Week 6 Flashcards
A donor wants to benefit a small charity. He also wants to make a deferred gift, using one of a number of tools, such as a gift annuity, charitable remainder trust, donor-advised fund, gift of a life estate, or supporting organization. The donor wants to explore these, but sees that the small charity he wants to help has no experience with such tools. The donor is also concerned that the charity may go under before the deferred gift matures. Where might such a donor turn for assistance in determining what tool makes the most sense and then implementing it?
I. Local community foundation
II. Online giving site
A) I only
B) II only
C) Both I and II
D) Neither I nor II
A) I only
The correct answer is A. This is a case that fits the community foundation profile. An online giving site may provide some information, but may not have the ability to explore these gifts in detail or work closely with the small charity.
A donor wants to set up a scholarship fund, and is looking for a relatively easy and convenient way to do so. The total amount being devoted to the program now and in the future is $150,000, from which grants of $3,000 per year will be made. Where might the donor appropriately be sent?
I. To an attorney, to create a private foundation
II. To a community foundation, to discuss setting up scholarships
A) I only
B) II only
C) Both I and II
D) Neither I nor II
B) II only
The correct answer is B. A private foundation can be created to offer scholarships. But the set-up costs and administration would make it a poor choice, particularly since the donor wants the gift process to be convenient and easy. A community foundation may be able to create and administer such a program. Each community foundation is unique. But meeting with the community foundation would be a good next step.
A donor wants to support a controversial cause, but does not want her support to be known. What tool or tools would work for this purpose?
I. Private Foundation
II. Donor-Advised Fund
A) I only
B) II only
C) Both I and II
D) Neither I nor II
B) II only
The correct answer is B. Private foundations are required to publicly disclose their sources and their use of funds on their 990-PF. A donor-advised fund, by contrast, can be set up in such a way that the donor’s identity is protected. As a result, DAFs are often used when donors want to give anonymously.
A husband and wife would like to set aside a tax-deductible fund that will let their children (ages 8 and 11) make grants along with them. The couple would like to put aside, say, $10,000 for this purpose, and get a tax deduction for it. What tool would you suggest?
A) Unrestricted endowment at community foundation
B) Private foundation
C) Donor-advised fund
D) Bank account
C) Donor-advised fund
The correct answer is C. Funds drawn from a bank account would not be deductible; the fund is too small to justify setting up a private foundation; and an unrestricted endowment would not input from the children. The conditions presented are perfect set of facts for a DAF.
Janice wants to give scholarships to students who go on to college from her local high school. She has $1,500,000 she wants to put aside for this purpose. Which tools would you discuss with her?
I. Private foundation, filed with the IRS, with procedures for giving scholarships
II. Scholarship fund at a community foundation
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
The correct answer is C. Both options are open to her, and it makes sense to discuss both. If she had much less money, then the community foundation might be her only real option. At $1,500,000, she might consider setting up a foundation, but in filing the paperwork to create the foundation, she will have to include the detailed policies and procedures for awarding the scholarships. As a practical matter, many people who have sufficient wealth to start a foundation and who want to fund scholarships decide to use a community foundation, as the CF may have already laid the groundwork, have experience with scholarship programs and their regulations, and have in place the means to administer the new program.
What is a field of interest fund?
A) a fund at a community foundation to which many donors contribute, and which is focused on making grants in a specific issue area, such as aging, children’s needs, women’s issues, and/or the environment
B) a fund established at a community foundation to conduct research in a particular donor’s area of interest
C) a fund endowed at a university to support research in specialized areas
D) a fund within a private foundation that makes grants in a specific issue area
A) a fund at a community foundation to which many donors contribute, and which is focused on making grants in a specific issue area, such as aging, children’s needs, women’s issues, and/or the environment
A CAP is working with a wealthy donor who is on the board of a small nonprofit. The donor would like to set aside an endowment for the charity, but is concerned the organization might go out of business. He has highly appreciated raw land that he would like to give. He is 85 years old. What would be the best suggestion?
A) Give the land to a community foundation and under the community foundation umbrella, create an endowed fund for the nonprofit. The donor may want to include a provision that, should the initial charity fail, the funds will be used to support another nonprofit with a similar mission. Let the community foundation provide oversight after the donor is gone.
B) Set up a private foundation, and make ongoing grants to the charity.
C) Set up a donor-advised fund to make grants in perpetuity.
D) Give the land directly to the charity. The charity can sell the land and manage their own endowment.
A) Give the land to a community foundation and under the community foundation umbrella, create an endowed fund for the nonprofit. The donor may want to include a provision that, should the initial charity fail, the funds will be used to support another nonprofit with a similar mission. Let the community foundation provide oversight after the donor is gone.
The correct answer is A. This is an ideal set of conditions for a CF. A donor-advised fund could work, but there is no indication that the donor has identified anyone to direct the grants after he is gone. Also, he wants perpetuity, which donor-advised funds do not generally offer. A gift outright to the charity would be inappropriate, it would seem, since they have no prior experience managing endowments and because the donor is concerned about their long-term viability. A private foundation won’t work well with the funding asset, and there is no indication that the donor has anyone else to manage the foundation after he is gone.
Regarding designated funds, which statement or statements below is (are) true?
I. A designated fund is set aside by a donor or donors at a community foundation to serve a particular nonprofit.
II. Among the four community foundation operating models discussed by Bryan Clontz, a designated fund is most closely associated with a donor-focused model.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
The correct answer is C. Both are correct. The first item is a definition. The second item correctly states that these funds are most closely associated with a donor-focused model. This makes sense, in that the donor is the one who designates how the fund will be used, i.e., in the support of the organization the donor designates. (If that organization ceases to exist or perform, the donor may rely on the CF to redirect the money from the fund to a similar nonprofit.)
Other than holding its own endowment, where else might a public charity keep its endowment?
I. In a supporting organization
II. In an endowment fund at a community foundation
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
The correct answer is C. Both formats are possible, and both are quite common.
What sort of organization might provide these tools and services: donor-advised funds, area of interest funds, unrestricted endowments, help in setting up a supporting organization, donor education, donor networks, and vetting of nonprofits?
A) Supporting organization
B) Private foundation
C) Community foundation
D) Private operating foundation
C) Community foundation
