Podcast: Unlocking the Power of Donor-Advised Funds and Community Foundations

Season 3, Episode 57

In this episode, Andrea Kihlstedt, co-founder of Capital Campaign Pro, delves into the intriguing world of donor-advised funds and community foundations, breaking down their complexity and revealing how they can be a game-changer for your fundraising efforts. With guest expert Laura Young, a former vice president at the Maine Community Foundation and a seasoned capital campaign consultant, this episode offers a rare insight into both the advantages and the subtleties of engaging with community foundations.

Laura shares her journey from consulting to managing philanthropic efforts and explains why donor-advised funds can be a smart choice for donors looking to make a significant impact while gaining tax advantages. The discussion also covers practical tips for development directors on how to navigate and leverage relationships with community foundations to support their organizations’ goals.

Listen Now:

Andrea Kihlstedt:
Do some of your donors give through your local community foundation? Today we’re going to help demystify the remarkable world of donor-advised funds and community foundations.

I’m Andrea Kihlstedt, co-founder of Capital Campaign Pro. My partner Amy is off today, and I’ve got the wonderful good fortune of talking to our Capital Campaign Pro Senior Advisor, Laura Young, who knows a thing or two about community foundations. Welcome, Laura.

Laura Young:
Thanks, Andrea. I’m excited to be here.

Andrea Kihlstedt:
Laura, before becoming an advisor with Capital Campaign Pro, you worked at a community foundation for quite a while.

Laura Young:
I did, yes.

Laura’s Background with Community Foundations

Andrea Kihlstedt:
Why don’t you tell us about that, I don’t know, adventure in your career.

Laura Young:
Oh, it was a dream job. It was so much fun. Honestly, every job I’ve had has felt like a dream job, but I worked at the Maine Community Foundation as vice president of philanthropy for almost 18 years. So my role was overseeing communications and marketing, but also new business development. And I worked with donors who had donor-advised funds, just talked with philanthropic people around the state about how they could make a difference through their community foundation.

Andrea Kihlstedt:
So, Laura, if I remember correctly, before you went to work for the community foundation, you had been a consultant, a capital campaign consultant, in fact.

Laura Young:
Exactly. So for almost 10 years, I was doing capital campaign consulting all around New England, and I loved it. I love jumping into a campaign and working with an organization where they’re at their peak and they’re ready to do something fabulous. But I was just looking for a change, and I saw this posting, and it was like true love for the community foundation job. And so I applied, and I knew it was my job from the beginning, and I loved it. But 18 years is a long time, so…

Andrea Kihlstedt:
And now, here you are with us back in the consulting world.

Laura Young:
I’m so lucky. I’m so lucky. It’s full circle. Full circle.

Andrea Kihlstedt:
I love it. Well, Laura, I have to admit something to you. Now, I wouldn’t tell everybody except you and the people listening to this podcast-

Laura Young:
We won’t tell.

Andrea Kihlstedt:
I’ve always been trepidatious. Is that a word? I’ve always been a little nervous about community foundations. I don’t understand them well. I don’t know how to deal with them well. I don’t understand how, as a development director how to get into them, right? They feel like a big complicated, opaque building to me.

So I’m so happy to be able to tell you how off-putting I find them and to hope that maybe you can make me feel a little more comfortable and all of our listeners feel a little more comfortable.

Laura Young:
I could understand that. They are very complex structures, even when you’re on the board or you’re on the staff of a community foundation, we used to say it takes a year to understand a community foundation. So I can understand it and I’d be happy to demystify the process. I think it’s helpful when you’re thinking about a community foundation to understand the origins.

The first community foundation was in 1914, established in Cleveland, Ohio by a banker and an attorney. His name was Fred Goff, and he knew John D. Rockefeller. And the year before, John D. Rockefeller set up his private foundation, The Rockefeller Foundation. He said what a great concept where an individual could put money into a foundation and think about the long-range needs of an area or an issue area. So he said:

“Let’s take that concept, but have it open to anyone so anyone could add to a community foundation and think about what the needs are moving forward.”

So that was over 100 years ago, and now over 700 community foundations all around the country.

Andrea Kihlstedt:
Wow. All right.

Why Donor’s Should Consider Community Foundations

So let me see if I can understand this from my point of view. I’ve been talking about myself on these podcasts as a donor or some, because I think it’s helpful really for people to understand what that feels like.

So if I had some money that I wanted to give away and I thought, well, why not? Instead of just giving it away, why don’t I look into the community foundation? Why would I do that?

Laura Young:
So for one, you might have a taxable year. There’s an inheritance or a bonus, and so you need a tax advantage. So you set up a donor advice fund, you get a tax advantage in that year, but you have some time to think about how you want to spend that money. And so with a donor advice fund, you have a staff person who’s your contact who can brainstorm with you and talk about how to get your kids involved or your grandchildren involved in giving money away.

And so for some people, it’s not even they want to give in future years, it’s a logistical benefit for them. So they might give 25,000 or $100,000 at the beginning of the year and they get a tax deduction for that, and they’re sending stock, and then throughout the year they spend it all out. So for them, it’s easier to make one stock transfer into their donor advice fund as opposed to $1,000 stock transfer to this nonprofit, $1,000 to… so for them, it’s easier.

Also, when I’m thinking about my charitable giving, when it’s tax season and you’re trying to add up what you’ve given to, I’m a checkbook giver, so it’s difficult for me to go back and figure out, okay, have I made my pledge? But when you have a donor advice fund, you’re looking through and it’s easier to keep track of what your giving is. And then another point is you’re combining your philanthropy with others who are interested in similar issues.

So together in Maine, we had a racial equity donor champions group. So all the donors who were interested in racial equity who had funds at the community foundation would get together, learn together, and decide on where to make grants, and have the benefit of the community foundation to help inform their grant making as well.

Andrea Kihlstedt:
Oh, that’s really interesting. So it’s almost like a giving circle, but staffed by the community foundation.

Laura Young:
In some ways, yeah. But you can be completely anonymous too. You can just set up your donor advice fund and not talk to anybody else if you don’t want to.

Andrea Kihlstedt:
I had a friend, a very good friend, who she passed a few years ago. Unfortunately, I still miss her. I do. But she actually was a fairly wealthy woman, and she put money into a donor advice fund through a community foundation. And she would sometimes tell me, she said:

“I love to do that because when I put money into the foundation, that’s when I give it away and get the tax break. And then when I think about distributing that money, telling the foundation, the community foundation, where to give it.”

She [further] said, “It always feels like I’m playing, doesn’t feel like I’m giving money away. It feels like I’m just having fun sort of as play money is not my money anymore. I’m just having fun giving money away.”

Laura Young:
Exactly.

Andrea Kihlstedt:
That’s an interesting psychology.

Laura Young:
Well, and it grows too. People who set up donor advice funds, it’s invested with the hundreds of millions of dollars at the community foundation so that money is growing and you’re not being taxed on the money.

Andrea Kihlstedt:
Right. Oh, that’s interesting. But I don’t have any, as a donor, I don’t have any say in how the money is being invested. Is that right?

Laura Young:
Well, it depends on the community foundation. There are often different pools. So there’s socially responsible pool that you can choose. So there’s broad areas, but certainly not picking stocks —

Andrea Kihlstedt:
Right. Right.

Laura Young:
… with your normal investments. But some other people use a community foundation to plan their future philanthropy. So if you’re using a donor advice fund now, you’re making decisions on where the money goes.

But in the future, you can say, “I want my kids to be the advisors of this fund.” So let’s make decisions as a family so we can share our values. They can learn more about that aspect of my life and what I care about. They can advise on it. Or if you don’t have children, it sets up, it can become a fund, an endowed fund for your issue area, or a geographic area. So…

Andrea Kihlstedt:
Right. That’s interesting.

Laura Young:
Yeah. So it’s a great way to just think about your future philanthropy.

Andrea Kihlstedt:
Right. All right, let’s look at the other side of this.

Getting to Know the Community Foundation Better

So now, as a development director, you have some percentage of the people in your file and your donor file have money, presumably in your local community foundation. But that’s kind of opaque, right? You may or may not know about that. What should a development director be doing both with regard to getting to know the community foundation better and getting to know which of their donors are giving through their community foundation?

Laura Young:
The first thing I would say is if you see that a donor is giving through a donor advice fund, make sure to get to know that donor because obviously there are donor levels to setting up a donor advice fund. So get to know that donor.

In terms of understanding a community foundation, I would first do research online on the website of the community foundation to better understand what their issue areas are. Because community foundations specialize… They’re there for the community. So they’re focused on certain issues that they think are important, and it may align with the issues of your organization. And I would make this a broader conversation in your nonprofit, not just the development director thinking about this. Because if you find out that their issue area that the community foundation is focused on aligns with what you’re doing, there’s other ways to connect.

Your programmatic colleague may be the one getting to know the programmatic colleague at the community foundation just to… Because staff at the community foundation want to know what’s going on, especially in their interest areas. So making sure there’s a connection there is definitely important. I would also look to what the competitive grant programs that the community foundation, and oftentimes those are set up by donors who say, “I want a competitive fund for at-risk children.”

And so you look through there, you see if there are grant programs that you’d be a fit for and make sure to apply because the staff at the community foundation are connecting the donors with donor advised funds to the applications that are coming in.

So even though you’re applying and you’re thinking that it’s going to a volunteer grant making committee or staff, it is going to those people. But the community foundation is also sharing your proposal with donor advised fund donors. So that’s a great way to just get the message out there.

Andrea Kihlstedt:
Yeah. That’s interesting. Is it difficult for a development director to get to know a program officer in a community foundation?

Laura Young:
Well, so when I was suggesting the program officer, I think having the program officer of the nonprofit meet with the program officer of the community foundation just to talk about the program.

Andrea Kihlstedt:
As opposed to the development director to the program officer.

Laura Young:
Yeah. Yeah. Exactly. And so, as a development director, I would try to figure out who is the right person to be the contact. And I think it’s better to have a conversation.

And you can start with, for instance, at our community foundation, we have focuses on geographic regions. So the staff person for that region is the person for anybody from the organization to reach out to because they’re the person who’s has the knowledge of that region and is advising the volunteers on where the grants go.

So I would start there, but ask the question, who’s the person at the community foundation I should get to know? Because others, it may be the philanthropy or the donor services staff, those who are working with the donors that have donor advice funds. So I would ask the question, but it’s always good to stay in touch and share news of what’s happening, especially if there’s a capital campaign.

Now, many community foundations have restrictions that some of the grant making or many of the grant programs aren’t for capital campaigns, but it’s good for them to know that you’re having a large capital campaign because you never know when they’re talking with a donor and it’s an exact match of something.

Andrea Kihlstedt:
Yeah. That’s a really important topic, I think, because many community foundations, or otherwise say that they don’t give to capital campaigns. And often I translate that in my head to this way, I think all foundations, community foundations, and others are interested in giving to make a difference in the area that interests them.

All of them, whether the gift is a part of a capital campaign or not is almost irrelevant. I mean, you don’t have to say, we’re asking you for a gift to our capital campaign. You can say, we’re asking you for a gift to help build a playground in our facility. Now, it may be that the money raised for that playground is part of a capital campaign, but you don’t have to pitch it that way.

Laura Young:
Well, and there’s often programmatic elements of capital campaigns, even though it’s called capital. They’re programmatic elements.

Andrea Kihlstedt:
Programmatic elements. Right.

Laura Young:
Perfect. Perfect.

Funding Something That’s Going to Have an Impact

Andrea Kihlstedt:
Right. So what I want people to realize is that just because a foundation says we don’t fund capital campaigns doesn’t mean that you should tuck your head and go away. It just means that you need to figure out how you’re going to refocus, reshape the way you talk about your project to these organizations because they all want to fund something that is going to have an impact.

Laura Young:
Right. Right. Exactly. Well, and another distinction between private foundations and community foundations is private foundations, they can say, these are the three issue areas that we’re going to focus on, and they might have $50 million. And so four to 5% of that is going to those issue areas. Whereas a community foundation, oftentimes nonprofits apply for a $5,000 grant.

They get turned down, and they think, “Oh my goodness, the community foundation has 500 or a billion dollars. Why are they turning down my small request?” Well, it’s because all the funds are restricted for different purposes. So the older community foundations like Cleveland, Boston, Hartford, they have more unrestricted dollars that they can spend through these grant programs.

Whereas more of the younger community foundations, it’s mostly like 50% donor advised funds. And then there’s scholarship funds and nonprofit endowments. So all the money that you see at a community foundation, it’s probably restricted for one purpose or another, and it’s not as broadly available as a private foundation to give to in the form of grants to nonprofits as they apply.

Andrea Kihlstedt:
Right. Right. Now, those funds that are restricted because they are in donor advised funds, what that really means is that you should look in your donor file and find out who gives through the community foundation and who has a donor advised fund. And then in any other philanthropy, you get to know that donor.

Laura Young:
Yes.

Andrea Kihlstedt:
And whether they’re going to give through the community foundation or not is up to them.

Laura Young:
It’s so true. Honestly, I think nonprofits focusing on their own donors, regardless of whether they have a donor advised fund or not, is the way to really develop those relationships. And you may find out that they have a donor advised fund at the community foundation, they have it at a commercial place, says, well, but many of the nonprofits that would come and say, “I want to get to know your donors.”

In my mind, I would think, “Honestly, you have many of the donors already that are part of your organization, and your contacts are so great. Don’t even worry about the donors that we have at the community foundation because you’re doing such a great job just being connected with the donors that you have already.”

Andrea Kihlstedt:
Yeah. I mean, let me go back to my friend Barbara, who found that giving through her donor advised fund and the community foundation was so much fun because it didn’t feel like her money she was giving away. It just felt like she had this pot of money to give away.

And of course, where she gave that money, and she was a very generous woman, but where she gave that money was where she had a relationship. It had less to do with the community foundation and more to do with the fact she was interested in the arts and she was interested in homelessness, and she was interested.

So then she would take those relationships and interests, and she would call her contact at the community foundation and say, “Here is where I want to give some money.”

Laura Young:
Absolutely. People get —

Andrea Kihlstedt:
So it went back to the basics of building relationship. The fact of it’s being in the community foundation was just a fluke of how she had chosen to give her money away. The tactics of it, right?

Laura Young:
Exactly. Exactly. Yeah. Loved asking people how they learned to become generous because it’s different for everyone. And one fellow told me, because many people, it’s from their upbringing, their parents or church. Whereas this one guy said, it wasn’t until I was in the corporate world and I was on a corporate giving committee that I even thought about giving money away.

Andrea Kihlstedt:
Right. Right. And that’s interesting to think of that as a power of community foundations of pulling people together or creating a context for giving to a specific area, or getting to know other people who are donors. Then that’s such a powerful thing to do.

Laura Young:
Or even family philanthropy, thinking about multi-generations and how you might come together and we would facilitate those discussions among the generations. What are the common themes that you all want to come together once a year to make grants together?

Andrea Kihlstedt:
Yeah. I mean, that’s such an interesting idea, right? And I think we often think about that as something for the very wealthy.
Laura Young:
Right. Right.

Andrea Kihlstedt:
But it’s not doesn’t have to be.

Laura Young:
Well, and it inspired me. So when I was working at the community foundation, I ran across the story about John D. Rockefeller and how he gave his money to his kids in three buckets. One for spending, one for savings, and one for sharing.

So when my kids were young, I put it in Ziploc bags. It was $3 in each one once a week wasn’t large dollars, but it was great because when we’re in a store and they’re saying, “Can I have that? Can I have that?” I would say, “Well, what’s in your savings bank?” And also once a year, they’d think about giving away their sharing money. That was their charitable giving money. So those a great way to just plant the seeds early about charitable giving with… Yeah.

Andrea Kihlstedt:
Yeah. Yeah. And you think about them. I could think about community foundations as being the Ziploc bag for the sharing part of that, is that right? I like that image.

Laura Young:
All right. And then it gets bigger.

Andrea Kihlstedt:
Yes. Exactly. It does get bigger.

Final Thoughts

So Laura, I want to leave people with just some very… I want to leave our development directors or board chairs, or people who work in development offices for nonprofits. Well, probably that’s probably, if you’re listening to this, that probably that may be you.

What are some very practical things we can leave them with that they can sort of do when they get back to the office? Or they can think about doing with regard to community foundation?

Laura Young:
Okay. So I have four:

1. Get to know your organization’s donors that have donor-advised funds.
2. Number two, determine the best contact at the community foundation that you should stay in touch with.
3. Number three, applying for grants at the community foundation because that’s being spread to a wider audience.
4. And then four, the sounds small, but make sure that your thank you letter to donors that have funds at the community foundation are appropriate.

[With regards to number four] Because so many nonprofits send the standard letter and it goes to, let’s say Mary is the staff person at the community foundation that’s sending the letter with the check from the anonymous donor. So the nonprofit would send a letter back to Mary saying, “Thank you for your gift.” And it has IRS language. And so we would scan that and send it to the donor. So the donor’s receiving a letter that is to somebody else, Mary, and it has IRS. This gift is tax-deductible, which doesn’t apply.

So if it’s a donor advice fund, even if you don’t know the name of the donor, just say, “Dear donor advice fund donor.” You don’t need the tax information. But this is a great opportunity to just thank them. Tell them a little bit more about how your gift was used, your grant was used, and it could potentially open the door for greater engagement. So I would just have a completely separate letter for any donor advice fund gifts, just knowing that these are being scanned hopefully, and sent to the donors.

Andrea Kihlstedt:
Yeah. Laura, I love that. And I’ve actually been fascinated over the years by the question of how do you write a letter like that? So that it feels very personal, right? Given that you don’t know who the donor is.

Laura Young:
Right.

Andrea Kihlstedt:
And do you know who Kim Klein is? Do you follow Kim Klein’s work?

Laura Young:
No.

Andrea Kihlstedt:
So, Kim Klein has written many books on grassroots fundraising. She wrote the grassroots fundraising journal. She’s a very smart, wise woman. And years ago, I read something that she had written on this subject, and she showed an example thank you letter that just burned itself into my brain, and I want to share it with you. It was a fundraising letter thanking a donor she didn’t know, and it said something like this:

“Dear, so-and-so, when I sat down at my desk this morning and I found your check for $10,000, it was at exactly the same time that I knew the boiler needed to be repaired. That I was staring a bill for repairing the boiler on my desk. I was despairing about how I was going to do that, and your check gave me a window of hope.”

Laura Young:
Perfect. The more personal, the better.

Andrea Kihlstedt:
How fantastic was that? What she did was that she made the personal part about herself going on in her organization. The personal part doesn’t have to be about the donor. If you don’t know anything about the donor, it can be about the impact and how that check affects you.

Laura Young:
Yes. I totally agree.

Andrea Kihlstedt:
I thought that’s the kind of letter you can write to a donor who’s given through a community foundation.

Laura Young:
Right. And sometimes having people who are touched by your organization, writing personal letters about how this grant or a scholarship, how this scholarship fund has impacted their life. Just thinking, because people who are part of community foundations, community’s the middle name. They are loving, giving people usually who care about your area. So just talk to them like they’re any other donor and tell them personal stories that they want to hear.

Andrea Kihlstedt:
Laura, thank you so much. I feel much less intimidated by community foundations now. They’re still complicated.

Laura Young:
They are. I’m a resource anytime.

Andrea Kihlstedt:
Oh, okay. I so appreciate it —

Laura Young:
I love talking about them.

Andrea Kihlstedt:
… and I’m so happy that you’re on our team.

If you’re listening to this, don’t forget that if your organization is planning a capital campaign, you should go to capitalcampaignpro.com when you get back to your office. If you’re sitting in your car. And on the resources page, you will find a host of free information.

You will also find a button that you can click that will help you apply for a free strategy session to help you think about what your capital campaign might look at and if we would be good advisors for you.

So I hope you’ll join us again for another podcast, and I hope you’ll go to our website so you can take advantage of all of the material that we provide.