General Information: Agency Endowment funds at a community foundation such as the Community Foundation of the Mahoning Valley can serve many not-for-profit organizations as an ideal partner in starting and sustaining an endowment program. Community foundations specialize in building endowments to benefit communities. By their distinct structure and mission community foundations are suitable vehicles for supporting organizations in building endowments.
A 501 (c) (3) organization or an organization seeking their 501 (c) (3) status can establish Agency Endowments.
Agency endowment funds allow your donors to personally receive a tax deduction, and at the same time benefit your organization in perpetuity. The endowment fund will carry the name of your organization. All grants from the fund are made in the name of the fund. An agency endowment gives the donor confidence that a gift will be well managed financially, with consistent concern for the growth of principal and the generation of income for the agency's use. For example, an agency saving $3,000.00 per year and compounding at 10% over the course of 30 years will have an endowment fund of well over half a million dollars.
The Community Foundation of the Mahoning Valley becomes an ideal partner with not-for-profit organizations. Foundations bring to the partnership a number of important assets, including professional financial management through their partners in the business community, civic oversight through their governing boards, and staffs with abundant practical skills.
The names of Agency endowment funds are listed in the Foundation's Annual Report and are identified to grantees.
As is true of all funds of the Community Foundation of the Mahoning Valley, agency endowment funds are considered components of the Foundation. They are subject to the terms and conditions of its Articles of Incorporation. Agency endowment fund guidelines are subject to change from time to time by the Board of Directors. Should the agency go out of business, or fail to fulfill its charitable purpose, the Board of Directors will direct income from the endowment to other agencies with similar missions.
Development of Agency Endowment Funds: The Foundation sends the agency a quarterly report outlining the Fund's investment performance, grants paid, and earnings available for grant distribution. On a regular basis - annually, semiannually, or quarterly - the agency may receive income from the endowment for its unrestricted use. Or the agency may choose to allow all the assets to grow to a prescribed level.
We will help you structure a basic plan for endowment building, review marketing materials, make donor calls, respond to inquiries, and evaluate progress with agency board and staff. The foundation's staff and professional legal counsel will provide support in securing gifts to your agency endowment fund.
To build an effective partnership with a community foundation an organization's leadership must understand:
- Investment objectives: The responsibility for investing an agency endowment rests with the Community Foundation of the Mahoning Valley. The Foundation staff will work alongside the agency appointed endowment committee to ensure that foundation's investment objectives match the agency's financial needs.
- The Foundation will inform the agency of all contributions so that proper acknowledgement can be made.
- A personalized gift acceptance policy will be established. An agency or the foundation may not accept certain kinds of assets, or use particular giving vehicles. We must be certain that the staffs of both the foundation and agency are in agreement.
- The Foundation will work with the development staff or the volunteers of the agency in cultivating donors and soliciting and closing gifts.
Fund Sizes and Fees: With endowed funds, the minimum initial contribution is $5,000.00. The principal is invested with other funds of the Community Foundation of the Mahoning Valley Inc., and distributions are made according to the Foundation's spending policy. The Foundation shall make charitable distributions from the Fund in accordance with a "Spending Policy" adopted by the Board annually for component funds of the Foundation.
Spending Policy Goals
- Preserve and build the assets of an endowment fund and protect the purchasing power of the original gift.
- Maintain reasonable inflation adjusted spending into the future.
- Provide for sufficient asset growth after spending to preserve the inflation adjusted value of the assets.
- A Spending Policy will be designed to allow the funds to be invested on a "total return" basis to maintain and, if possible, increase the purchasing power of the funds, while at the same time providing a relatively steady and predictable level of funding for grantees. Charitable distributions and administrative fees shall be based on the market value of the fund at the end of the Foundation's fiscal year.
Consistent with its mission of developing permanent charitable assets for the community, the Foundation especially encourages Agencies and their donors to establish endowed funds that will create lasting legacies within the community.
Agencies, who place their funds with the Community Foundation of the Mahoning Valley Inc., may recommend an investment manager of their choosing, subject to approval of the Board of Directors. With an Investment Company or Trustee Bank: The minimum size of the fund varies and is determined by the investment company or trustee bank. Investment Company or Trustee Bank fees are in addition to Foundation fees and are decided by the investment company or bank on a mutually agreed upon schedule with the Foundation.
The Foundation shall annually charge an administrative fee in an amount not to exceed one percent (1.0%) of the fair market value of endowment assets. The Foundation partners with investment company(s) and bank trust departments that conform to the Foundation's spending policy. The Foundation retains the option to change investment managers if a manager's performance is inadequate or financial reporting requirements are not met.
Tax Considerations: The tax laws passed by Congress make charitable giving attractive for many people. Contributions to an agency endowment fund at the Foundation gives your donor an income tax deduction in the year they make the contribution. Contributions of appreciated property can be deducted at their full fair market value. Appreciated assets given to a fund at the Foundation are free of capital gains taxes. No tax is owed on the growth of assets in your fund.
A charitable donation can benefit your community and provide you with a tax deduction. It is important for you to review with your accountant and attorney the tax advantages that the Foundation can provide. Since the Foundation is a 501-(c) (3) organization you may take the maximum tax deduction that is allowed by the law. You can deduct 50 % of your adjusted gross income for cash gifts (30% for appreciated securities) to a community foundation.
Steps in Starting an Agency Endowment Fund: Agency endowment funds at The Community Foundation of the Mahoning Valley can be established quickly and easily. Before starting this fund your executive committee needs to have evaluated the following criteria:
- Do you have a clear mission, successfully pursued with effective programs?
- Do you have a strong annual giving program, drawing on diverse sources with consistent records of support?
- Do you have an already established pool of probable endowment donors?
- Do you have a clear understanding that an endowment is an educational process that takes time to build?
If you can answer positively to the proceeding questions then you will have to make a few decisions:
- whether to create a short-term or endowed fund
- whether to use The Community Foundation of the Mahoning Valley, Inc., or an investment manager or bank as your fund's trustee
- which assets you will donate
- the purpose of your fund
- the fund's name
- who will serve as adviser
The Foundation's attorneys have prepared a sample fund agreement that you can customize to meet your own needs. Completing this agreement can often help your agency clarify your charitable objectives. You should have your own attorney or other advisor review it, as well as consulting them about the tax consequences of making any sizable charitable contribution.
For More Information: The Foundation staff is ready to help you by answering any questions you might have about an agency endowment fund. Call the Foundation and ask us about this type of fund. We can provide you a sample fund agreement or furnish any other information you request. The information is provided without obligation.
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