Glossary of Philanthropy Terms

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.

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.

Agency Endowments:
An agency endowment is a fund or funds held for the benefit of a specific charity. Legally the assets are the property of the community foundation, but they are subject to a restriction that all distributions from the fund must benefit the named charity. The fund may be established by a transfer of assets directly from the beneficiary Charity or through contributions made by donors for the benefit of the charity. 

Annual Report:
A report published by a foundation or corporation informing the community about their contributions activities, policies and guidelines.

Articles of Incorporation:
A document filed with the Secretary of State or other appropriate state office by persons establishing a corporation. This is the first legal step in forming a nonprofit corporation.

Assets:
Property of the foundation, i.e. cash, stocks, bonds, real estate or other holdings.

Bequest:
A sum of money made available upon the donor's death.

Board of Directors:
An organized body of advisors with oversight responsibility.

Bylaws:
Rules governing the operation of a nonprofit corporation. Bylaws often provide the methods for the selection of directors, the creation of committees, and the conduct of meetings.

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 Gift Annuity:
A donor irrevocably transfers a specific sum of cash, appreciated securities or other property to a qualified charitable organization in return for its promise to pay the donor, another, or both, fixed and guaranteed annual payments for life. In essence, the transfer is part charitable gift and part purchase of an annuity. At the death of the last survivor, the funds remaining will belong to the charitable organization for the purpose specified by donor in the annuity agreement. (Rates are usually determined actuarially by the American Council on Gift Annuities, an independent non-profit organization)

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 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 of one's designation.

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 benefits 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 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 grant making 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 grant making 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.

Custodian:
A bank or other financial institution that has custody of stock certificates and other assets of a mutual fund, individual, corporation, or institution.  All custodians can hold assets in safekeeping, collect income on securities in custody, settle transactions, invest cash overnight, handle corporate accounting, and provide accounting reports.

Designated Funds:
A type of restricted fund in which the fund beneficiaries are specified by the grantors.

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 (community foundation):
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.

Due Diligence:
The degree of prudence that might be properly expected from any reasonable person in the circumstances; applicable to foundation personnel who act in a fiduciary capacity. (See Fiduciary Duty)

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.

Expenditure Responsibility:
When a private foundation makes a grant to an organization that is not classified by the IRS as tax exempt under section 501(c)(3) and as a public charity according to section 509 (a), it is required by law to insure that the funds are spent for charitable purposes and not for private gain or political activities.  Such grants require a pre-grant inquiry and a detailed, written agreement.  Special reports on the status of the grant must be filed with the IRS, and the grantees must be listed on the foundation's IRS form 990-PF.

Family Foundation:
"Family foundation" is not a legal term, and therefore, it has no precise definition. Yet, approximately two-thirds of the estimated 46,832 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, and as the donor(s), that family member(s) 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 in local communities.

Fiduciary Duty:
The legal responsibility for investing money or acting wisely own behalf of another.  Managers of charitable entities have fiduciary obligations to the charity. (See Due Diligence)

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/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.

Funding Cycle:
A chronological pattern of proposal review, decision making, and applicant notification. Some donor organizations make grants at set intervals (quarterly, semiannually, etc.), while others operate under an annual cycle.

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.

In-Kind Contribution:
A donation of goods or services rather than cash or appreciated property.

Investment Manager:
An individual, firm, or committee responsible for making day-to-day decisions to buy, hold, or sell assets. Also known as money managers.

Letter of Intent:
A grantor's letter or brief statement indicating intention to make a specific gift.

Letter of Inquiry:
Also referred to as a query letter, this is a brief letter outlining an organization's activities and a request for funding sent to a prospective donor to determine if there is sufficient interest to warrant submitting a full proposal.  This saves the time of the prospective donor and the time and resources of the prospective applicant.

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.

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.

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.

Operating Support:
A contribution given to cover an organization's day-to-day, ongoing expenses, such as salaries, utilities or office supplies.

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 annually pay out approximately 5% of the average market value of its assets.

Philanthropist:
A person who loves humanity is committed deeply to making society a better place, who believes that each individual, each dollar and each action makes a difference.

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 programs 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 grant making. 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. 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.

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 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.

Restricted Funds:
Assets or income that is restricted in their use, in the types of organizations that may receive grants from them or in the procedures used to make grants from such funds.

Seed Money:
A grant or contribution used to start a new project or organization.

Socially Responsible Investing:
Also referred to as ethical investing and social 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.

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, investment return rates, and the policy of the foundation covering grant commitments.

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.

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)

Tithing:
A belief, found in many faiths, of giving 10% - the first and best part - 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.

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.

Venture Philanthropy:
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 typically value their donor dollars in terms of the social return of investment.