★ Fund Agreement
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One of the great attributes of a community foundation is its ability to fit the needs of the citizens’ benevolent desires by simplifying the process to create a fund. The community foundation affords one a low cost alternative to setting up his or her foundation or a trust in a bank. Setting up a fund can be done during your lifetime or created in your will. You may make the purpose of the fund general or specific. A fund can give you some power over what your money is used for.
There are five basic ways to create a fund. Types of funds and a brief description of each follows:
- Special Project
This type of fund is set up for a specific project. Usually the fund is used up when the project is done.
- Long Term Endowment
With this type of fund, the original donation is invested and only income from those investments is used for the specified grants. Scholarship funds are a good example of this type of fund.
- Operating Fund
These are usually on-going funds that support a particular project or organization. The person or organization that sets up the fund usually does an annual fund raiser. These types of funds are also donor advised since the organization advises OTCF as to which expenses and grants they wish to make out of the fund.
- Pass Through
As the name implies, this type of fund is usually set up by an organization that is not a 501C-3 but who qualify for grants. An example would be the Riverside Soccer Fund, which is also a “donor advised” fund.
- Donor Advised Fund
This is the type of fund most individuals, families or corporations set up. The donor(s) are able to advise the foundation as to where they want the money in their fund to go. It is understood that the grantees of this money must fall within IRS guidelines. Most of these funds are also an “endowment” type fund where the original donation is invested and only the income (or part of) is used for grants each year.
Advantages of using a “Donor Advised Fund” rather than creating a private foundation:
- Administrative costs are much less than a private foundation
- A private foundation pays 2% tax; there is no tax on donor advised funds
- Privacy; a Donor Advised Fund is not subject to public record
- Each year, you may advise to whom, how much and when to give from your fund
- You have some input as to investments in your fund and the asset allocation (how much stock and/or bonds)
- You can name successors to carry on your charitable goals, which can include children, grandchildren and/or trusted advisers
- You can donate cash, property or securities to your fund
- You can form your fund now, or name it as a charitable beneficiary of your will, charitable trust, gift annuity, retirement plan or insurance policy
View the <“>Fund Agreement-Blank OTCF”>Fund Agreement Example to see a template for a fund agreement. This document is flexible and can be changed to fulfill your needs. For further information, please contact us.