Let’s say you have some money that you want to donate to nonprofits that are working in an area of interest to you. As you know from reading previous articles on this blog, it’s crucial to do your research so that you’re giving to organizations that are well-managed, legitimate, and sustainable. But maybe you don’t have the time or energy to do that research or to manage the accounting that goes along with making donations on your own.
One solution is to work with a community foundation.
A community foundation is a public charity that administers philanthropic dollars, researches nonprofits, and manages the investments that keep your fund at a level that will allow you to make donations to organizations you care about. It can work on a citywide, regional, or statewide level.
A community foundation pools your dollars with those of other donors to generate a large amount of money, which is then invested in the stock market. These investments are managed either by a committee of the Board of Directors or an independent firm. By pooling donors’ resources, the community foundation is able to make larger investments that generally yield higher results than you would get by working with the market on your own.
In return for its services, the community foundation charges a small administrative fee, typically around 1 to 2 percent of the fund’s balance per year. For this tiny amount, you get to do the fun part of the grantmaking and leave the “drudgery” to people who are trained in research, investment, accounting, and grant administration. You also get a charitable tax deduction for your gift because community foundations are 501(c)3 nonprofit organizations.
The most common type of fund held by community foundations is a donor-advised fund. A donor-advised fund typically works like this: You tell the community foundation you are interested in making a grant in a field of interest to you, and the community foundation’s staff tells you about effective and sustainable nonprofits working in that area. You can then choose the organization to which you would like to make your donation.
Through a donor-advised fund, you can make grants anonymously, which can be another benefit of working with community foundations.
You can also work with a community foundation to establish an endowment fund for your favorite nonprofit or make donations directly to community foundation initiatives that are working in areas of interest to you.
The best thing about working with a community foundation is that you don’t have to have huge amounts of money available to make a concrete difference in your area of interest.
For more information about community foundations, stories of their successes, and how they can help you maximize your philanthropic dollars, visit Community Foundation Atlas.
Have you worked with a community foundation to manage your charitable donations? Please share your stories and tips in the comments.