​Choosing a Foundation for Philanthropy

by Phil Hanson, Truman Heartland Community Foundation President and CEO

When it comes to philanthropy and charitable giving, individuals, families, and businesses have the power to make a significant impact on their community. They can choose to establish a fund at their local community foundation, set up a private family foundation, or even do both. These options, while different, share the common goal of supporting charitable causes.

By establishing a fund at a community foundation, donors can leverage the foundation's expertise in identifying and addressing local needs, while setting up a private family foundation offers more autonomy and control. Regardless of the approach, the ultimate goal is to serve and support the causes that align with the donor's values and beliefs.

Community Foundations.
Community foundations are 501(c)(3) nonprofit organizations that serve a specific geographic area, such as a city, region, or state. For instance, the Truman Heartland Community Foundation (THCF) serves the residents of Eastern Jackson, Cass, and Lafayette County communities. Community foundations are typically established and funded by a broad base of donors, including individuals, families, and corporations within the community.

The donations made through a community foundation, using a donor-advised fund, field of interest fund, or other charitable vehicle, can be used to make grants to local nonprofit organizations and address specific community needs. This means that as a donor, you have the power to make a significant impact on your community, influencing its development and well-being.

Fundholders can also make grants to organizations outside of our local community as well, both nationally and internationally. In 2023, THCF fundholders awarded more than $7.3 million in competitive community grants, donor-directed grants, and scholarship awards.

Community foundations, such as THCF, are deeply rooted in their communities. They play a pivotal role in community development by identifying and addressing the most pressing needs within their geographic area. THCF has spearheaded innovative work engaging older adults and underserved populations in civic engagement, promoting and teaching youth philanthropy, finding opportunities for adult education and training, and now, we are exploring issues related to affordable housing. By engaging with local nonprofits and community leaders, community foundations like THCF work to create positive, sustainable change within the communities they serve, fostering a sense of connection and engagement among the community members.

Private Family Foundations.
Private family foundations are usually set up and financed by a single family or a small group of related individuals. They are organized as a trust or nonprofit corporation with the assistance of attorneys and accountants and are often established to embody the philanthropic interests and principles of the founding family. Depending on the preferences of the family members involved, family foundations have the potential to contribute to a wide array of causes, including national and international organizations.

Family foundations offer a more hands-on approach to philanthropy through a legal entity created by the donors, with their own Board of Directors or Trustees. They often provide a platform for family members to come together and make decisions about charitable giving, allowing them to have a more direct impact on the causes they care about. Additionally, private family foundations can serve as a way to pass down important values and create an ongoing philanthropic legacy within the family. The ability of the family foundation to support a wide range of causes makes it a popular choice for families looking to make a meaningful and lasting impact on the world.

Key Differences.
While both community and private family foundations share the overarching goal of supporting charitable causes, there are several key differences. Community foundations are community-focused, serving a specific geographic area and addressing local needs, while private family foundations are often driven by the charitable interests and values of a single family. Additionally, community foundations typically draw support from a wide range of donors within the community. In contrast, private family foundations are funded by a single family or a small group of related individuals.

The two types of foundations also have different filing and reporting requirements. When using a community foundation for giving, donors avoid the day-to-day operational and management responsibilities of their fund, make grants on a schedule that works for them, and receive a more significant tax benefit due to higher deductible limits (60% of AGI). Additionally, donors who utilize a community foundation for their giving don't have to disclose the details of their donations, keeping their giving information private and avoiding unwanted solicitations.

Private foundations have a lower deductible ceiling of just 30% of AGI and are subject to excise taxes of 1.39% of the net investment income. Many estate planning attorneys recommend a minimum gift of $5 million to establish a private family foundation. They also require annual distributions of at least 5% of the value of assets each year. However, family foundations are still a good option for high-net-worth individuals who want more control over their giving. Private foundations offer maximum control with hands-on management, including the appointment of the Board of Directors.
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Community and private family foundations are vital in advancing philanthropy and creating positive change. Understanding the differences between the two will help individuals and families make informed decisions about their charitable giving and maximize their impact on the causes they care about most. Feel free to contact Cole Eason, Vice President of Advancement at THCF, to see which option (or both) might be best for you. Call 816.912.4182 or email [email protected].