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"Through wise stewardship of generous donations, the Community Foundation of Whidbey Island responds to area needs by funding worthwhile community projects."
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What is the Community Foundation of Whidbey Island?

The Community Foundation of Whidbey Island (CFWI) has not yet been established, but it will be a collection of individual funds and resources given by local citizens and organizations to enhance and support the quality of life in on Whidbey Island. The Community Foundation of Whidbey Island will offer all people interested in the needs of our community a flexible, efficient, and permanent vehicle through which they can support the community.  Frequently Asked Questions (FAQ)

Flexibility in Giving and Tax Advantages

The Community Foundation of Whidbey Island offers donors extraordinary flexibility, efficiency and effectiveness in their giving as well as unique tax advantages. We offer many different ways for people to support what matters most to them from family & community services, education & youth programs, civic & cultural organizations, or health & rehabilitation needs.

Focus on Whidbey Island

We know the important issues that challenge us in North, Central and Southern areas of Whidbey Island. We are involved with the people and the programs that address these issues. We participate actively in the solutions, and invite you to join us in our work to provide a better future for generations to come.

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Advantages of Private Foundations 

Private foundations can realize tax advantages by becoming a "component fund" of a community foundation. An important tax advantage offered by community foundations is that a separate trust or corporation can be considered part of a community foundation if it qualifies as a "component fund." This type of advantage is unique to community foundations. Normally a trust or corporation must file its own tax return and must meet the tax law requirements, such as qualifying as a public charity, on its own. A public charity may be named as the beneficiary of multiple trusts established by several donors. However, the only way it can have these trusts qualify as public charities is to go through the time-consuming process of having each trust classified as a "supporting organization" by the IRS and filing annual tax returns for each trust.

Component funds of a community foundation do not have to file any tax returns or apply for the IRS tax exempt status. And a contribution to a component fund is treated as a gift to a public charity. This type of trust or corporation is treated as a separate legal entity under state law, yet it is considered a component fund of the community foundation for tax purposes.

For example, a private foundation can terminate into a component fund even though its assets remain in a bank trust department. These regulations allow the community foundation to assist the charity, the donor and the financial institution that holds the assets by avoiding the administrative costs of a separate supporting organization. 

What is a Component Fund?

This term simply refers to the different funds that comprise a community foundation's assets. Before a gift can become a component fund of the CFWI, the donor must have made a completed gift without material restrictions and the gift must be for charitable purposes. 

What are the Component Funds of CFWI?

The following are component funds within the Community Foundation of Whidbey Island. The majority of these funds are pooled and invested as one sum in order to achieve economies of scale and earn a better investment return.

  • none of the

  • non-profit agencies

  • have been identified

  • in this initial presentation

  • of the potential

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  • Community Foundation of Whidbey Island

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Why set up a Fund?

Today Community Foundation of Whidbey Island assets consist of many different funds. These component funds have been established for a variety of purposes. Some funds are created to honor an individual or as a memorial to the memory of a loved one. Other funds are created by living donors and bear their names. Nonprofit organizations may create a fund to start a special projects or endowment fund. Donations may be made to many of these funds.

Bequests and Fund Types
 

 

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Many donors choose to create funds within the Community Foundation of Whidbey Island through their last will and testament. Bequests to the Foundation are not subject to estate or inheritance taxes, thus ensuring the maximum benefit a donor's charitable fund.

 Charitable Trusts:

Community foundations are often beneficiaries of complex deferred-giving arrangements. One of the most commonly deferred gifts is the Split Interest Trust which is a trust fund established by will or bequest in which the income or assets are simultaneously split among one or more beneficiaries. Other arrangements can include Charitable Remainder Trusts and Charitable Lead Trusts.

Charitable Remainder Trusts:

Charitable Remainder Trusts enable donors to transfer assets to a trustee to be held on behalf of specified beneficiaries during the trust's lifetime. An immediate federal tax deduction for the year the trust is established is received by the donor, subject to limitations by federal statutes. Distributions of income from the trust are made to beneficiaries for the life of the trust. When the trust terminates, the proceeds are used to create a charitable fund in the donor's name or another name as designated in the original trust document.

Charitable Lead Trusts:

A Charitable Lead Trust would allow for payments to a donor's charitable fund within the CFWI for a specified length of time. Upon termination of the trust, the principal is paid to the donor or to any non-charitable beneficiary or beneficiaries that have been named in the original trust document. When property has the potential to significantly appreciate this arrangement is especially useful

Designated Funds:

Designated funds are component funds whose beneficiaries have been specified by a donor at the time of the gift. The CFWI assumes oversight responsibility for ensuring that these funds are distributed as the donor intends. Many designated funds name a specific organization such the Readiness to Learn Foundation. We call this type of fund an Organization Endowment Fund. Should the organization named as beneficiary dissolve, the CFWI will use the fund for the closest possible purpose. This is an important factor which many donors appreciate since their charitable contributions will continue to be used for the purposes intended even if the initial beneficiary ceases to exist.

Funds may also be designated for a particular purpose such as scholarships. The CFWI has a number of Scholarship Funds including the ---------- (not yet established)

Another type of designated fund is a Supporting Organization. A private foundation can terminate its status without paying the termination tax and without distributing all assets to a public charity by being reclassified as a "Supporting Organization" of the CFWI. Unlike a Component Fund, a Supporting Organization is a separate trust or corporation that is recognized for tax purposes as a separate legal entity with its own governing body. It is classified as a public charity because it is organized and operated to benefit a publicly supported charity such as the CFWI or other such entity.

 Donor Advised Fund:

Donor Advised Funds are component funds established with a formal provision or an informal arrangement that permits the donor or a committee designated by the donor to suggest specific grants to be made from the fund. It should be stated that these recommendations are not legally binding even though the CFWI Board members are truly committed to honoring donors' wishes.

Many advised funds become Unrestricted or Field of Interest funds upon the death of the donor or at the end of a specified time period

Field of Interest Fund:

Field of Interest Funds may be established to support a class of charitable beneficiaries or institutions. A donor who creates a fund of this type may stipulate that a gift be directed to a particular field, such as assistance to children or healthcare for the indigent. Limitations may also be made regarding distributions to a particular area of Island County. CFWI Board members decide which organizations or programs receive funding.

A corporation may set up a Field of Interest Fund to facilitate its charitable activities or to provide scholarships for employees

 Life Insurance:

Gifts of life insurance allow donors to make sizable gifts at a relatively low cost. By assigning ownership of a life insurance policy to the Community Foundation of Whidbey Island, the donor receives an immediate tax deduction and eliminates the proceeds of the policy from their estate. Premium payments made after the gift are tax deductible, subject to Internal Revenue Service limitations.

Organization Endowment Funds:

One type of Designated Fund is an Organization Endowment Fund. Public charities often establish endowed designated funds at a community foundation for their own benefit for a variety of reasons including the following:

  1. The community foundation's greater sophistication for administering long-term investments and greater assurance that principal will not be spent by the agency.
  2. The community foundation's pooled assets provide an economy of scale, thereby reducing investment fees while earning more.
  3. In addition the agency does not bear the burden of investment policy making.
  4. The organization has benefit of the earnings of the endowment without listing the asset on financial statements which can help development.
  5. Donors to an Organization Endowment can be assured that if this particular agency is dissolved, the CFWI will use their donation for the nearest possible use.

Securities:

Appreciated securities are stocks or bonds with a current market value higher than the original purchase. Donating the stocks or bonds at a higher market value creates a larger charitable tax-deduction for the donor without paying capital gains taxes on the appreciation in value over cash.

Closely Held Securities are stocks or bonds that are not traded publicly and are held by a small group.

Unrestricted Fund:

Unrestricted Funds are used for the broad charitable purposes of the CFWI. Because the donor places no restrictions on these funds, they can be used for any purpose the CFWI Board members deem appropriate. Most community foundations prefer unrestricted gifts because of the flexibility they afford. The Board members may use them to meet needs that were not identified at the time of the gift such as responding to a natural disaster or funding an innovative program.

***Attention!! This is a conceptual presentation only... Community Foundation of Whidbey Island does not exist as yet. We are only in the initial stages of envisioning this project. Want to joins us?

October 1995
last reviewed June 2009

Contact Roger Case, MD
rogerc@oakharbor.net
or page: (360) 914-0840