Glossary of Terms
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Administrative Fund: See Operating Fund
Agency Endowment Fund: Established by a not-for-profit agency for the benefit of the not-for-profit agency. A community foundation regularly distributes the annual net earnings back to the agency for purposes established by that agency. Also called an Organizational Endowment Fund.
Appreciated Assets: Those assets that have increased in value since they were acquired. Such assets are usually subject to capital gains tax, if sold.
Appreciated Securities (gift of): Gifts of securities include publicly traded stocks, but also mutual funds, Treasury Bills, notes and closely held stock. The gift of appreciated securities held for at least one year allows a donor a charitable deduction for the market value of the gift avoiding the payment of capital gains tax.
Asset Allocation: The distribution of a pool of assets among various asset classes, including, but not limited to, domestic and foreign bonds, cash, real estate, venture capital, etc.
Assets: Cash stocks, bonds, real estate or other holdings of a foundation. Generally, assets are invested and the income is used to make grants.
Audit: An independent examination of the accounting records and other evidence relating to a business, to support the expression of an impartial expert opinion about the reliability of the financial statements.
Balance Sheet (Statement of Financial Position): A financial statement that shows the financial position of the organization at a particular date. It consists of a list of the assets, liabilities and fund balance.
Bequest: A gift by will to a specific recipient. A charitable bequest is a transfer at death by will to a not-for-profit organization for charitable purposes.
Building Campaign: A drive to raise funds for construction or renovation of buildings.
Bylaws: Rules governing the operation of a not-for-profit corporation, developed according to state law requirements. Bylaws often provide the methods for the selection of directors, the creation of committees and the conduct of meetings.
Capital Campaign: Also referred to as a Capital Development Campaign, a capital campaign is an organized drive to collect and accumulate substantial funds to finance major needs of an organization, such as a building or major repair project.
Cash: The most common type of gift made to most organizations. Includes cash, checks and credit cards.
Cash Basis of Accounting: Revenue is recorded when received in cash, and expenses are recorded in the period in which cash payment is made.
Challenge Grant: A grant that is made on the condition that other monies must be secured, either on a matching basis or via some other formula, usually within a specified period of time, with the objective of stimulating giving from additional sources.
Charitable Gift Annuity: A gift of cash or securities in exchange for the promise of lifetime income, now or later. A charitable gift annuity is a contract between the donor and charity that is part charitable gift and part purchase of an annuity. The total assets of the charity back the payments.
Charitable Lead Trust: A Charitable Lead Trust (CLT) pays the trust income to a charity first for a specified period, with the principal reverting to the donor or going to other person(s) at the end of the period. Also called Income Trust.
Charitable Remainder Trust: A gift plan that provides income to one or more beneficiaries for their lifetimes, a fixed term of not more than 20 years, or a combination of the two. Assets, usually cash, securities or real estate, are transferred to a trust which pays income to the beneficiaries for the term of the trust. When the trust term ends, the remainder in the trust passes to the charity. Can be established as a Charitable Remainder Annuity Trust (CRAT) with a fixed payout or as a Charitable Remainder Unitrust (CRUT) with a variable payout.
Closely Held Securities: Stocks and bonds not traded on public exchanges, often owned by family members or a few individuals. Also see Securities, Privately Held.
Community Foundation: A community foundation is a tax-exempt, not-for-profit, autonomous, publicly supported, non-sectarian philanthropic institution with a long-term goal of building permanent, named component funds established by many separate donors for the broad-based charitable benefit of the residents of a defined geographic area.
Component Fund: An individual fund considered to be part of the exempt assets of the foundation by the Internal Revenue Service (IRS). The foundation's governing board must have total control over all assets of a component fund.
Custodian: A bank or other financial institution that has custody of stock certificates and other assets of a mutual fund, individual, corporation or institution. Custodians hold assets in safekeeping, collect income on securities in custody, settle transactions, invest cash overnight, handle corporate accounting and provide accounting reports.
Designated Fund: A type of restricted fund in which the fund beneficiaries are specified by the donor.
Dividend: A distribution of cash by a corporation to its stockholders.
Donor Advised Fund: A fund held by a community foundation where the donor, or a person or committee appointed by the donor, may recommend eligible charitable recipients for grants from the fund.
Donor Designated Fund: A fund held by a community foundation where the donor has specified that the funds income or assets be used for the benefit of one or more specific public charities.
Endowment: The principal amount of gifts and bequests that are accepted subject to a requirement that the principal be maintained intact and invested to create a source of income for a fund. Donors may require that the principal remain intact in perpetuity or for a defined period of time or until sufficient assets have been accumulated to achieve a designated purpose.
Excise Tax: The annual tax of 1 or 2 percent of net investment income that must be paid to the IRS by private foundations.
501(c)(3): Section of the Internal Revenue Code that designates an organization as charitable and tax exempt. Organizations qualifying under this section include religious, educational, charitable, amateur athletic, scientific or literary groups, organizations testing for public safety or organizations involved in prevention of cruelty to children or animals. Note: The tax code sets forth a list of sections 501(c)(4-26) to identify other not-for-profit organizations whose function is not solely charitable (e.g., professional or veterans organizations, chambers of commerce, fraternal societies, etc.)
509(a): Section of the tax code that defines public charities (as opposed to private foundations). A 501(c)(3) organization also must have a 509(a) designation to further define the agency as a public charity.
Family Foundation: "Family foundation" is not a legal term, and therefore, it has no precise definition. Yet, approximately two-thirds of the estimated 40,000 private foundations in this country are believed to be family-managed. The Council on Foundations defines a family foundation as a private foundation whose funds are derived from members of a single family. At least one family member must continue to serve as an officer or board member of the foundation, and as the donor, they or their relatives play a significant role in governing and/or managing the foundation throughout its life. Members decide themselves if they wish to categorize their private foundations as family or independent foundations. In many cases, second- and third- generation descendants of the original donors manage the foundation. Most family foundations concentrate their giving locally, in their communities.
Fiduciary Duty: The legal responsibility for investing money or acting wisely on behalf of a beneficiary. More broadly, for foundation boards such responsibility must be legally exercised on behalf of the donors and the governing documents of the foundation.
Field of Interest Fund: A fund held by a community foundation that is used for a specific charitable purpose, such as education or health research.
Fiscal Sponsor: A fiscal sponsor (the preferred term) is a public charity that agrees to sponsor the charitable programs or activities of another organization or of individuals. A fiscal sponsor is legally responsible for all funds contributed to it for the sponsored project and must have complete discretion and control over the use of those funds.
Financial Report: An accounting statement detailing financial data, including income from all sources, expenses, assets and liabilities. A financial report also may be an itemized accounting that shows how grant funds were used by a donee organization. Most foundations require a financial report from grantees.
Financial Statements: Main source of financial information to persons outside the organization. These convey to management and to interested outsiders a concise picture of the profitability and financial position of the organization.
Form 990/Form 990-PF: The IRS forms filed annually by public charities and private foundations respectively. The letters PF stand for private foundation. The IRS uses this form to assess compliance with the Internal Revenue Code. Both forms list organization assets, receipts, expenditures and compensation of officers. Form 990-PF includes a list of grants made during the year by private foundations.
Fund: An entity established for the purpose of accounting for resources used for specific activities or objectives in accordance with special regulations, restrictions or limitations. Community foundation assets are held in many named component funds established by donors or the foundation for specific or unrestricted purposes.
Fund Accounting: Each fund has its own chart of accounts and every transaction is accounted for at the fund level.
Funding Cycle: A chronological pattern of proposal review, decision-making and applicant notification. The Dayton Foundation awards grants four times per year. (see How to Apply for a Grant, Deadlines)
Future Interest Property: The donor gives remainder interest in a personal residence, vacation home or farm, subject to the right to live in the home (or work the farm) for the lifetime of the donor and/or another person. Also see Retained Life Estate.
Giving Pattern: The overall picture of the types of projects and programs that a donor has supported historically. The past record may include areas of interest, geographic locations, dollar amount of funding or kinds of organizations supported.
Grant: The award of funds to an organization or individual to undertake charitable activities.
Grantee: See Donee
Grantor: See Donor
Grassroots Fundraising: Efforts to raise money from individuals or groups from the local community on a broad basis. Usually an organization does grassroots fundraising within its own constituency people who live in the neighborhood served or clients of the agency's services. Grassroots fundraising activities include membership drives, raffles, bake sales, auctions, dances and a range of other activities.
Guidelines: A statement of a foundations goals, priorities, criteria and procedures for applying for a grant.
Income Trust: See Charitable Lead Trust.
In-Kind Contribution: A donation of goods or services rather than cash or appreciated property Internal Revenue Service (IRS) The federal agency with responsibility for regulating foundations and their activities.
Life Insurance (gift of): Life insurance is easy to give and to receive. The donor must make the organization both owner and beneficiary of the insurance policy in order for the IRS to regard the transaction as a charitable gift.
Limited-Purpose Foundation: A type of foundation that restricts its giving to one or very few areas of interest, such as higher education or medical care.
Matching Gifts Program: A grant or contributions program that will match employees' or directors' gifts made to qualifying educational, arts and cultural, health or other organizations. Each employer or foundation establishes specific guidelines. Some foundations also use this program for their trustees.
Matching Grant: A grant or gift made with the specification that the amount donated must be matched on a one-for-one basis or according to some other prescribed formula.
Non-endowed Fund: Monies are received and distributed with little or no dollars remaining with the foundation.
Operating Contribution: A contribution given to cover an organizations day-to-day, ongoing expenses, such as salaries, utilities, office supplies, etc.
Operating Fund: May be either nonpermanent and "spent" for the operations of the foundation or may be endowed with only the income from the fund used for operations.
Operating Support: A contribution given to cover an organizations day-to-day, ongoing expenses, such as salaries, utilities, office supplies, etc.
Organizational Endowment Fund: See Agency Endowment Fund
Pass-Through Foundation: Foundations that receive monies and make distributions to donees, with little or no principal remaining with the foundation.
Payout Requirement: The minimum amount that a private foundation is required to expend for charitable purposes (includes grants and necessary and reasonable administrative expenses). In general, a private foundation must pay out annually approximately 5 percent of the average market value of its assets.
Personal Property: Art, jewelry, furs, "collectibles."
Philanthropy: Philanthropy is defined in different ways. The origin of the word philanthropy is Greek and means love for humankind. Today, philanthropy includes the concept of voluntary giving by an individual or group to promote the common good. Philanthropy also commonly refers to grants of money given by foundations to not-for-profit organizations. Philanthropy addresses the contribution of an individual or group to other organizations that in turn work to improve the quality of life for other citizens. Philanthropic giving supports a variety of activities, including research, health, education, arts and culture, as well as alleviating poverty.
Planned Giving: Any gift given for any amount and for any purpose whether for current or deferred use, which requires the assistance of a professional staff person, a qualified volunteer or the donor's advisors to complete. In addition, it includes any gift that is carefully considered by a donor in light of estate or financial plans.
Pledge: A promise to make future contributions to an organization.
Post-Grant Evaluation: A review of the results of a grant, with the emphasis upon whether or not the grant achieved its desired objective.
Principal Fund Balance: Corpus of the fund. Endowed funds have a principal fund balance and an income fund balance. Usually contains gifts plus realized and unrealized gains/losses. (Referred to as Non-Spendable Balance in some foundations.)
Private Foundation: A nongovernmental, not-for-profit organization with funds (usually from a single source, such as an individual, family or corporation) and program managed by its own trustees or directors, established to maintain or aid social, educational, religious or other charitable activities serving the common welfare, primarily through grantmaking. Private foundation also means an organization that is tax-exempt under Section 501(c)(3) of the tax code and is classified by the IRS as a private foundation as defined in the code.
Public Charity: A not-for-profit organization that is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue code and that receives its financial support from a broad segment of the general public. Religious, educational and medical institutions are deemed to be public charities. Other organizations exempt under Section 501(c)(3) must pass a public support test to be considered public charities, or must be formed to benefit an organization that is a public charity (see Supporting Organizations). Charitable organizations that are not public charities are private foundations and are subject to more stringent regulatory and reporting requirements.
Public Foundation: The IRS recognizes public foundations, along with community foundations, as public charities. Although they may provide direct charitable services to the public as other not-for-profits do, their primary focus is on grantmaking.
Real Property: Real estate, land, home (residence or vacation), farm.
Realized Gains/Losses: Increases/decreases in investments attributable to the sale of investments.
Restricted Funds: Assets or income that is restricted in its use, in the types of organizations that may receive grants from it or in the procedures used to make grants from such funds.
Retained Life Estate: The donor gives remainder interest in a personal residence, vacation home or farm, subject to the right to live in the home (or work the farm) for the lifetime of the donor and/or another person. Also known as Future Interest Property.
Retirement Plan Assets: Assets held in qualified retirement plans, including employers' pension or profit-sharing plans or salary deferral plans such as 401(k) and 403(b).
Return, Rate of: The rate of return on an asset is a measure of investment performance and should be determined on a total-return basis, i.e., including realized and unrealized changes in market value in addition to earned income (i.e., dividends and interest income). Managers may report returns before or after management advisory fees, but returns are always reported after brokerage and trading costs.
Return, Real: A real return is the nominal or actual return adjusted for inflation, as measured by the Consumer Price Index (CPI).
Return, Total: A measure of an investment's return that includes both realized and unrealized changes in market value plus earned income.
Scholarship Fund: Established to provide support for individuals who are pursuing some training or educational opportunity. Grants may be awarded to the individuals or they may be awarded to educational institutions.
Securities, Privately Held: Stocks and bonds not traded on public exchanges, often owned by family members or a few individuals. Also known as Closely Held Securities.
Securities, Publicly Traded: Stocks and bonds traded on public exchanges.
Seed Money: A grant or contribution used to start a new project or organization.
Spending Policy: An agreed-upon policy that determines what percentage of a group of assets, such as an endowment, should be spent to cover both operating costs and grants of an institution. Typical spending rules combine calculations based on previous years' spending, the current year's income and investment return rates, and the policy of the foundation covering grant commitments.
Split Interest Gifts: Gifts that have two distinct parts or "interests:" a charitable interest and a non-charitable interest, often the donor. Also see Charitable Gift Annuity; Charitable Lead Trust; Charitable Remainder Trust; Future Interest Property; Retained Life Estate.
Supporting Organization: A supporting organization is a charity that is not required to meet the public support test because it supports a public charity. To be a supporting organization, a charity must meet one of three complex legal tests that assure, at a minimum, that the organization being supported has some influence over the actions of the supporting organization. Although a supporting organization may be formed to benefit any type of public charity, the use of this form is particularly common in connection with community foundations. Supporting organizations are distinguishable from donor advised funds because they are distinct legal entities.
Tax-Exempt Organizations: Organizations that do not have to pay state and/or federal income taxes. Federal tax-exempt status can be obtained by applying to the IRS, and in most states, for state income-tax exemptions to the state attorney general's office.
Transfers: (1) The moving of dollars from one asset account to another within a fund (Pool asset account to checking account, for example). (2) 'the moving of dollars from one fund to another fund (Interfund Grant from Fund A received as Interfund Gift in Fund B).
Trust: A legal device used to set aside the money or property of one person for the benefit of one or more persons or organizations.
Trust Form: For a community foundation, when the investment responsibility resides with the trust department of one or more banks or brokerage firms and such trust departments have responsibility for the development and implementation of investment policy.
Unrealized Gains/Losses: Increases/decreases in investments attributable to the fluctuations in value of the investments from one time period to another.
Unrestricted Fund: A fund that is not specifically designated to particular uses by the donor, or for which restrictions have expired or been removed.
The definitions and terms in this glossary are courtesy of The Center on Philanthropy at Indiana University and the Council on Foundations and its members.
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File date: 06-30-09