So youwant to

Council of Michigan Foundations

"Our personal motto should be: 'If you seek to help your nation, state, orcommunity, look about you.' We need not ask where or how to begin.Begin in our own lives, in our families, jobs, neighborhoods, communi-ties, voluntary associations, and churches."

—Former Governor George Romney

Within your financialcircumstances, what isthe best option for your

giving program?

What are the taxadvantages?

What are theoptions for giving in an

efficient andeffective way?

lach year, many peopleask the Council ofMichigan Foundations

(CMF) for advice aboutstarting a private or corporatefoundation or establishing agiving program through acommunity foundation orother public charity. So YouWant to Give is meant to helpyou with this importantdecision. It allows you toexplore and compare fouroptions.

Through the overviewprovided here, you will findan option that matches yourgiving intentions. Equippedwith a basic knowledge of theopportunities available foryou, please contact CMF forany of the resources listed atthe end of this booklet to lookat one of these options ingreater detail.

We are agiving

people

A mong the most favored andwidespread reasons forgiving are the following:

•A feeling of value and satisfac-tion through helping people

•A wish to leave a lastingimprint on society whilemaking a significantdifference

•A desire to perpetuate a certainviewpoint or philosophy

•A memorial to a friend orloved one

•Giving back to a supportivecommunity

•Tax benefits

Charitable giving satisfies a basichuman need of providing resourcesto improve the condition of mankind.

A direct gift to an establishedcharity is a familiar route. It is easyto find a charity, such as a church,educational institution, or other localor national nonprofit tax exemptorganization, that provides programsand services which reflect valuessimilar to your own. The BetterBusiness Bureau Wise GivingAlliance at 703/276-0100 are twosources for information on larger,well-established nonprofit organiza-tions.

You will want to make sure that theorganization has tax-exempt statusfrom the Internal Revenue Service, sothat you may claim the appropriatefederal tax deduction. The taxdeduction for gifts of cash to charitycan be up to 50% of your adjustedgross income for the year.

"Among the achievements of charitable foundations in Michiganare the creation of the Kalamazoo Institute of Arts and the KresgeEye Institute, as well as support of the Michigan Opera Theater,the Detroit Zoological Society, the Dow Gardens, the MidlandCenter for the Arts and the VanAndel Museum Center."

—Duane L. TarnackiPartner, Clark Hill P.L.C.

If you are interested in a particularissue, such as domestic violence, or apopulation, such as young children,there are a number of statewideorganizations, such as Michigan'sChildren, that can help you focus onthe appropriate nonprofit organizationin your community. Reliable localsources on needs include the localUnited Way, Chamber of Commerce,or community foundation.

Many individuals and families arechoosing to use assets, such as stockand real estate, to endow theircharitable giving so that it continuesfor a period of time. When properlydesigned, such a charitable givingprogram can achieve an admirablerange of goals for you—the donor.

Endowed charitable giving can:

• establish a legacy for others tocontinue. You can help toensure a tradition and a sense ofvalue for caring in your children,friends, and colleagues.

A foundation can provide acoordinated forum in whichfamily members can cooperate ina single goal.

• provide for the long-termneeds of the organizations andthe people you want to help. Bymaking an endowed gift, thedonor's influence continues tomake an impact for generations tocome.

• provide for your needs now andthe future needs of your familythrough a planned gift, whilesupporting community, arts,educational, religious, and civicorganizations you believe in.

• be an individual and corporateresponse to human needs; anopportunity to give is an opportu-nity to be involved. It is caringand serving.

Major Options forOrganized GivingPrograms

P lease keep in mind as youreview the four givingoptions presented here, that

the information is not intended to beall inclusive. You may have unique,specific interests and conditionswhich must be looked at in detail.However, this information will helpyou to move forward to the nextphase of your giving plan.

Within the various options for agiving program, your contributionmay consist of almost any property,tangible or intangible. Frequentgifts are cash, marketable securi-ties, stock in a closely held corpora-tion, life insurance policies, incomefrom trust funds, art work and realproperty (with value determined byindependent appraisal).

The 2000Michigan Foundation Directory reports that there arenow more than 1,790 private, family, corporate, and communityfoundations in Michigan with annual grantmaking exceeding$1.04 billion.

"When our family business was sold, we found we had moreresources than necessary to provide for our own needs. Starting afoundation was an ideal way for us to provide lasting assistance tothe communities which had enriched our lives."

—Nancy ColinaTrustee, Colina Foundation

It is important to note that irrevo-cable planned gifts can be used inoptions/, 2, 3 for establishingyour own charitable giving program.

A charitable remainder trust letsyou take a charitable deduction inthe year the trust is formed. (Addi-tional funds can be added in lateryears.) You or a loved one thenreceive income from the trust forlife, after which the assets pass tothe designated charity.

A charitable lead trust is anarrangement that provides for aregular, fixed amount to be paid toa charity or foundation of yourchoosing for a specific time. Theremainder of the trust later passesto your designated heirs.

An introductory resource onplanned giving that may beborrowed from CMF is TaxEconomics of Charitable Giving,12th edition, published by ArthurAndersen. In addition, it isadvisable to consult your estateplanning advisor.

The four options for an organizedgiving program are to:

1. Create a private foundation.

2. Create a fund within a commu-nity foundation.

3. Establish a supporting organiza-tion.

4. Develop a corporate givingprogram or corporate founda-tion.

Create a privateendowed foundation to retainpersonal control and flexibility overyour charitable giving.

Because a private foundation is anonprofit corporation or a charitabletrust created by the donor, you retainpersonal control and flexibility overits giving programs. You can appointyourself, as well as other familymembers, to the governing board.

A private foundation's grantmakingcan be broad in purpose, allowingsupport to a variety of issues. Or, ifthe foundation trustees so desire, they

can direct all grantmaking toward onespecific issue or organization.

Since private foundations are tax-exempt organizations, you can enjoycertain tax advantages. Tax deduc-tions are available of up to 30% ofannual adjusted gross income forcash donations. Gifts made in oneyear which exceed the limitation canbe carried forward for purposes ofdeduction for five years.

Another important benefit is that yourgiving is perpetuated for as long asyour foundation exists. This advan-tage is made possible because thefunds are invested and income is paidout annually in grants. The principalcan increase with inflation if wiselyinvested, and this approach canensure the foundation's continuationand growth. (Private foundationsmust, it should be noted, pay outfunds generally equal to 5% of theirassets—each year—and must pay al-to-2% tax on net investmentincome.)

In addition to the privategrantmaking, endowed foundation,there are two other options that offermore favorable tax deductions:

"When I attended the community foundation's annual meeting, theidea came to me of establishing an endowed fund in honor of ourwedding anniversary. I remember thinking, 'This would be perfect.'I read the foundation's materials carefully and noted that there wereno funds in support of animal and bird welfare. With the endow-ment, I was celebrating more than our marriage, I was also celebrat-ing a whole world I hadn 't been in touch with for years."

—Candis SternDonor, Helmut & Candis Stern Fund

of the Ann Arbor Area Community Foundation

The pass-through foundation is aprivate grantmaking organization thatdistributes all of the contributions itreceives each year (not just 5% ofassets). The pass-through electionmay be made or revoked on a year-to-year basis.

A private operating foundation usesthe bulk of its income to activelydirect staff and run a charitableprogram(s) or service(s). Examplesinclude the operation of a museum,library, or research facility.

Next Steps:As a next step for individuals andfamilies interested in starting a privatefoundation, we suggest reviewing ourpublication, Sample Documents forFamily Foundations. This three-ringnotebook includes a disk of 28 sampledocuments, available for you tocustomize to your needs. The docu-ments cover 10 basic categories:governing documents such as bylaws,principles and practices, grantmakingguidelines, grantmaking checklists,proposal response letters, annualreports, investment policies, conflictof interest, job descriptions andpersonnel policies. The legal docu-ments should not, of course, be used asa substitute for qualified professionaladvice.

2Give to a communityfoundation and you enjoy somedistinct advantages and options.

Community foundations are local chari-table entities that may administer anumber of endowed funds in four basiccategories: unrestricted, field of inter-est, donor advised, and designated.Michigan is fortunate to have a networkof 56 community foundations and morethan 30 affiliate funds that cover theentire state.

Because community foundations arepublic charities supported by donorsfrom across the community, all contri-butions are allowed the maximum taxbenefits under the law for charitabledeductions (up to 50 percent of ad-justed gross income.)

Income from the communityfoundation's discretionary funds isspent primarily for local purposes, tosolve community or regional problems,and improve the lives of people in itsgeographic service area.

As a donor, you have several ways inwhich you can make a gift to a commu-nity foundation. You may simply makean unrestricted gift, the income fromwhich is used where the foundation'sboard of knowledgeable local leaders/

volunteers deem it is most needed. Youmay support a field of interest fund forthe arts, or education, or the environ-ment, or designate a specific charitableorganization to benefit, such as the locallibrary.

Many individuals, families and evencorporations are creating donor-ad-vised funds with their local communityfoundations. A donor-advised fund caneither be named or remain anonymousand provides you with the opportunityof supporting your favorite charitablecauses in both lean and profitable years.You receive your charitable deduction inthe year the fund is established and maysuggest distributions at any time in thefuture. You may ask other family mem-bers to join you in suggesting distribu-tions to the board of the communityfoundation. Many donors use advisedfunds, as well as designated funds to

"What's nice about working withthe community foundation are theoptions and flexibility available toyou. I started my fund with anamount that was within my reach.I'll add to it gradually, and some-day it will be one of those biggerfunds."

—Mark RansomDonor, Kalamazoo Tire Brokers Fund of

the Kalamazoo Foundation

"The size of my company—$2 million in annual sales, with six full-time employees—made it easy to set up the fund. Because it's asmall company and I'm able to make these decisions unilaterally,that simplifies it."

—Mike GroshPresident, Span Corporation

Donor, Span Corp. Endowment for Child and Family Services of theCommunity Foundation for Southeastern Michigan

support their alma maters, churches andother favorite charities. While the finaldecision on grant distributions restswith the board of trustees of the com-munity foundation, your fund is notsubject to the excise tax and payoutrequirements of a private foundation.

A donor-advised fund can be estab-lished quickly. While the communityfoundation will charge a small annualfee for administering your fund, re-search indicates that, depending onasset size, it is still less expensive thanthe annual operating expenses of a pri-vate foundation.

The community foundation can be flex-ible in serving your charitable goals inmore than one geographic area. Andwhile you have the enjoyment of beinga grantmaker, the community founda-tion handles the administration.

Next Steps:To learn more about the communityfoundation that serves your community,call the Council of Michigan Founda-tions (CMF) at 616/842-7080 for thename and phone number. Becausemany community foundations nowhave their own Web sites, you maywant to check the list of communityfoundations listed on CMF's Web site(www.cmif.org) to visit the home pageof your local community foundation.

hi addition, CMF has produced sampledocuments for creating a donor-advisedfund at a community foundation. Thismeans that you do not have to startfrom the beginning. Call CMF for acopy or download it from our Web site,and give your legal advisor a head startin creating a fund for you.

3 Establish a supportingorganization if you wish to beclosely and influentially affiliatedwith a specific, existing public charitysuch as a community foundation, buthave chosen not to create your ownfoundation.

A supporting organization enjoys thetax benefits of a public charity, and adonor and/or members of the donor'sfamily may serve as members of itsboard, the majority of which aregenerally appointed by the publiccharity. Offering more independencethan the donor-advised fund, grantsfrom a supporting organization do notrequire prior approval of the board ofthe public charity. The mission ofthe supporting organization must becompatible with that of the publiccharity.

Creation of a supporting organizationprovides an excellent means for adonor to involve family members ingrantmaking decisions as well ashaving access to the program staff ofthe public charity. Cash donations, aswith other public charities, are taxdeductible up to 50 percent ofadjusted gross income. The popular-ity of the supporting organizationform of charitable foundation hasgrown rapidly as donors realize thatthis option avoids many of thedisadvantages of private foundationstatus without requiring the organiza-tion to meet a public support test asrequired of public charities.

Next Steps:The three requirements that distin-guish a supporting organization aredetailed in chapter five of the thirdedition of Establishing A CharitableFoundation in Michigan, the hand-book for creating private founda-tions and public charities in Michi-gan, produced for the Council ofMichigan Foundations by DuaneTarnacki. The handbook may beborrowed or purchased from CMF.

"The Consumers Energy Foundation's Volunteer Investment Pro-gram recognizes employees for their volunteer work with nonprofitorganizations by making grants ranging from $100 to $500 to thenonprofit for which the employees volunteered their time andtalenL.Jhere is nothing more critical than employee volunteerism.It is the cornerstone of our corporate citizen efforts."

-John W. ClarkPresident, Consumers Energy Foundation

Develop a business orCorporate foundation with support-ing funds customarily from annualcorporate profits and sometimes withshares of company stock.

Many corporations have an annualgiving program to make grants, fundedas part of each year's operating budgetfor the parent corporation. Owners canblend the family business with familyphilanthropy by channeling supportthrough their family corporations.This program has no independentendowment, and its budget is adminis-tered by corporate staff, directed by theCEO or an advisory committee ofmanagement staff members. Thecorporate giving program is not subjectto the rales and regulations of a privatefoundation.

However, many corporate leaders havechosen to take the next step by creatinga corporate foundation as an indepen-dent tax-exempt private foundation orcreating a fund at a communityfoundation. Motivations behind thisstep include the ability to preserve the

company's charitable giving duringlean economic times and the ability topreserve the company's name in an eraof mergers and acquisitions.

The corporate foundation is usuallystarted with a large single gift that canbecome the endowment, which may beadded to on an annual basis as—andif—profits allow. The foundation'sofficers are usually the companyowners and key executives, althoughleaders from headquarter communitieshave been known to be included.At some companies, committees ofemployees make recommendationsabout projects they believe are worthyof support to executives in charge ofgiving. The corporate foundation issubject to the same rules and regula-tions applicable to other privatefoundations.

In addition to grant programs thatenhance the corporation's strategicbusiness interests, corporate founda-tions and giving programs often offer tomatch employee gifts of cash andvolunteer time to a nonprofit organiza-tion. Because the priority is to serve

those communities where companyemployees and facilities are located,companies may make "in-kind" gifts ofproducts to charities and/or organizeworkplace volunteer efforts for thegood of the community.

Next Steps:Two CMF publications, An OrganizedCorporate Giving Program and TheMatching Gift Manual, will be ofbenefit in helping you establish acorporate giving program. We alsorecommend Organizing CorporateContributions: Options and Strategiesby the Council on Foundations.

In addition, members of the Council ofMichigan Foundations' CorporateServices Committee are available toshare experiences and resources.Contact CMF to be matched with aCommittee member or to borrow orpurchase one of these publications.

The table presented belowis an effort to compare thefour options based on the

critical issues of: donor control,

time commitment, and tax advan-tages. It is recommended that youconsult with an attorney or accoun-tant familiar with foundations,

trusts and planned giving as youfurther explore the decision tocreate a private foundation, estab-lish a fund within a communityfoundation, or choose anotheroption.

Comparison of Options for Giving

FactorsGiving to

Private Community SupportingFoundation Foundation Organization

Company Foundationor Direct CorporateGiving

A. Control of Assetsand Grantmaking Priorities Yes

B. Likely Perpetuity of Program High

C. Donor or Family Member May YesSit on Governing Board

D. Requires Donor-Related Time, as Yeswell as Expense of Staff,Management and Operations

E. Must Pay Out Funds

F. Must Pay Tax on Investment

G. Tax Advantage for Gifts of Cash(% of adjusted gross income)

H. Tax Advantage for Gifts of Stock 20%5'6or Real Property (% of adjustedgross income)

I. Annual Public Reports Yes

Limited1

High

No2

No3

Yes

Yes (1-2%)

30%5

No

No

50%5

Yes7

Limited

High

Yes

Yes

No

No

50%5

30%5

Yes

Yes

Usually not applicable

Yes

Yes

Yes, if a foundation

Yes4, if a foundation

10% of pre-tax profits5

10% of pre-tax profits5

Yes, if a foundation

1 A restricted gift can be confined to the stated purpose, but the donor relinquishes control of the investment and its disposition.A donor-advised fund permits the donor to make recommendations subject to the ultimate control of the community foundation.

2 Any citizen may be elected or appointed to the board of any public charity. The donor gift does not guarantee such an outcomeexcept in the case of supporting organizations.

3 Community Foundations often assess a management or administrative fee.4 Corporate Foundations must pay the same excise tax as any private foundation. See earlier discussion of private foundations

regarding the payout requirement.

5 One year's excess donations can be carried forward for five years.

6 The deductible value of lifetime gifts of closely held stock or real property is limited to cost, not market value.7 Funds established by donors can be treated anonymously.

I ndividuals and/or familieswishing to establish anendowed charitable giving

program will find it useful toconsider these questions. Theanswers to these questions maysuggest one or more of theseoptions.

•What expectations do youhave for your philanthropy?What goals do you hope toaccomplish for you, your familyand the community?

•What commitments are youprepared to make, in terms oftime and capital, to a program ofcharitable giving?

•What causes and institu-tions do you wish to support?Are your interests centeredprimarily in your local commu-nity? Are they national or inter-national in scope? Should yourgrantmaking last "in perpetuity"?Only during your lifetime?

•How deeply do you wish tobe involved in the managementand investment of funds youcontribute? In the selection ofbeneficiaries of your philanthropy?

•How would you describecurrent family relationships?Would you be interested in bring-ing family members together tomake philanthropic decisions nowand in the future?

•How much of your estate doyou wish to leave to your chil-dren? How much to charity? Areyou or would your heirs beinterested in examining "wealthreplacement" strategies? Howwill current or future incomeconcerns affect your family orbusiness grantmaking decisions?

T he Council of MichiganFoundations welcomesthe opportunity to advise

you and your advisor on how tomove forward with the nextimportant steps. Please contactus at 616/842-7080 or e-mail atcmf@cmif.org to borrow orpurchase any of the resourcesmentioned earlier:

•Sample Documents for FamilyFoundations•Sample Fund Agreement with aCommunity Foundation•Establishing a Charitable Foun-dation in Michigan, 3rd edition•Tax Economics of CharitableGiving, 12th edition•The Basics of an OrganizedCorporate Giving Program,2nd edition•The Corporate Matching GiftManual•Organizing Corporate Contri-butions: Options and Strategies

CMF also offers a complimentarypublications catalog available onour Web site at www.cmif.org.This catalog features additionalresources from organizations suchas the Council on Foundations(www.cof.org) and the NationalCenter for Family Philanthropy(www.ncfp.org). Please visit theseWeb sites or call CMF for a copyof the publications catalog. Wehope to hear from you.