We at the National Center field requests for information every day from
donors, giving families, colleagues, professional advisors, and media. Questions
touch on family dynamics, engaging the next generation, grantmaking, giving
vehicles, administration and management, legal and ethical issues, and a host of
other topics.
In Ask the Center, we share the latest questions from the field of family
giving. If you have a question you’d like to Ask the Center,
email us, and we’ll
respond. Your question and our answer might be next month’s feature!
Q: How can we make sure our dollars have the most impact internationally in a time of a weak dollar?
A: More and more family foundations are giving internationally. Our 2008 Pursuit of Excellence survey discovered that 21 percent of family foundation respondents make such grants. According to the Foundation Center, foundation giving for overseas recipients climbed to a record $1.9 billion in 2006. In a time of a relatively weak dollar, though, donors may find that their dollars aren’t going as far internationally as they may have in the past.
We turned to David Roth and Ardie Geldman of Donor Associates in Israel, who’ve witnessed this problem firsthand, for ideas to consider when giving overseas amid a weakened dollar. Roth and Geldman argue:
Roth and Geldman’s tips apply whether you’re considering a new grant or
fulfilling a multi-year commitment. Monitor your grant’s real, continuing value
to the grantee, keeping an eye on the exchange rate. If the value of the grant
declines, consider giving general operating support, or adjusting the payment
schedule of your program grant to help an important project succeed.
Ask the Center takes a break this August. We will return in September with more answers to your tough questions.
Q: In a discussion of possible advocacy efforts at our last board meeting, trustees recalled our founding documents, which prohibit “carrying on propaganda.” Where does this phrase come from and what exactly does it mean?
The phrase “carrying on propaganda” comes from Section 501(c)3 of the Internal Revenue Code, which describes, in part:
Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes…no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office. (emphasis added)
If the phrase appears in articles of incorporation or governing documents, the writer most likely wanted it understood that the organization met – to the letter - the government’s definition of a 501(3) tax-exempt corporation. “Carrying on propaganda” isn’t expressly defined here, but “political propaganda” was defined in the Foreign Agents Registration Act of 1938.
In essence, the phrase means that no substantial part of your organization’s activities can be dedicated to influencing specific legislation or advocating disorder and overthrow of the US government.
Contrary to popular belief, though, you can engage in significant advocacy efforts amidst these prohibitions. Your organization can publish research, develop ad campaigns, convene stakeholders, and, under certain circumstances, lobby and fund grantees that do so.
For more information, see:
Friends of the Family and Family Philanthropy Online subscribers can also
access downloadable audio and materials from a recent teleconference “Family
Foundations and Advocacy: Making Your Grant Dollars Go Further” with Foundation
Advocacy Counsel Abby Levine of Alliance for Justice.
Q: What is embedded philanthropy?
A: Whether it’s called “place-based philanthropy” or “embedded philanthropy,” this increasingly popular approach to giving emphasizes intimate, active engagement in place-based community change. Embedded philanthropists make a long-term commitment to living and working in a specific community or neighborhood. They then take on the myriad interconnected issues affecting that community, making grants, building close relationships with community actors, and often providing direct services and technical assistance. Embedded philanthropy describes the efforts of the Steans Family Foundation in the North Lawndale area of Chicago, the work of the Jacobs Family Foundation in the Diamond neighborhoods of San Diego, and the place-based initiatives of the Annie E. Casey Foundation, among others.
For more research on this approach, and profiles of several families doing this work, see the Casey-supported research of Chapin Hall Center for Children at the University of Chicago.
Q: We want to involve a new generation in the foundation. At what age should we welcome new board members?
A: Family boards often agonize over what the minimum age for board members should be. Older family members worry which groups, branches, or people will be included or excluded. Younger family members wonder what will suddenly be expected of them once they reach that looming age. Should you set the standard at the driving age? How about the voting age? The drinking age? The age at which someone could run for President?
The National Center finds that focusing attention on an arbitrarily chosen age of “philanthropic maturity” limits your opportunity to build a great board and prepare potential board members. Instead, consider the larger questions of what kind of board members would best serve the foundation and what kind of commitment you expect from them. Create a trustee job description. Then, you can invite board members who bring the knowledge, skills, abilities, and passions that will make your board a successful one. If setting an age floor— or ceiling—can help you do that, then do so.
The National Center offers the following tips with regard to age limits:
First, check out your state’s legal minimum. In Michigan, for example, foundation board members can be as young as 16. Some states have no minimum age at all. Make sure your age limit complies with state law.
Second, don’t worry if potential board members don’t seem interested once they’re eligible. Often, the minimum age is set between 18 and 35. This is often the age that family members are starting college, careers, and/or families of their own. Older family members frequently get discouraged when the family members they hoped would step up aren’t interested. Don’t despair. They’re just busy. Leave the invitation open, and eventually those with the talent and interest you’re looking for will come around.
Finally, welcome interest whenever it comes, however it comes. Remember that board service isn’t the only way to be involved in the family’s philanthropy.
“Don’t equate involvement with board service,” says Ginny Esposito, Founder and President of the National Center for Family Philanthropy. “When you set up board service as the only avenue for involvement, you set your family up for failure.”
Esposito points out lots of ways to be involved in a family’s philanthropy at any age. Going on site visits, reviewing proposals, reporting on grantee activities and family members’ personal charity and philanthropy, and assisting with finance, administration, and communication are all important tasks. Welcome participation in any such activities. Offer a number of opportunities to be involved in the family’s giving—not just board service—and the age at which such service becomes possible diminishes in importance.
Q: Should we pay the trustees of our family foundation?
A: The National Center for Family Philanthropy does not advocate or oppose board compensation. We hold the position that any foundation policy or practice, including board compensation, should help the foundation further its mission, values, and charitable goals.
Legally, trustees of family foundations are often eligible for compensation, provided that it is for services that are necessary to the charitable operations of the foundation, and that the amount is reasonable for the services provided.
The decision to compensate board members, then, largely depends on your values and circumstances. Some foundations may choose to offer board compensation to recognize the extraordinary service of individual trustees, to encourage participation of younger family members and branches of the family that are less financially secure, or to attract committed and experienced non-family members to the board. Others choose not to compensate because they are concerned such a practice might go against the founder’s wishes, might put the foundation in an unfavorable light, or might introduce a new set of financial issues that could be a source of tension. Some foundations find it inconsistent to pay their own boards when the boards of the nonprofits they fund serve voluntarily.
If you decide to compensate your board members, it is extremely important that your board work with its legal advisors to develop a clear, fair policy on compensation (and reimbursement) in light of its mission, values, and the implications of such compensation for the field at large. It is also critical that individual board members keep careful record of the time spent and services provided to the foundation.
For more on board compensation, see the National Center’s issue paper Board Compensation: Reasonable and Necessary?, available free to Friends of the Family and FP Online subscribers through the FP Online Knowledge Center and available for purchase here.
Q: Our foundation’s third generation is coming on the board and some have young children. Some family members say the lack of child care during board meetings hinders some family members’ participation. Can the foundation pay for child care so that parents can attend board meetings?
A: Generally no.
According to Andrew Schulz, Deputy General Counsel of the Council on Foundations, such payments are acts of self-dealing and illegal unless they are treated as taxable income to the board member. As with staff members, if an employer provides day-care or pays for it directly to a third party, it’s considered taxable income. If such payments are not reported as income on a Form 1099 or W-2, they would constitute self-dealing, and the foundation risks serious penalties.
You can compensate board members as long as their compensation is reasonable and necessary. You can reimburse them for their out-of-pocket expenses for travel and food and other related expenses—like taxi cabs and tips—but not for the personal expenses that enable them to travel—like child care, kennel services, and house-sitting.
Q: How can we help a group of preteens evaluate which philanthropic organizations they should support?
A: Susan Price, Vice President of the National Center, offers suggested questions in her book The Giving Family: Raising Our Children to Help Others:
These questions give you a starting point for discussing where the youths’ funds may make the most difference.
Q: We recently sold the family business, and the resulting windfall puts us in a position to make a real difference. But we’re not ready to just put ourselves out there. When should we give privately and when should we give anonymously?
A: Some of the best advice we’ve received on this issue is this: ask whether or not taking some sort of credit serves the gift, the grantee, and your own values. If taking some credit will help the grantee attract more dollars, serve more people, and encourage you to give again (we all love a little acknowledgment now and then), then allow yourself some recognition and publicity. If taking some credit might draw attention away from the grantee’s work, interfere with it, distract your family from your larger program goals, or make you uncomfortable, consider giving anonymously.
An article from
our newsletter Family Giving News covers some of these issues, and the
chapter on communication in our book
Splendid Legacy is a good primer on the issue as well.
Q: We have a next generation board composed of five younger college-age family members. They travel from all around the country to meet, review grant proposals, and recommend grants to the governing board. Is it legal to reimburse them for travel expenses?
A: Yes.
Spouses and children of board members are disqualified persons. If foundation assets are paid to them for travel or related expenses, such payment is an act of self-dealing.
However, if the spouse or child has official duties that further the charitable purposes of the foundation, such as those of a next generation board member, then reimbursement of reasonable expenses for foundation activities, such as travel, is not a violation of the self-dealing rules.
For an easy reference on disqualified persons and the self-dealing rules that
govern foundations, consult John Edie’s
Self-Dealing: A Concise Guide for Foundation Board and Staff, published
by the Forum of Regional Associations of Grantmakers.
Q: It is my understanding that Form 990-PF requires the reporting of the names and addresses of contributors which can be accessed by the public. I would prefer not having to report the names and addresses of contributors. What do I do?
A: The Internal Revenue Service requires foundations to file Form 990-PF every year. A public record of the foundation’s activities, it contains information about the foundation’s assets, grants, the names and salaries of trustees and staff, if any, and, as you note, “substantial contributors.”
Part VII, Line 10 of the Form 990-PF asks, “Did any persons become substantial contributors during the tax year? If ‘Yes,’ attach a schedule listing their names and addresses.”
The instructions state: “The term ‘substantial contributor’ means any person whose contributions or bequests during the current tax year and prior tax years total more than $5,000 and are more than 2% of the total contributions and bequests received by the foundation from its creation through the close of its tax year. In the case of a trust, the term ‘substantial contributor’ also means the creator of the trust (section 507(d)(2)).”
(See page 20 of the Form 990-PF instructions to find out how person is defined and when a person ceases to be a substantial contributor.)
There’s no getting around these disclosure requirements. If you’re concerned about receiving inappropriate grant proposals, consider updating your foundation’s profile on grantseeking tools like Guidestar and the Foundation Center’s Foundation Directory. If you’re concerned about publicizing the names of contributors, you might consider alternative giving vehicles like donor-advised funds. Because the community foundations and charitable gift funds that host such funds are public charities and not required to publicly disclose their donors, individuals who create donor-advised funds can choose to remain anonymous.
For more information on issues of privacy and publicity, see the July 2007 Family Giving News “Privacy and Publicity.”
Q: My family’s foundation has traditionally given in New England and continues to support nonprofits there, but family members live all around the country. How do we keep people engaged?
A: As today’s families are more mobile than ever, geographic dispersion has become a crucial issue for family philanthropists as they try to keep distant family members involved. Consider the following tips for far-flung families:
Consider discretionary or matching grants. Some families use discretionary grants to encourage individual philanthropic goals and support nonprofits where family members live. Other families match the philanthropic gifts of their board members up to a certain amount. Even volunteer hours can be monetized and matched to support family members’ own charitable work. If your family discovers a particularly compelling project outside your foundation’s home community, you can consider a change in program or geographic focus.
Use technology where you can. Many giving families are using technology to help bridge the distance. Email and family newsletters keep family members in touch with the fund’s work and with one another. Some of the board’s meetings can be held via teleconference. Distant family members can research community nonprofits online. Families are increasingly using web sites to review online applications and grant reports. Others have built family intranets, private web sites where family members can discuss the latest proposals, compare notes on site visits, and review current grants.
Take time out for family. Naturally, though, technology can’t solve everything. Philanthropic decisions can be tough ones, especially for a family already stretched by geography. Families grow, and sometimes they grow apart. Consider family retreats and reunions. Anything you can do to create an open, caring environment for family members makes it that much more likely they’ll participate.
Note your local resources. You’re not alone in this. Regional associations, community foundations, and federations can be tremendous resources for families dealing with geography, providing services as they do for local donors with special attention to the assets and needs of the community. Seek out the organizations where your fund is located and where family members live and find out what they might be able to do to help your family bridge the distance.
For more tips on dealing with geography, see also “Geographic
Dispersion: Opportunities for Far-Flung Families” from the September 2006
Family Giving News and our monograph
Grantmaking with a Compass: The Challenges of Geography.
Q: Family members live all around the country, but our
foundation’s grantmaking is based in the family’s home state. We were thinking
of creating a discretionary grant policy where each board member could make some
grants in their own areas while keeping the majority of the foundation’s
grantmaking in our parents’ home state. How many other families do this and is
this a good idea?
A: Many family foundation boards allow discretionary grantmaking, that is,
grants made largely at the discretion of authorized individuals, usually
trustees. As with any other private foundation grant, the board of directors as
a whole is still legally responsible for approving discretionary grants,
ensuring the grantee is an eligible 501(c)3 organization, and abiding by the
self-dealing rules—even if the grant does not go through the foundation’s
typical review process.
According to the Council on Foundations’ Foundation Management Series,
53.8 percent of family foundation respondents permit this kind of grantmaking.
The Association of Small Foundations found that 28 percent of respondents to its
Foundation Operations and Management Survey allow board members to make
discretionary grants.
Many families favor this kind of grantmaking because they feel it encourages
individual philanthropy and participation. Others families are concerned that
discretionary grants will turn their family foundation in to a mere collection
of individual funds.
To strike a balance between encouraging both individual and collective
philanthropy and prevent individual grantmaking from overwhelming the family’s
vision and mission, many foundations place a cap on the collective amount of
discretionary grantmaking, usually a percentage of total annual grantmaking.
Others forgo discretionary grantmaking and opt to encourage individual charity
and volunteering with matching programs. Individual financial donations can be
matched by the family foundation up to an agreed-upon sum. Board or family
members’ volunteer hours can be monetized and matched as well.
The success of your own discretionary grantmaking program will principally
depend on creating a clear, fair policy for making such grants—who can make
them, for how much, how, and whether these grants must fit within the
foundation’s grantmaking guidelines.
For more information, consult the National Center’s
Discretionary Grants: Encouraging Participation…or Dividing Families?
If you have a question you’d like to Ask the Center,
email us, and we’ll
respond. Your question and our answer might be next month’s feature!
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