Estate planning's best kept secret: community foundations.

Author:Sweet, Howard A.

Many estate planners are responsible for developing charitable giving strategies for their clients. They should consider the many donor options that community foundations offer. A client, with guidance from an advisor, can make a gift to a community foundation that enables the donor to enjoy significant tax savings while fulfilling a wide variety of charitable objectives. Community foundations are one way to serve clients better and also to strengthen communities. This article provides a basic introduction to community foundations.

An Estate Planning Challenge

Michael and Michelle Smith want to update their estate plans. Their goals are similar to those of many clients: ensure a comfortable retirement, provide for their children and minimize transfer taxes. The Smiths have an additional goal, however, they want to help their community. They have come to you because they are unsure of how best to achieve all their goals.

Although community service is important to them, the Smiths do not know the community's greatest needs or which agency or group will best address them. They are not sure they can give enough to "make a difference," but they would like their gift to be flexible enough that the beneficiaries could change as community needs change. As an estate planner, your challenge is to meet their goals in a simple and cost-effective way.

To do so, you might suggest the Smiths consider making a gift to their local community foundation. The Council on Foundations, a national association of more than 1,300 private foundations, corporate giving programs and community foundations, notes that more than 400 community foundations with assets of more than $6 billion(1) now operate across the country. A community foundation provides a unique means of philanthropy for many charitably minded individuals(2) because it can provide donors with choice, permanence, flexibility and tax benefits.

A community foundation is a public charity(3) that manages funds and distributes the fund income (or in some cases, the funds themselves) to benefit the community. It may be organized either in trust or corporate form. A foundation's governing body, the board of trustees or directors, represents a cross-section of a community(4) and is informed about and sensitive to the community's issues and needs, which it matches with its donor's wishes. The community benefits from the foundation's organized effort to collect and distribute funds. The donor benefits because the gift is maximized by that collective effort.

The Efficient Charitable Gift

There are several reasons why a community foundation is an excellent choice for charitable giving. First, giving to a foundation provides donors with the efficiency and flexibility that they may not acquire individually, especially those who are making smaller gifts. A community foundation donation can be pooled with other funds to implement the donor's charitable intent even when the gift by itself would have been too small.

Second, the investment management fees incurred by a community foundation can often be lower than those incurred by a small private foundation or a charitable trust. Thus, more income will be available for charitable purposes. The larger pool of investments allows for diversity and efficiencies of scale similar to those achieved by mutual funds.

Third, a community foundation can provide expert advice to enable the donor to direct the gift to meet the community's most pressing charitable needs. Donors can use the collective expertise of a community foundation's...

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