By Maggie Glasgow
Many giving circles are created by and/or reside within a foundation – a community foundation, a woman’s foundation, a private foundation, or some other regional or national foundation. The reasons are many, and the benefits can be mutually rewarding. Circles who have been in longstanding relationships with their foundation offer the following reasons to affiliate:
- No legal expense to create separate legal standing as a 501 (c) 3.
- No accounting expense for separate financial audits.
- No need to obtain separate insurance, especially liability for events.
- Back-office support, from invoicing to member databases to grants, is available (even if you pay a fee) freeing you up to work on impact.
- Foundation can professionally manage your assets, especially if you have an endowment or money held over time.
- Foundation staff are knowledgeable about the philanthropic landscape in your community with wisdom to share.
- Foundation may have other funds or funders who can and will collaborate with you.
- Reputation of the foundation rubs off on you.
- If the foundation holds you close and actively promotes and fosters what you do, it is an amazing asset to your mission.
Why, then, is not every giving circle hosted? Less than half of the Philanos affiliates are hosted, and the issue of hosted vs. independent 501 (c) 3 status remains a perennial topic for webinars, conferences, the member forum and questions to our board members. The truth is, in every relationship, problems crop up. Some can be resolved with hard work and new understandings. Others dissolve and a breakup occurs. Where are the pressure points – the place where relationships between host and giving circle can crack?
- Money. The relationship is, by nature, transactional. Somewhere, somehow, an administrative fee for operations will have to be paid. Depending on how large your group and how much the foundation does for you, your members (or special donors) will have to pay.
- Money. How are you charged for what you are getting? Flat fee, surcharge, percentages? Most foundations charge a percentage (usually 2-1/2 to 4%) to manage donor advised funds. If you have an endowment and the foundation manages that as well, they may charge the fee on whichever is larger—your assets or your grants.
- MOU. Have a Memorandum of Understanding (MOU) that is crystal clear. It needs to be updated when things change, and it’s recommended that you also review it regularly every 3-5 years.
- Ownership. If you were created under a foundation, they own your name/brand unless otherwise stated in an MOU. If you create an endowment under your foundation, they own those assets, which they can keep even if you are no longer an organization. The legacy of your assets should be spelled out in your MOU.
- Technology. If you share technology platforms, make sure you are part of the contract for updates and service. Realize that shared platforms can reduce your overall operating costs, but your needs and the contracts need to be carefully minded.
- People. Relationships between you and the foundation are built on trust and understanding over time. Be proactive whenever there are key personnel changes at the foundation and anticipate time spent on fostering new relationships. Likewise, each new leadership team of your circle needs to spend time getting to know the foundation staff.
- Expectations. What do you expect the foundation to help you with in fostering your circle and what, in fact, are they willing and able to do? Conversely, what does the foundation expect from you in terms of access to your membership for marketing their products and services?
- Communication. Crucial to everything already listed, but even more critical in terms of public facing communiques. When your circle and the foundation are in sync, the host sees your work as integral to their mission (and vice versa).
Recently, Susan Benford, Chair of Philanos, began collecting information for peer-to-peer sharing from circles who were transitioning from a hosted status with their community foundations to becoming their own independent 501 (c) 3. Two affiliates, the Roanoke Women’s Foundation (RWF), Roanoke, VA, and Del Mar Women’s Giving Collective (DMWGC), Del Mar, CA, participated in documenting their stories. Kathy Stockburger of RWF and Lani Curtis of DMWGC each shared insights with us as to how their journey unfolded. Their responses to a series of questions reveals lessons learned in forging new paths.
What motivated your transition from being hosted to securing 501 (c) 3 status and how long did it take?
RWF transitioned from a field of interest (FOI) fund at the Roanoke Community Foundation because of a desire to be autonomous, based primarily on financial considerations. The group was doing most of their own administrative work already and felt they could reduce costs charged to them by the foundation related to events, office supplies, software, etc. They also wanted to allow their members full donations to be tax deductible (including the admin fee). Finally, they listed a concern about grant allocation decisions needing approval by the foundation. Although they had never had a grant decision overturned, hypothetically the foundation had that power. RWF board members recall the topic of becoming a separate entity had been mentioned on occasion in the past, but it wasn’t until 2020 that the board spent an entire year in study and discussion before voting on the transition. The final process was smooth and relatively quick – they applied for status in December of 2020 and received the IRS determination letter in April of 2021.
DMWGC transitioned from a donor advised fund (DAF) at the Rancho Santa Fe Foundation. They were the second women’s giving circle that foundation agreed to host, but shortly after taking them on, the foundation said they could no longer process any of their administrative expenses. They felt the decision was made for them by the foundation, and they had to become their own 501 (c) 3 if they wanted to continue to operate. They did so quite quickly, between November 2019 and January 2020. They also received a grant from a local business to help them set up. Lani Curtis shared that their members immediately realized the full tax benefit of their donations, and the circle felt that the new status gave them greater legitimacy when recruiting prospective members.
While a member of the foundation what actions had the host performed for your circle?
Since Roanoke had a longer standing relationship than Del Mar with their foundation, the RWF reported that the foundation had had handled member donations and reconciliation for granting, maintained a member data base, sent tax receipt letters, approved allocations for grantees, and originally shared software.
DMWGC stated that RSF Foundation had originally collected their donations and distributed grants as voted on by their own advisory council, distributed tax receipts to members and reimbursed approved expenses to members or vendors.
How was the change communicated to members?
Both organizations said they communicated directly with membership. Since Roanoke had more time for their process, they communicated when they first had the idea years prior, during the year of study by the board, and to a greater extent when the board decided to move on it. Communications included benefits as well as challenges, and occurred in newsletters, direct mail, and virtual events.
Del Mar communicated once the advisory council decision was made and got no pushback. It was a very minimal change for their members, just a different donor name on their check.
How much did it cost to attain a 501 (c) 3 ruling?
Roanoke paid attorney’s and filing fees of about $2,000. Del Mar paid about $1,000, but a member attorney did the work pro bono.
What new expenses do you anticipate your circle will have?
RWF anticipates about $1,000 in annual insurance costs, including risk mitigation for social events; increased accounting fees (including filing 990) of up to $5,000, software fee of $6,500 annually, and administrative costs for website, IT, stationery, postage that were not estimated.
DMWGC has, so far, only had the filing costs. They are a small circle, relatively new, and are still absorbing costs through volunteer help.
What was most helpful in making the transition? What was most challenging?
Roanoke felt that their intentionality and adequate study beforehand paid off, as well as having knowledgeable legal guidance. Keeping major stakeholders, like founders and board members, informed and engaged was important.
The challenges for the RWF included following regulations in a timely manner, becoming very scrupulous in document retention, financial reports, anything to do with the tax-exempt status, and knowing which nonprofit benefit entities to join.
Del Mar felt that their biggest challenge was that the transition was out of necessity, not a decision they had originally planned to make. They are a new group with younger members who are actively involved in work and childrearing, so they do not feel as if they have a deep bench of working volunteers to do the heavy lifting of running a nonprofit. They are currently actively seeking a working relationship with another foundation.
What sort of relationship do you retain with your former host?
RWF reports they remain on excellent terms with their previous host, the Roanoke Community Foundation. Immediately after their departure they hosted an appreciation luncheon for the foundation staff to cement those feelings and that relationship. Since leaving, RWF has embarked on a strategic planning process to provide new structure that will allow them to be sustainable and resource their administrative costs.
Kathy Stockburger, a nonprofit consultant, and member of Roanoke Women’s Foundation, sums up their new status in this way:
“We are carefully straddling the line between resourcing our costs to do what we do – allocate over $350k annually – and not be perceived as competition by our grantees. We are not a fundraising organization and feel strongly that we need to navigate this prudently. We can, however, accept gifts beyond our member donations, engage sponsors for events, and explore a friends-type gift initiative for those who do not wish to become members… There is no model fitting every giving group. Plan strategically. It is a lot of work.”