Community Foundation of the Valleys: Frequently Asked Questions

What is the definition of a community foundation?

A community foundation is a means by which all people can make a lasting contribution to their own community. The primary goal of a community foundation is to serve donors’ philanthropic goals so as to facilitate positive social change in a geographically-defined area. These foundations provide donors with a myriad of tax-effective, flexible, and efficient ways of ensuring that their gifts create the lasting local impact.

Such a philanthropic concept is pure genius—it is a simple method by which a community can substantially benefit from an endowment created over time through large and small gifts.

Most common to the mission of a community foundation is to enhance the way of life in a local, geographically-defined area. Using permanently endowed gifts to support a wide variety of local nonprofits, community foundations serve this mission through grantmaking efforts and funding select, need-based projects.

Separate asset funds created by families, individuals, institutions, or businesses make up the total assets of most community foundations. A community foundation’s board of directors, charged with fiduciary responsibility, ensures that each asset fund is wisely invested and properly managed. Board members follow donors wishes to their specifications.

Community foundations are categorized as tax-exempt by the IRS because the boards of these charities represent the communities they serve and such foundations receive monies from the public at large.

United together by a sincere desire to better their communities both today and in the years to come, individual donors of community foundations get to see their many local interests and ideas come to fruition.

Whatever local cause or causes you wish to support, a community foundation offers multiple ways to give to your preferred charities.

How does a community foundation work?

A community foundation’s operations are overseen by a highly-qualified board of directors and professional administrative staff. Annual administrative fees and designated donor gifts cover operating expenses and associated costs of community foundation programs.

How does a private foundation differ from a community foundation?

A broad and expanding group of families, individuals, institutions, and corporations supports the efforts of a local, community foundation. These donors are connected solely by the desire to facilitate beneficial social change in their own community.

The IRS classifies charities supported by the public as community foundations because
they are supported by a broad base of donors and not a single wealthy individual or family.
Therefore, maximum tax advantages are awarded to community foundations and not to private foundations.

All funds within a community foundation’s control, called “component funds,” are treated as part of one corporation. Private foundations do not benefit from the same investment and administrative advantages that community foundations do.

By contrast, a single family, individual, or corporation supports a private foundation. Such foundations are established only with large, principal endowments. Today, the Kellogg, Ford, and Gates foundations are the world’s largest private foundations.

Since the 1970’s, private foundations have paid penalty taxes and been subjected to legal requirements by the IRS in order to prevent self-dealing and abuse.

How does a community foundation differ from other nonprofits?

Nonprofit organizations, in general, serve missions of specific purpose. Alternatively, the mission of a community foundation is quite broad, focusing on bettering the lives in a designated geographic community. Grants can be given to benefit any preferred cause because the mission of a community foundation is broadly encompassing.

A community foundation is more flexible than a private foundation because it serves wider groups of donor prospects and partners with other nonprofit organizations to improve local communities.

Community foundations help area nonprofits by keeping money in that community. Community foundations also make local grants. Nonprofits can designate that one of their own endowments be overseen by a local community foundation. These funds are called “agency endowment funds.”

Community foundations connect prospective donors with local causes that need funding. Over time, community foundations become philanthropic engines driving positive social change in their area communities.

Where can I find out more information about community foundations?

More information about community foundations can be found on the Internet. For a long
time, the most progressive and innovative U.S. grantmaking institutions have been community foundations. Many people have learned all about the significant benefits of community foundations on the Internet.

The best information resource, perhaps, is the list of community foundation websites available on the Council on Foundations own site.

You can also call Community Foundation of the Valleys at 818-377-6386 to find out more information. We’ll be happy to share all our materials with you.

How is Community Foundation of the Valleys funded?

Local families, individuals, foundations, and businesses, our major sources of support, typically provide us with charitable gifts of cash, real property, and securities.

Many donors choose to give to us through their wills or charitable remainder trusts, a planning giving solution, as well as through simple gifts.

We add a small administrative fee to each donated fund in order to pay our operating costs. We add a smaller fee to endowments given to us by nonprofits. We are also lucky to receive donor gifts that are earmarked specifically to pay our operating expenses.

How will the San Fernando and Santa Clarita Valleys benefit from Community Foundation of the Valleys?

Community Foundation of the Valleys will offer two primary benefits to the San Fernando
and Santa Clarita Valleys: 1) We will raise the overall level of giving locally; and, 2) We will ensure that our donor funds remain in this community for lasting impact. Over time, Community Foundation of the Valleys will become the local source of charitable capital that provides longstanding resources for greatest social benefit in our valley communities.

Charitable endowment gifts given to the Community Foundation of the Valleys will help our local communities to facilitate social change where the need is greatest over the duration of time. Local needs will change and Community Foundation of the Valleys will continuously adapt by providing funding to meet the ever-changing needs of our community.

What is an endowment fund?

An endowment is a fund that yields income to benefit charitable causes. Most often, an endowment fund only generates income from investments while the endowment principal remains intact. A foundation endowment fund’s annual rate of return typically runs between four and five percent.

As long as its principal is never disturbed, an endowment fund is likely, although without guarantee, to remain intact in perpetuity. This is highly dependent on the endowment fund’s rate of return mirroring the growth patterns of long-term investments.

Is every fund of the Community Foundation an endowed fund?

No. Donors can annually select to distribute a greater percentage of their funds.

What happens when a donor contributes to Community Foundation of the Valleys?

Depending on one’s preferences, a donor can select from five different gift alternatives.
The first is called an unrestricted gift, where a donor’s contribution typically will be added to and always recognized as part of the Community Foundation of the Valleys total fund. Alternatively, an unrestricted fund variation is to establish a fund that is separately named.

The Community Foundation of the Valleys total fund will be built up, gift by gift, over a long period of time by many generous donors. The Board of Directors of Community Foundation
of the Valleys will determine how annual income from the fund will be distributed for greatest lasting benefit. Community Foundation of the Valleys’ competitive grantmaking process will directly benefit from unrestricted gifts.

The second gift alternative is called a field-of-interest gift that specifically supports our grants program. These donor gifts support a field of need or a general interest in our community, such as education, arts and culture, children’s health, for example. These funds will never be distributed to projects outside their designated area of support. Any size contribution to these funds is a welcome gift. The Board of Directors of Community Foundation of the Valleys also oversees grantmaking decisions related to these field-of-interest funds.

The third gift alternative is called a designated fund. This is gift where donors ask that we specifically use their funds to benefit one or more nonprofit organizations. Community Foundation of the Valleys is asked to oversee this type of gift because of our Board of Directors’ substantive experience in overseeing endowments and managing annual distributions.

A donor-advised fund is the fourth and often preferred gift alternative. With this alternative, donors ask that a distribution be given to a specific nonprofit directly. The Community Foundation of the Valleys, while not legally obligated to do so, will grant funds to designated, legitimate nonprofit organizations that comply fully with IRS requirements. Donors who have an ongoing interest in philanthropy and wish to support multiple causes find donor-advised funds to be their preferred gift alternative.

Donor-advised funds are often chosen over the fifth gift alternative of establishing a private foundation. Usually, private foundations cost more and are less efficient in facilitating social change for lasting impact.

Donors find that community foundations are useful for other purposes, too, including
pass-through grants, short-term gifts, and gifts that allow for donor anonymity.

In what ways does Community Foundation of the Valleys invest donor funds?

The Community Foundation of the Valleys has formed a collaborative partnership with the California Community Foundation, founded in 1915. As the oldest community foundation
in Southern California, the California Community Foundation offers us direct access to many benefits, including its 100-year-old track record of funding beneficial social change. This partnership also allows us to minimize all our administrative costs and pass these savings on to our donors.

Most importantly, Community Foundation of the Valleys pools all its charitable funds with the more than $1.5 billion assets of the California Community Foundation, facilitating maximum economies of scale simply not available to local donors anywhere else.

What tax advantages will I receive from donating to Community Foundation of the Valleys?

Community Foundation of the Valleys offers donors maximum tax advantages available under law for charitable gifts. Since Community Foundation of the Valleys is publicly-supported, we qualify as a nonprofit organization under IRS code section 501(c)(3). As such, we are able to offer greater tax benefits than a private foundation would offer.

Whatever your preferred cause or causes to advance, Community Foundation of the Valleys will deftly guide you in achieving all your philanthropic goals, both now and in the future.

For more information on Community Foundation of the Valleys, click here.