You Can Take it to the Bank: Community Foundations & Legal Control Over Agency Funds

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Community foundations offer a wide range of benefits to their communities. A popular and growing service is the holding, investing and disbursing of endowment and special project funds for other charities. With the experience, skill and sophistication in managing their own assets, community foundations are often asked to help invest and manage another’s. This service, where a charity transfers its funds to the community foundation and designates itself as the beneficiary, generally, is known as agency endowments. What is largely misunderstood by these charities and their representatives and equally difficult and/or awkward to convey to them, however, are the legal and compliance issues, particularly surrendering control of transferred assets to the community foundation.

In this “Lunch with Legal Counsel,” Bryan Del Rosario, Staff Counsel of Legal Affairs, discusses in-depth the tax, regulatory and liability issues, particularly the rules regarding component funds, variance power and material restrictions that demonstrate community foundations are not banks (nor should they act as one) and assets held for the benefit of designated charities are legally the assets of the community foundation.