A community foundation is a type of nonprofit organization that works to address a wide range of local needs and supports causes such as education, healthcare, arts and culture, social services, and the environment. The intention is to mobilize and manage charitable funds to improve the quality of life for a specific geographical area or community.
Donations are collected from individuals, companies, and other entities; with potential tax benefits for donors based on IRS guidelines.
To ensure longevity, some funds are invested before foundation money is used to directly support grants and other community programs.
Besides providing financial support, community foundations also play a role in engaging with local stakeholders and acting as catalysts for positive change. Keep reading to learn more about how these public charities are able to leverage collective resources to benefit the greater good.
Six main characteristics of a community foundation
There are certain characteristics that distinguish a community foundation from other types of charitable giving vehicles. The following are some main factors:
- Local engagement – Identifies and works to solve community problems.
- Endowment building – Establishes long-term sustainability by investing funds.
- Grantmaking – Provides direct support for local projects and initiatives.
- Impactful giving – Supported by a variety of private and public donors.
- Innovation – Addresses issues in real-time with creativity.
- Involvement – Amplifies voices of local boards that represent the community.
Largest U.S. community foundations
The National Council on Foundations reports that there are more than 900 community foundations operating in urban and rural areas across the United States. About 500 have earned the NCF seal, signifying operational excellence in six key areas — mission structure and governance; resources development; stewardship and accountability; grantmaking and community leadership; donor relations; and communications.
Some of the country’s largest community foundations (by 2021 asset value) include:
- Silicon Valley Community Foundation. Aims to create equitable communities by addressing underlying issues related to housing, early childhood development, income disparities, and emergency response. Asset value: $16 billion
- Tulsa Community Foundation. Provides emergency disaster relief, medical assistance, technology, and educational opportunities. Asset value: $6.3 billion
- Greater Kansas Community Foundation. Advocates for local community giving by educating donors and connecting them with philanthropic organizations they care about. Asset value: $5.4 billion
- The Chicago Community Trust. Works toward closing racial and ethnic wealth gaps. Asset value: $4.7 billion
Types of grant-making programs
Community foundations offer several different types of grant-making programs to ensure continued giving, including:
- Endowments – Cash or other assets donated or bequeathed to a foundation as an ongoing source of financial support. Assets are typically invested in equities or bonds to maintain longevity.
- Scholarships – Typically a trust set up to provide educational funds for qualifying individuals.
- Giving circles – Donors are offered services and support in exchange for setting up charitable funds; bypassing certain efforts required to establish an individual foundation.
Types of community foundation programs
In order to support a wide range of community initiatives, foundations include several types of programs that stipulate where and how funding can be used. They include:
- Field of interest funds – Hones in on a specific cause, such as education or the environment
- Designated funds – Used for only one particular charitable purpose
- Unrestricted funds – Can be used for a wider range of initiatives
- Scholarship funds – Used to provide educational opportunities for students who meet certain requirements
Community foundation vs. private foundation
Community foundations are defined by the IRS as public charities that receive contributions from a wide range of donors and support specific communal needs by awarding grants. This type of foundation must be governed by a board of directors.
Private foundations, on the other hand, are typically established by a single individual, family, or corporation and have more flexibility in grantmaking; supporting only charitable purposes aligned with their mission. Private foundations are subject to annual excise taxes. Donations made to private foundations are largely tax deductible as well.
Community foundations and DAFs
Donors can establish a donor-advised fund (DAF) directly at a community foundation. By doing so, they create a separate account within the foundation’s structure, and the funds contributed to the DAF become part of the community foundation’s assets. Donors can recommend grants from their DAF to support charitable causes aligned with the community foundation’s mission and priorities. Donors may also choose to name a community foundation as a beneficiary of their DAF upon their passing.
In order to determine the most effective way to make charitable donations, consider working with an organization like Ren to handle the backend work while you focus on the aspects of giving that interest you most.
Why choose a community foundation?
There are many benefits to partnering with a community foundation, including:
- Making your money go further with the collective effort of fellow donors.
- Eligibility for certain tax deductions.
- Assurance that your donation will be used for a good cause that’s close to home.
How to contribute to a community foundation
You could be just a few steps away from contributing to a community foundation. These are the basic steps you will need to follow:
- Speak with a financial advisor – There are particular rules and regulations to be followed closely when it comes to donating to a community foundation. Partnering with a professional ensures you will stay in compliance with required rules and regulations.
- Choose a community foundation – Research your local community foundations to find one that you share interest with or aligns with a cause you believe in.
- Determine your contribution (DAF, endowment etc) – The experts at Ren are prepared to walk you through all of your charitable giving vehicle options within a community foundation and beyond.
- Donate – Follow through with a donation to the foundation of your choice, again being sure to consult with a financial and giving expert.
- Stay engaged with the foundation – Donors are often given some level of say in the actions of a community foundation — take advantage and let your voice be heard.
Community foundations can be complex to understand, but at the end of the day, they are responsible for funding many of the organizations that locals rely on day-to-day. To help you learn more about your options, look over this free resource, 12 Questions to Ask Before Setting Up a Donor-Advised Fund.
