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Grantmaking Glossary of Terms

Below are definitions for some commonly-used terms in the field of philanthropy and grantmaking.

  • 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.
  • 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.

-A-

  • Advisory Board:
    A group of individuals, who offer advice, inform or notify. An advisory board differs from an elected board in that they do not have any oversight responsibilities. ]
  • Annual Report:
    A voluntary report published by a foundation or corporation describing its grant activities.
  • Assets:
    Cash, stocks, bonds, real estate or other holdings of a foundation. Generally, assets are invested and the income is used to make grants. (See Payout Requirement)

-B-

  • Bequest:
    A sum of money committed to an organization and donated upon the donor's death.
  • Board of Directors:
    An organized body of advisors with oversight responsibility.

-C-

  • Challenge Grant: A grant that is made on the condition that other funding be secured, either on a matching basis or some other formula, usually within a specified period of time, with the objective of encouraging expanded fundraising from additional sources.
  • Charitable Giving Plan: A plan that best reflects one's life experiences, values, goals and passions that structures giving to a charitable organization(s).
  • Charitable Lead Trust: A legal device used to set aside money or property of one person for the benefit of one or more persons or organizations. Specifically, this type of trust allows for a regular, fixed amount to go to a charity for a specific number of years. At the end of that time, the remainder of the trust passes to one's heirs.
  • Charitable Remainder Trust: A legal device used to set aside money or property of one person for the benefit of one or more persons or organizations. Specifically, this type of trust allows one to take a deduction for a gift to the trust in the year in which the trust is formed. One receives income from this type of trust for life and after one's death, the assets pass to the charity you designated.
  • Charity: In its traditional legal meaning, the word "charity" encompasses religion, education, and assistance to the government, promotion of health, relief of poverty or distress and other purposes that benefit the community. Nonprofit organizations that are organized and operated to further one of these purposes generally will be recognized as exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code (See 501(c)(3)) and will be eligible to receive tax-deductible charitable gifts.
  • Community Foundation: A community foundation is a tax-exempt, nonprofit, autonomous, publicly supported, philanthropic institution composed primarily of permanent funds established by many separate donors for the long-term diverse, charitable benefit of the residents of a defined geographic area. Typically, a community foundation serves an area no larger than a state. Community foundations provide an array of services to donors who wish to establish endowed and non-endowed funds without incurring the administrative and legal costs of starting independent foundations. 
  • Corporate Foundation: A corporate (company-sponsored) foundation is a private foundation that derives its grantmaking funds primarily from the contributions of a profit-making business. The company-sponsored foundation often maintains close ties with the donor company, but it is a separate, legal organization, sometimes with its own endowment, and is subject to the same rules and regulations as other private foundations.
  • Corporate Giving Program: A corporate giving (direct giving) program is a grantmaking program established and administered within a profit-making company. Gifts or grants go directly to charitable organizations from the corporation. Corporate foundations/giving programs do not have a separate endowment; their expense is planned as part of the company's annual budgeting process and usually is funded with pre-tax income.

-D-

  • Designated Funds: A type of restricted fund in which the fund beneficiaries are specified by the grantors.
  • Directors & Officers Insurance: Also referred to as D&O insurance, this insurance coverage indemnifies an organization's directors, officers and managers against penalty taxes and other liabilities.
  • Discretionary Funds: Grant funds distributed at the discretion of one or more trustees, which usually do not require prior approval by the full board of directors. The governing board can delegate discretionary authority to staff.
  • Donee: The receiving organization of a donor's resources. (See Grantee)
  • Donor: A donor is anyone who gives resources - financial, social, intellectual and time - to a nonprofit organization, public charity or fund. A donor is committed to making a difference in society. (See Grantor)
  • Donor-Advised Fund: A fund held by a community foundation or other public charity, where the donor, or a committee appointed by the donor, may recommend eligible charitable recipients for grants from the fund. The public charity's governing body must be free to accept or reject the recommendations.
  • Donor-Designated Fund: A fund held by a community foundation where the donor has specified that the fund's income or assets be used for the benefit of one or more specific public charities. These funds are sometimes established by a transfer of assets by a public charity to a fund designated for its own benefit, in which case they may be known as grantee endowments. The community foundation's governing body must have the power to redirect resources in the fund if it determines that the donor's restriction is unnecessary, incapable of fulfillment or inconsistent with the charitable needs of the community or area served.

-E-

  • 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 foundation. 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: Private foundations are subject to an annual 2 percent excise tax on the their net investment income; the tax is reduced to 1 percent in any year in which the foundation’s percentage of charitable distributions exceeds the average percentage of its distributions over the previous five taxable years.

-F-

  • Family Foundation: "Family foundation" is not a legal term, and therefore, it has no precise definition. Yet, approximately two-thirds of the over 50,000 private foundations in this country are believed to be family managed. The Council on Foundations defines a family foundation as a 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, they or their relatives play a significant role in governing and/or managing the foundation throughout its life. Most family foundations are run by family members who serve as trustees or directors on a voluntary basis, receiving no compensation; 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.
  • Federated Fund: A centralized campaign whereby one organization raises money for its member agencies. These annual workplace giving campaigns raise millions of dollars for distribution to local, state, and national nonprofit organizations. The United Way campaign and Community Works are examples.
  • 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.
  • Form 990: The annual federal return that most tax-exempt 501(c)(3) organizations must file with the IRS.
  • Form 990-PF: The federal return that private foundations must file with the IRS.

-G-

  • General Operating Support: A contribution given to cover an organization's day-to-day, ongoing expenses, such as salaries, utilities or office supplies.
  • Giving Circle: A relatively new granting vehicle where a group of people come together usually around a specific interest or issue, to pool their funds and make joint decisions about where to gift their charitable dollars.
  • 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: An award of funds to an organization or individual to undertake charitable activities.
  • Grant Monitoring: The ongoing assessment of the progress of the activities funded by a donor, with the objective of determining if the terms and conditions of the grant are being met and if the goal of the grant is likely to be achieved.
  • Grantee: The individual or organization that receives a grant.
  • Grantor: The individual or organization that makes a grant.

-I-

  • In-Kind Contribution: A donation of goods or services rather than cash or appreciated property.
  • Independent Foundation: An individual usually founds these private foundations, often by bequest. They are occasionally termed "non-operating" because they do not run their own programs. Sometimes individuals or groups of people, such as family members, form a foundation while the donors are still living. Many large independent foundations, such as the Ford Foundation, are no longer governed by members of the original donor's family but are run by boards made up of community, business and academic leaders. Private foundations make grants to other tax-exempt organizations to carry out their charitable purposes. Private foundations must make charitable expenditures of approximately 5% of the market value of their assets each year. Although exempt from federal income tax, private foundations must pay a yearly excise tax of 1%-2% of their net investment income.

-L-

  • Legacy: The gift that an individual leaves, both in the details of their will and in the tradition of giving they shared with their descendents. (See Bequest)
  • Leverage: A method of grantmaking practiced by some foundations and individual donors. Leverage occurs when a small amount of money is given with the express purpose of attracting funding from other sources or of providing the organization with the tools it needs to raise other kinds of funds; sometimes known as the "multiplier effect."

-M-

  • 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. Specific guidelines are established by each employer or foundation. (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.
  • Memorialize: To commemorate; to present a memorial to; to honor the memory of an individual or group by donating resources or establishing a fund that reflects the gifts, values or concerns of the individual or group.
  • Mission-Related Investing: (see Social Investing)

-N-

  • Nonprofit Organization: A term describing the Internal Revenue Service's designation of an organization whose income is not used for the benefit or private gain of stockholders, directors, or any other persons with an interest in the company. A nonprofit organization's income must be used solely to support its operations and stated purpose.

-O-

  • Operating Foundation: Also called private operating foundations, operating foundations are private foundations that use the bulk of their income to provide charitable services or to run charitable programs of their own. They make few, if any, grants to outside organizations. To qualify as an operating foundation, specific rules, in addition to the applicable rules for private foundations, must be followed. The Carnegie Endowment for International Peace and the Getty Trust are examples of operating foundations.

-P-

  • Parity: Equality, as in amount, status, or value. Parity in philanthropy is the equal participation by spouses or other family members in the allocation of charitable dollars and in receiving the satisfaction and recognition of their contributions.
  • Payout Requirement:
    The minimum amount that a private foundation is required to expend for charitable purposes (includes grants and necessary and reasonable administrative expenses). By law, a private foundation must pay out annually approximately 5% of the fair market value of its assets, which may be based on a three-year rolling average.
  • Philanthropy: Philanthropy is defined in different ways. The origin of the word philanthropy is Greek and means love for mankind. 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 nonprofit organizations. Philanthropy addresses the contribution of an individual or group to other organizations that in turn work for the causes of poverty or social problems, improving the quality of life for all citizens. Philanthropic giving supports a variety of activities, including research, health, education, arts and culture, as well as alleviating poverty.
  • Pledge: A promise to make future contributions to an organization. For example, some donors make multiyear pledges promising to grant a specific amount of money each year.
  • Private Foundation: A nongovernmental, nonprofit 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. U.S. private foundations are tax-exempt under Section 501(c)(3) of the Internal Revenue Code and are classified by the IRS as a private foundation as defined in the code.
  • Professional Advisor: Individuals who assist in planning and executing charitable giving through providing information on giving options according to one's specific financial situation. Types of professional advisors include: attorney, accountant, estate planner, financial planner, stockbroker, insurance broker, planned giving officer, philanthropy consultant.
  • Program Related Investment (PRI): An investment by a foundation NOT in the form of an outright grant that serves to accomplish a charitable objective. Once an investment is determined to be program-related, it is considered a qualifying distribution and counts toward satisfying the foundation's 5% payout requirement.
  • Public Charity: A nonprofit 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 (See 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 (See Private Foundations).
  • Public Foundation: Public foundations are nonprofit organizations that receive at least one-third of their income from the general public. Public foundations may make grants or engage in charitable activities. The IRS recognizes public foundations, along with community foundations, as public charities. Religious, educational and medical institutions are deemed to be public charities.
  • Public Support Test: Stipulates that at least one-third of an organization's (i.e. public charity) total revenue must come from gifts, grants and contributions from the general public, or from a combination of gifts, grants contributions and fees charged for the performance of charitable services if not more than one-third total revenue is derived from investment income.

-Q-

  • Qualifying Distributions: The total amount of grants and certain operating or administrative expenses that satisfy a private foundation’s annual payout requirement of 5 percent.

-R-

  • 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.

-S-

  • Seed Money: A grant or contribution used to start a new project or organization.
  • Self-Dealing: Refers to business and/or financial transactions between a foundation and its "disqualified persons", a broad category of foundation "insiders" that includes contributors, managers and certain public officials.
  • Social Investing: Also referred to as socially responsible investing or mission-related investing, this is the practice of aligning a foundation's investment policies with its mission. This may include making program-related investments and refraining from investing in corporations with products or policies inconsistent with the foundation's values.
  • Strategic Giving: Engaging in philanthropy in a strategic manner to make a major philanthropic impact through making better choices surrounding how much one spends, invests and gives back to society.
  • 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.

-T-

  • Tax-Exempt Organizations: Organizations that do not have to pay state and/or federal income taxes. Organizations other than churches seeking recognition of their status as exempt under Section 501(c)(3) of the Internal Revenue Code must apply to the Internal Revenue Service. Charities may also be exempt from state income, sales and local property tax.
  • Technical Assistance: Operational or management assistance given to a nonprofit organization. It can include fundraising assistance, budgeting and financial planning, program planning, legal advice, marketing and other aids to management. Assistance may be offered directly by a foundation or corporate staff member or in the form of a grant to pay for the services of an outside consultant. (See In-Kind Contribution)
  • Tipping: Occurs when a private foundation's support "tips" a public charity out of compliance with the public support test, converting it into a private foundation.
  • Tithing: A belief, found in many faiths, of giving 10% back to the place of worship.
  • Trust: A legal device used to set aside money or property of one person for the benefit of one or more persons or organizations.
  • Trustee: The person(s) or institutions responsible for the administration of a trust.

-U-

  • Unrestricted Funds: Normally found at community foundations, an unrestricted fund is one that is not specifically designated to particular uses by the donor, or for which restrictions have expired or been removed.

-V-

  • Venture Philanthropy: A philanthropy that borrows some of the best practices of the venture capital world to invest deeply in nonprofits to build their capacity effectively. Venture philanthropists value their donor dollars in terms of the social return of investment.
  • Volunteerism: Performing an act of kindness, freely giving of your talent, time, and effort for the simple fulfillment of community expectations.

 

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10/24/2017
**POSTPONED** Montgomery County Funders