Starting A Foundation: Guidance for Advisors

Hilary Pearson

President & CEO

Philanthropic Foundations Canada

October 2008

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Outline of Presentation Overview

– The Canadian foundation sector Starting A Foundation

– Why Give?– Giving Options– Key Questions– Advice for Advisors

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Overview:The Foundation Sector in Canada

Over 9,000 registered grant making Canadian foundations (all types)*

– Of these, half are family foundations – Others include community, institutional, corporate and special

purpose foundations Assets of private foundations total about $15 billion (another

$14 billion for public foundations)– Few have assets of more than $50 million

– Majority of family foundations have assets under $10 million

– From 2006-2008, the number of private foundations increased by 7%

• Source: Imagine CanadaNote: The total number of CRA registered public and private foundations is over 9,300.

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Types of Foundations

Public foundations (about 4,800)– Community foundations (150 + across Canada)– Institutional foundations (hospitals, universities etc.)– Donor-advised foundations

Private foundations (about 4,500)

– Mostly family– Some independent (not controlled by families)

Key difference between public and private foundations:– Control by individual or family at time of registration (Board

membership)

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Family Foundation Profile

Family foundations are diverse

– Most are over $1 million but under $10 million in endowment

– Typically run by family board

– Governed by federal regulations

Must give to registered charities (not individuals)

3.5% minimum annual distribution

Annual report tto Canada Revenue Agency

– No restrictions on investment strategies other than

No control of a business

Excess business holdings rules

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Looking Ahead Baby boomers keenly interested in

philanthropy Steady increase in foundation creation

– Family foundations in U.S. grew by 22% from 2001 to 2005

– Fastest growing type of giving New tax incentives in Canada since 2007 are

fostering private foundation growth– Just beginning to see impact of elimination of

capital gains tax on gifts of public securities

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Trends in Giving

New options for structured giving are multiplying …

– Growth in family foundations

– Growth in donor-advised funds Within community foundations Through financial institutions Stand-alone donor-advised funds

… Increasing the need for donor education– Need for standards– “how-tos” and best practices– Advice from consultants and financial planners.

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Starting A Foundation

Why Give?

Long-term giving: a more structured giving, typically a fund, endowed or periodic

Long-term giving is an opportunity:• to give back to community• for personal engagement• to involve the family• to create a legacy• to make a unique contribution

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Starting A Foundation

Giving Options Setting up a Fund at a public foundation

local community foundation public foundation focused in particular areas, eg. Tides Canada public foundation offered by financial institution or wealth manager, eg. TD

Private Giving institutional foundation, eg. Sick Kids in Toronto

Starting a private foundation• To make grants that reflect your interests• To manage your assets directly• To set-up a board of family or other close advisors

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Starting A Foundation

Key Questions for Donors How much capital do you need?

• No minimum requirement• Rule of thumb: $1 Million or more in initial capital• Depends on operating budget

What are typical start-up costs?• Legal and accounting expertise to incorporate, register and organize• Office and supply costs• Web site development• Staff salaries

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Starting A Foundation

Key Questions for Donors How much time do you want to spend on the

foundation?• Typical functions: governance, investment management, grant

application review, site visits, grant administration, evaluation, reporting

What are typical administration costs?• No widely accepted benchmark• Can range from .75% to 1.5% of endowed assets (not including

investment fees) • Depends largely on staffing levels

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Starting A Foundation

Key Questions for Donors How do you set up a board?

• No legal parameters other than minimum of 3 if incorporated• In practice, ranges from 0% to 100% family members• Others include advisors, outside experts

What about family involvement?• A personal choice• Considerations: family size, sibling relationships, role of in-laws and

succession planning

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Starting A Foundation

Key Questions for Donors What do you need to do to create the charity?

• Choose a legal structure: non-profit corporation or trust• Register with appropriate federal or provincial

authorities• Register as a charity with Canada Revenue Agency• The charitable registration step can take 3 to 9 months

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Starting A Foundation

Key Questions for Donors What are the tax benefits?

• Same as if donation is made to a public charity or foundation.

• Federal and provincial tax credits• Applied to any donation of cash or publicly-traded

securities• Securities have additional benefit of being free of

capital gains tax if donated to any charity

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Starting A Foundation

Advice for Advisors Know the donor’s wishes

– Level of engagement? Family role? Familiarize yourself with the mission/goals of the foundation

– Proactive or reactive? Broad or deep? Innovation or implementation? Understand the strategy

– Perpetuity or spend-down– Risk appetite– Succession

Who is the client?– Donor? Family? Board?

What are the investment preferences and parameters?– Long term versus near term maximization?– Is socially responsible investing important?

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Conclusion

The field is developing quickly in Canada– New sources of information being released,

although few comprehensive guides– PFC web site has collected many stories and

examples of practice. – PFC newsletter provides monthly review of new

ideas and practices in philanthropy.– PFC has developed and published a guide to

Starting a Foundation

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Resources

Starting A Foundation 2nd edition, Philanthropic Foundations Canada, 2008, www.pfc.ca

Registering a charity for Income tax purposes (T4063) and Application to register a Charity under the Income Tax Act (T2050), Canada Revenue Agency www.cra-arc.gc.ca/charities

Foundation Management in Canada: an Introduction for Trustees, 3rd edition, HSBC Asset Management, 2002

Establishing a Private Foundation, Imagine Canada, 2002, www.imaginecanada.ca