FOUNDATION MANAGEMENT: DOING IT YOURSELF VS. OUTSOURCING

FOUNDATION MANAGEMENT: DOING IT YOURSELF VS. OUTSOURCING

Foundation Management: Doing It Yourself vs. Outsourcing Page Snow, Chief Philanthropic Officer Conventional wisdom once held that private foundations required millions of dollars and many months to start and that running one entailed heavy legal and administrative burdens. No longer. Foundation Source revolutionized the private foundation as a giving vehicle by developing technology and efficient processes that dramatically streamline set-up and ongoing administration. Foundation Source makes it possible to establish a new foundation with $250,000, yet provides support robust enough for foundations up to $500 million and more. Now in our second decade, we are the largest foundation management and advisory firm in the United States. A private foundation powered by Foundation Source is online and ready to grant in as few as three days. It is easy to maintain, and cost-effective to operate. And we minimize the tasks that you, the donor, don t want to do. We file taxes, monitor compliance, and handle back-office responsibilities. We provide each foundation with an online platform for transacting your philanthropy and client advisors to provide day-to-day assistance. You can rest easy knowing your foundation is compliant, well-run, and making a real impact. The chart below compares the capabilities of a traditional foundation with one administered by Foundation Source. As you will see, with us lifting the administrative and compliance burdens and providing philanthropic advisory support as you need it, you can focus on what really matters to you, to your family, and to the generations yet to come which is what philanthropy has always been about. We just make it simple. Traditional Foundation Getting the foundation started: A foundation must establish itself as a corporate entity and file with the IRS for tax-exempt status. All legal requirements for setup are the donor s responsibility. With a traditional setup process, the filing process and associated legal requirements may take considerable time. The Foundation Source Advantage With our streamlined systems and processes, Foundation Source can deliver a new, ready-to-grant foundation in as few as three business days. Or, if you prefer, we will work with your attorney to set up your foundation. We will: Provide the corporate structure (state of Delaware). File Form 1023 to obtain IRS recognition of tax-exempt status. We also provide ongoing support services for already established foundations. Contributing diverse types of assets: The IRS permits private foundations a wide range of investment options including cash, publicly traded securities, mutual fund shares, publicly traded bonds, cash value of a life insurance policy, IRA assets, real estate, jewelry, art work, etc. Determining what you can legally contribute, keeping track of these assets, and reporting them to the IRS is your responsibility. In choosing your investment options, our tax team can inform you about tax and compliance guidelines related to your contributions, especially those relating to complex valuations on uncommon assets. Our clients have contributed antiques, rare art, maps, even a horse saddle. You name it, we can handle it. The information provided in this document is for general information purposes only, and does not constitute legal, tax or investment advice. 1

Foundation Management: Doing It Yourself vs. Outsourcing Traditional Foundation Managing foundation investments: Foundations can exercise total control over their investment strategies, vehicles, policies, and managers. The Foundation Source Advantage Financial control rests entirely with you, your wealth advisor and your financial institution (we do not provide financial advice nor do we manage or custody assets). You can view balances of each foundation investment account through a secure, password-protected web console provided by Foundation Source. Detailed investment account statements will continue to come to you from your financial institution. Grantmaking control: Grantmaking decisions are fully controlled by founders and foundation board members. Grants can be made to a wide range of institutions and individuals in the U.S. and internationally. You are in total control of your grantmaking decisions and we enable you to make grants quickly and easily through a secure, customized web console provided by Foundation Source. You can also make grants via fax or telephone with the assistance of your client advisor team. You decide which charities will receive grants; we then send a check with a grant letter to each charity, or directly to you for personal presentation. Hiring staff and expert advisors: Private foundations are allowed to hire outside staff to implement their philanthropic strategy. Some do it piecemeal, hiring a patchwork team of administration, advisory and tax or legal personnel as needed. By engaging Foundation Source, we become your virtual staff. You benefit from top talent with long-term experience without having to conduct extensive searches or deal with day-to-day staff management issues. And if your foundation has staff, our Executive Director Institute enables them to network with other foundation staff, share ideas and information, and develop skills and best practices to keep the foundation moving in the right direction. Compensating family members: Subject to certain limitations, a foundation may compensate family members. However, compensation should be based on an analysis of what foundations of a similar size are paying similarly qualified candidates to do similar work. We assist clients in navigating the relevant regulations regarding foundation compensation, and help implement proper procedures. Our Compensation Benchmarking Program helps ensure that salaries paid to family members are in compliance with relevant regulations. Engaging family and heirs in the foundation: Family members can be involved in the governance, decision-making, and day-to-day activities of running the foundation for unlimited generations. If family members are dispersed geographically, connecting and communicating about key foundation business can present a challenge. We provide a secure, web-based platform for communicating, collaborating and managing the family s philanthropy online. Access to the website, viewing rights and granting permissions are customized for each family member to encourage family involvement. Foundation Source Philanthropic Directors can facilitate family meetings and provide younger generations with educational opportunities. Filing state and federal tax returns: Each foundation is required to file an annual IRS Form 990-PF and comply with other state and federal filing requirements. We employ a team of full-time tax experts to prepare and file all foundation-related federal returns and filings for the state in which the foundation was formed or incorporated. Foundation Source will also work with existing tax and legal professionals retained by the foundation. Our tax team undertakes data mining to help clients avoid tax penalties, and proactively identify opportunities to obtain tax refunds. 2

Foundation Management: Doing It Yourself vs. Outsourcing Traditional Foundation Paying foundation-related expenses: All reasonable and necessary expenses associated with foundation start-up, board meetings, administration, site visits, legal counsel, etc., may be paid by a private foundation. Many of these expenses count toward the IRS-imposed minimum distribution requirement. The Foundation Source Advantage Our finance staff handles all foundation expense payments. We review expense reports for compliance and work with foundation members to document the charitable intent of all payments made by the foundation. All expense payments are tracked, coded and organized into reports for board meeting review. Grants Management: A foundation can establish its own unique procedures for all aspects of grantmaking, including: Soliciting and reviewing grant proposals Approving grants Following up on grant proposals Monitoring grantee performance For foundations that want to solicit proposals from nonprofit organizations, Foundation Source Requests, a webbased grants management service, makes it easy to accept grant applications online, then organize, review, track and reply to those requests with a click and a keystroke. You can respond to requests anytime, anywhere, using a standardized application format, so your foundation can compare and select the applicants that best match your philanthropic goals. Vetting grantees: The foundation must ensure that grantees are eligible to receive grants under all applicable laws and regulations. In light of past IRS charitable status revocations, the onus remains on donors to make sure their grantees are eligible at the time of the grant. Failure to do so can incur severe penalties. We provide an online database of more than one million charitable organizations. We also verify that each grantee is recognized by the IRS as a valid 501(c)(3) public charity, in good standing at the time of the grant, and compliant with the USA PATRIOT Act. Our online resources verify that the IRS has approved the exempt status of nonprofits you wish to fund. Creating grant agreements: A foundation may enter into agreements with grantees, and should do so particularly when making conditional grants, major gifts, grants that involve naming rights, gifts of complex assets, or complicated multi-year programs. Foundations are responsible for defining all terms and creating all contractual documents. We can work with your attorney or our own outside counsel to create a grant agreement that ensures that your funds are deployed according to your goals and requirements. The agreement could include performance benchmarks for deliverables, payment schedules, as well as contingencies if the grant terms are not met. Making grant disbursements: A foundation must send out grant checks and keep track of every grant it makes. We process foundation grants, including preparing the grant checks, grant agreements and transmittal letters. We then mail this information directly to the recipient or the designated foundation officer for personal delivery, as directed. Giving to international organizations: Private foundations can make grants to overseas charities and non-governmental organizations that serve a clear charitable purpose as long as they are compliant with federal laws and regulations governing international giving. We will guide you through the sometimes confusing procedures for granting outside the United States, enabling you to make grants anywhere in the world. We ve helped donors make a difference from Antarctica to Zaire. Each donor is responsible for the recordkeeping and vetting processes required by the IRS. Making gifts to individuals and families facing hardships, emergencies, or medical distress: As long as you adhere to IRS regulations, emergency grants and hardship grants to individuals are possible from a private foundation. Our tax and legal professionals have developed a process that makes it quick and easy to issue emergency and hardship grants without running afoul of IRS regulations. The information provided in this document is for general information purposes only, and does not constitute legal, tax or investment advice. 3

Foundation Management: Doing It Yourself vs. Outsourcing Traditional Foundation Creating scholarships: Foundations may provide scholarships and fellowships to individuals as long as they obtain pre-approval from the IRS. The Foundation Source Advantage Foundation Source can help you design your scholarship program for maximum impact and take care of the details involved in obtaining pre-approval from the IRS. Providing Program-Related Investments (PRIs): Foundations may engage in a variety of innovative ways to fund organizations through PRIs, including loans, loan guarantees and equity investments. PRIs earn returns for the foundation and are recycled back, so they do not drain assets like traditional grants. Working with your attorney or our own outside counsel, Foundation Source can help support the creation of background and closing documents for any PRI loans, loan guarantees and equity investments that serve a charitable purpose. Each donor is responsible for the administration and recordkeeping processes for PRIs required by the IRS. Making donations to organizations not approved as public charities: Foundations may donate to organizations that are not 501(c)(3) entities by exercising expenditure responsibility. Our tax and legal team can manage the documentation required for charitable gifts to organizations not classified by the IRS as tax-exempt public charities. Examples: Social-enterprise organizations For-profit businesses Civic leagues, labor organizations and business leagues Each foundation is responsible for the administration and recordkeeping processes required by the IRS, and for determining if the funded program or project is charitable in nature. Direct charitable activities: Foundations may run their own projects and programs and pay for related expenses (supplies, salary, rent, etc.), provided these activities are regarded by the IRS as charitable. Foundations are responsible for the administration and recordkeeping processes required by the IRS for direct charitable activities. We can provide guidance to help ensure that any charitable projects and programs that you choose to run from your foundation are in line with IRS requirements. Past client projects have included such diverse activities as creating indestructible soccer balls to be distributed in povertystricken areas of South Africa during the 2010 World Cup, and creating support networks for culturally stigmatized unwed mothers in South Korea. Creating a family legacy in perpetuity: The IRS allows families to maintain legal and financial control of the foundation for unlimited generations. Decision-making authority is retained by the board of directors or trustees. The governing body is obligated to recruit new members as needed to fill vacancies, or can decide to dissolve the foundation. Foundation Source has a team of expert advisors to help you educate and engage your heirs so your foundation can continue to make an impact for generations to come. We can help you plan for perpetuity or to sunset the foundation in a specified number of years as well as facilitate family meetings to ensure that the traditions you value for your legacy continue. 4

About Foundation Source (www.foundationsource.com) Foundation Source is the nation s largest provider of comprehensive support services for private foundations, bringing unparalleled knowledge and expertise to clients across the country. The company s administrative services, online foundation management tools and philanthropic advisory services provide a total outsourced solution for private foundations. The result: better-run, more effective foundations and more enjoyable philanthropy. Our clients supply the funds, the vision and the philanthropic goals; we provide everything else. Today, Foundation Source provides its services to more than 1,100 family, corporate and professionally staffed foundations coast to coast, ranging in size from $250,000 to over $500 million. The company provides its services directly to philanthropically focused families and institutions as well as in partnership with the nation s leading private wealth management firms, law firms and accounting firms. Foundation Source is headquartered in Fairfield, Connecticut, with auxiliary locations in Atlanta, Chicago, Dallas, Denver, Los Angeles, New York City, Philadelphia, San Francisco, South Florida, and Washington, D.C. Foundation Source 55 Walls Drive, Fairfield CT 06824 P 800.839.0054 F 800.839.1764 www.foundationsource.com Atlanta Chicago Dallas Denver Los Angeles New York City Philadelphia San Francisco South Florida Washington D.C. 2012 Foundation Source Philanthropic Services Inc. All rights reserved. v0912