost and administrative complexity
• Want to use local expertise and develop local relationships in your charitable planning
• Want to receive the highest tax benefit for your charitable contributions
Getting involved in your community foundation will allow you to engage with other donors with similar interests, and identify your local community’s needs. You can create a family legacy that can extend for generations in an uplifting and meaningfulway.

Tax facts
Donations made to community foundations and donor-advised funds receive higher tax benefits than donations made to private foundations because a higher percentage of the gift is tax deductible.

For instance, cash gifts are deductible up to 60% of adjusted gross income vs. 30% for the private foundation, and gifts of appreciated property are deductible up to 30% rather than 20%.

A community foundation may accept gifts of appreciated property, such as securities or real estate, as well as cash, and it can be named as the beneficiary of an IRA or a life insurance policy. Your advisor and the staff of your local community foundation will work with you to design and implement a personalized charitable gifting strategy.

Another plus is that many community foundations allow your current investment advisor to continue to manage the investments in the fund that is created. Typically there are asset minimums involved, and the community foundation will perform due diligence on the advisor as it must with all advisors that manage funds under the foundation’s umbrella. You win, your advisor wins, and your local community wins!

One of the most common pieces of financial advice that is published today is the recommendation that those over the age of 25 should save between 10-15% of their income. Although this advice has been frequently printed, little information is given regarding the different types of savings accounts available to Americans. Today, as few as 25% of Americans own a high-yield savings account, and instead, the majority of the population uses traditional savings accounts with an average interest of 0.09%. Kevin Canterbury, Financial Advisor and founder of Arizona-based Redstone Capital Management, recognizes the low rate of financial literacy in America and hopes to educate the American public on finances foundational concepts. Today, Arizona native Kevin Canterbury will discuss different types of savings accounts and how they can help American’s grow their savings.

High-Yield Savings Account

High-yield savings accounts are an excellent option for those looking to earn more competitive rates on their savings while minimizing additional fees. One of the most notable attributes of high-yield savings accounts is that they offer a higher APY (Annual Percentage Yield) than traditional savings accounts. Most often, consumers can find high-yield savings accounts at online banks that are looking to attract a strong customer base. High-yield savings accounts have the same insurance as traditional savings accounts (FDIC or NCUA insurance) but will often offer better rates, fewer or lower fees, including excess withdrawal fees.

High-Yield Pros

–       Higher interest rates

–       Lower minimum deposit requirements

–       Fewer or lower monthly fees

High-Yield Cons

–       High-yield accounts may or may not provide access to money via ATM

–       Money transfers between an online savings account and other accounts can take days to process

–       No brick and mortar branch to deposit cash directly into a savings account

Money Market Accounts

On a recent survey, researchers found that some of the most important things consumers look for in a savings account are accessibility and high interest. Money market accounts (MMAs) are an excellent option for those looking for a savings account that offers these features, as MMA accounts allow users to earn interest on savings while accessing their savings through checks or with a debit card. As with other savings accounts, MMA accounts come with six withdrawals per month limits despite the federal Regulation D restrictions. With this in mind, MMA accounts do offer consumers a wide range of benefits with minor cons.

MMA Pros

–       Better rates than a traditional savings account

–       Access money via debit card, ATM card, or check

–       Access to a brick and mortar bank location and online bank

MMA Cons

–       Higher minimum deposit

–       Tiered interest rates

–       Possible monthly fee

Cash Management Account

Cash management accounts are an excellent option for people looking to invest in their brokerage or retirement account. While cash management accounts are not technically savings accounts, they do let you hold cash that can be invested in a taxable brokerage account or retirement account. For those looking for an account that can earn them high-interest rates, a cash management account may offer higher rates than other accounts traditionally found at a bank.

Cash Management Account Pros

–       Conveniently earn interest on money that is set aside for investments

–       Accounts are FDIC insured when offered through third-party banks

–       Wide variety of benefits and features for both savings and checking accounts

Cash Management Account Cons

–       Accounts are not always covered by FDIC insurance

–       Cash Management Accounts may not have access to branch banking

–       High-yield savings account can offer better interest rates

Disclaimer:  This material is for educational purposes only. It’s not intended to be used as the primary basis for investment decisions, nor should it be considered legal or tax advice, as appropriate, regarding the evaluation of any specific information, opinion, advice or other content.  Investors should consult with a properly qualified financial professional prior to making any investment decision.  The firm does not offer legal or tax advice.