Community Foundations

DONOR BRIEF

While many community foundations have sizable endowments from which they distribute staff-directed grants, most of the assets managed by community foundations and the grants made from them are associated with donor-advised funds (DAFs). The typical community foundation is focused on a specific geographic area, like the New York Community Trust or the Oklahoma City Community Foundation. But there are also community foundations focused on demographic communities, such as the Latino Community Foundation, Astraea Lesbian Foundation for Justice, or a Jewish Community Foundation. There are hundreds of community foundations across the United States. They come in all shapes and sizes, from small, rural community foundations holding just a few hundred thousand dollars to the Silicon Valley Community Foundation, which holds over $9 billion in assets and reported distributing over $2 billion in grants in 2021.

Why Donors Fund Community Foundations

Whether you’re considering donating to a community foundation to support its core programs or using its donor-advised funds services to facilitate your own grantmaking, there are many good reasons donors turn to community foundations.

• Option to align with program areas or do your own thing. Community foundations usually have several main program areas, giving to nonprofits working across a range of issues in a particular town or region. Common ones include arts, education, social services and community economic development. The foundation’s board and staff determine these focus areas and individual grants.  Many community foundations also make grants at the direction of the DAF holders and giving circles.
• Specialty “pooled funds,” crisis funds and other donor coordination efforts. A community foundation may also create pooled funds and invite donors to participate in them. This is a way donors can come together to move resources for an important issue in their community. For example, the Humboldt Area Foundation in Northern California has a Disaster Response and Resilience Fund to support local communities affected by wildfires and other disasters, and the Jewish Federation of Greater Los Angeles invited donors to contribute to the Ukraine Jewish Community Relief Fund after that country was invaded by Russia. In these cases, the community foundation has done a lot of work vetting and building relationships with nonprofits so that they can move donors’ pooled funds quickly to where they will have the most impact.
• High-Touch Donor Services. Many community foundations also organize donor education events and offer support and guidance to individual and family donors. These offerings vary from foundation to foundation. For instance, many community foundations offer personalized guidance around planned giving and charitable estate planning. Just a few of the most common services include:
  • Scholarship programs. Many donors want to create a scholarship to support the university studies of particular populations. Community foundations, for a fee, often administer such scholarship programs, which would be immensely labor-intensive for the donor to run on their own.
  • Charitable Lead Trusts and Charitable Remainder Trusts. Many foundations offer donors CLTs, which provide donors interest income on a tax-deductible donation that, upon the donor’s death, goes to a designated charity, and CRTs, which also provide donors interest income, but upon the donor’s death, the gift goes to the community foundation itself.
  • Converting noncash gifts. Community foundations are generally quite adept at accepting and converting noncash gifts of appreciated stock, real estate, life insurance, farm assets, etc. This can make things much easier for a donor who experiences a substantial liquidity event to take a charitable tax deduction for the year in which it occurs and decide how to manage their charitable assets later, although most community foundations have policies in place to sell such assets as close to the donation date as is realistically possible, and will not hold noncash assets for a time frame beneficial to the donor.
  • Facilitating international giving. While most foundations do concentrate their work on local and regional grantmaking, many are also accustomed to working with donors with funding interests outside of the United States. Distributing charitable funds outside of the United States does require some additional paperwork, so tapping into the administrative capacity of a community foundation can be another reason to turn to a trusted intermediary like this.

Key Considerations

Community foundations provide an alternative to giving directly to nonprofits, setting up a private foundation or using a for-profit DAF manager, but there are also factors which might make one of those other options better for you. These are some factors associated with community foundations to keep in mind:

• Invest charitable assets in an institution that supports a community you care about. You may want to put your DAF at the community foundation focused on your own city or region to connect with nonprofits as well as other donors working to support your local community.  If you’re looking to set up a donor-advised fund and LGBTQ issues are one of your philanthropic priorities, an LGBTQ community foundation like Stonewall Community Foundation or Horizons Foundation might be a great place to establish your DAF. They’ll have deep knowledge of nonprofits working on LGBTQ issues and can connect you to other donors working in this area to pool funding and participate in strategic initiatives. Donating through a community foundation can be a way to give effectively in support of a community you care about without reinventing the wheel. For example, the New York Community Trust has a Community Needs Fund that pools money from individual donors to support organizations addressing critical needs across NYC. It’s a way for a donor to support vulnerable communities in the city they live in without spending time researching all the nonprofits themselves.
• Connect with other donors. Many community foundations host events and other opportunities for donors to network. A community foundation can also be a place to participate in pooled funds created by the foundation or to establish a giving circle.
• Administrative support for your charitable work. When you set up a DAF or start a giving circle at a community foundation, you (or you and the other members of your giving circle) decide where you want to make grants, and then the community foundation makes the grants on your behalf. They handle all of the administrative work — from sending the check to tracking your giving. They also professionally manage the investment of any assets held in your account. You can focus on the vision, values and strategy behind your giving, and the community foundation does the technical and administrative work.
• Philanthropic learning opportunities. Community foundations hold a lot of knowledge about the communities they serve — they know the nonprofits, philanthropies, needs and emerging opportunities in the field, and they share this information with donors. Some of them create giving guides that inform donors about local nonprofits working on a particular issue. And many provide individualized guidance and information to DAF holders, giving-circle members, and other individual and family donors — to the extent that the donors would like. They can usually also provide personalized guidance on topics such as planned giving and charitable estate planning.
• Move funds quickly to where they are needed most during a crisis. During and after a disaster like a wildfire or flood, a local community foundation may have the best information and existing relationships with on-the-ground organizations to move resources quickly. Community foundations can often provide more targeted and effective relief than national or international organizations that are at a remove and lack connections with trusted local nonprofits.
• Fees. The services and connections community foundations provide, which are not prioritized by for-profit DAF managers, do require significant staffing, and that comes at the cost of fees. Many donors find these perfectly reasonable and worth the benefits, but donors should be clear about how the community foundation charges for aspects of its donor services.
• Fundraisers always want more. Community foundations have fundraising staff that will always be looking for opportunities to encourage donors to give more. If you simply want to deposit into a DAF without the slightest pressure to give more, the for-profit DAF managers might be a better fit for your giving style.
• Some time commitment to get started. Because community foundations offer more choices and services, and also are more likely to employ some screening of potential grantee integrity, there will be a more involved process in getting started with a community foundation than with a for-profit DAF manager.
• Limited expertise on niche issues. Community foundation staff will have considerable expertise in the program areas the foundation concentrates on, but if your giving interests fall outside of those program areas, they may not be able to help as much as you like. Many community foundations will provide additional help for particularly large donors, along with additional fees. But if you are a relatively small donor giving for issues outside of the foundation’s program areas, it probably won’t be able to give you a lot of insights or connections to fellow donors. Similarly, most geographically focused community foundations will have little knowledge of international giving issues, even if they do offer services to make that giving administratively easier.
• Entrenched power dynamics. Most community foundations have a history of affiliation with financial management executives and other power elites in the places they serve. There are other intermediaries distributing funds that may have closer connections to communities and have leadership and staff that come out of the marginalized communities you want to support. As North Carolina’s Triangle Community Foundation states, “The central purpose of a community foundation is to serve the needs and philanthropic aims of donors who wish to better their community, now and in the future. Community foundations do this by providing donors with flexible, efficient and tax-effective ways to ensure their charitable giving achieves the greatest possible impact.” Feel free to ask community foundation staff how marginalized communities contribute to the strategies the foundation pursues.

Taking Action

To get started, conduct a web search for “community foundation” + the community or region or issue where you are giving or plan to give. You might also want to check out the Council on Foundations’ Community Foundation Finder. Most community foundations have donor advisors who’ll be happy to talk with you. Schedule a conversation and ask a lot of questions.

Also, make sure to  use IP’s search tool to read its coverage of community foundations you’re interested in, and read our State of American Philanthropy report on any issues or regions you want to prioritize in your philanthropy. Each report contains a section on community foundations working in that sector.

Have a community foundation you’re considering? You may want to see if they are among the 500+ that have earned the operational excellence “seal” of the Community Foundations National Standards Board, a supporting organization of the Council on Foundations. The CFNSB confirms operational excellence in six key areas—mission, structure, and governance; resource development; stewardship and accountability; grantmaking and community leadership; donor relations; and communications.