Creating a Fund
Dr. Denise M. Martin Scholarship Fund
This fund was originally created through the generosity of a group of Denise’s friends and co-workers at a retirement dinner held in her honor. It was then endowed by Denise and Jeffrey Martin.
Serving and Supporting Your Community
Fund vs. Foundation
Creating a donor advised fund is easier than starting a foundation. Community foundations have distinct advantages over private foundations including immediate deductibility of gifts, asset control, and minimal reporting requirements. Private foundations or individuals may choose to transfer part or all of their invested assets to a community foundation and create a donor-advised fund, which retains the private foundation’s or individual’s philanthropic goals.
Asset Control
A private foundation must distribute at least 5% of the fair market value of investment assets annually. Otherwise, there is a 15% tax on undistributed income. This tax rises to 100%, if the distributions are not made during the resolution period. This provision can be problematic, if a private foundation is holding non-income producing assets such as undeveloped land or non-dividend paying stock. No such mandatory provision applies to a community foundation. A private foundation pays a 2% tax on any annual income. There is no tax on the income generated by managed funds held within a community foundation.
Reporting Requirements
Private foundations are required to complete extensive reporting. Private foundations are required to submit annual tax returns to the Attorney General, as well as to the Internal Revenue Service. Private foundations must also post annual notices in a general circulation newspaper indicating that the foundation’s tax return is available for inspection by anyone who requests to see it. A copy of the announcement must then be sent to the IRS. These specific reports often become a matter of public record that lead to solicitation requests from charitable organizations. This reporting is not necessary, with an advised fund.
Summary
It is easier and more cost effective to create a donor advised fund, than to establish a private foundation. The Community Foundation of Fayette County avoids many of the reporting requirements facing private foundations, while providing the independence donors need in order to reach their charitable and tax planning goals.
