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ESTABLISHING ENDOWMENT AND EXPENDABLE FUNDS |
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Most
of the funds managed by the Foundation are endowment funds, meaning
that the initial gift and future contributions are invested for
perpetual growth. A portion of the earned income and appreciation is
distributed to meet the donor’s chosen charitable purposes and the rest
is reinvested. As the fund increases, the amount of the award and/or
the number of awards can be increased proportionally.
Although
HAF’s primary focus is on building endowment funds to provide long-term
community support, we also assist donors in the creation of expendable
funds. Since an expendable fund’s principal can be accessed, the donor
can make an immediate impact in the community by providing a large gift
or a series of large gifts for a short period of time. This differs
from an endowment fund, which provides support forever at a consistent
rate that keeps pace with inflation.
A donor may create a new
fund with a gift in any amount, however, HAF asks the donor to increase
the balance for an endowment fund to a minimum of $10,000 within five
years.
The donor may choose how much of an endowment fund’s
available income to spend each year and how much to reinvest. If asked
for advice, HAF recommends our own policy of spending a consistent 4.5%
of the fund balance, even though the market and the fund’s earnings
fluctuate each year. This means a $10,000 endowment fund can support an
annual award of $450-$500.
The Foundation’s fee for service is
1.5% of the principal balance to be taken from the income generated by
the fund on a quarterly basis.
Creating the fund
Foundation
staff look forward to working with you to define and describe your new
fund. We offer a variety of options so that you can create a fund that
meets your individual preferences. With your instructions we will
compose a “new fund agreement letter” that will provide the Foundation
with specific direction so that we can administer the fund in
accordance with your intentions as the years go by. You can make
changes in the agreement at any time, simply by notifying the
Foundation in writing.
You may choose to write a description of
your fund and have it included each year in the HAF Yearbook. We also
would be glad to include a photo if you like. The Yearbook is
distributed in November to approximately 8,000 people throughout
Northern California.
To set up a new fund, you’ll need to decide:
- What will be your fund’s exact name or title? Would you like the fund to be named in honor or in memory of someone who is important to you?
- Do you want the name to describe what the fund is and what it is for?
- What type of fund will it be?
- Unrestricted funds give the Foundation’s Board complete discretion to
address the charitable needs of the community as they change over time.
- Field of interest funds give the Foundation Board discretion to
address the charitable needs of the community within a particular area
of concern, such as youth services, or within a particular geographic
area.
- Designated funds are those from which distributions are made to a particular charitable organization chosen by the donor.
- Advised funds are those from which awards or distributions are made
in consultation with the donor or other advisors designated by the
donor. In accordance with the IRS, consultation is advisory only; the
HAF Board must retain legal authority over all distributions.
4. What will be the fund’s purpose?What
charitable cause would you like to support? If you would like some
ideas or an update on community needs, HAF staff will be happy to
provide you with information.
5. If your fund is donor advised, who will be the advisor(s)? If
you choose to establish a donor-advised
fund, will you serve as the
advisor, giving the HAF Board recommendations on fund expenditures from
time to time? Would you prefer to set up an advisory committee to help
with those decisions? If your fund is an endowment fund, how do we plan
for perpetuity?
It may be useful to look through the fund
descriptions in our most recent Yearbook for some examples. We do have
several donors who prefer to remain anonymous, so their funds are not
included in these pages. This choice, of course, is available to you.
Next Steps
After
you’ve had some time to think about this, give us a call or stop by to
talk with staff. We will draft the new fund agreement letter and send
it to you for your revision. When it’s just the way you want it, we
will formalize it as an agreement with your signature and the signature
of HAF’s Executive Director, Peter Pennekamp.
Any questions? Please feel free to call the HAF Donor Services Director,
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, at (707) 442-2993.
Thank you for your interest. We look forward to working with you.
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