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FOR FINANCIAL ADVISORS
A TRUSTED RESOURCE FOR ESTATE AND FINANCIAL PLANNERS
Estate planners, financial planners, and other professional advisors are often faced with a delicate dilemma: You want to discuss the many benefits of charitable giving with your clients, but you want to avoid recommending specific charitable causes or organizations. That is where we fit in. As a community foundation representing the entire region, we are a vehicle your clients can use to address the issues they care about most. At the same time, they will gain the maximum tax benefit under state and federal law.
WE WORK THROUGH YOU.
You stay in control of your client relationship; we are here to help you serve your client's charitable giving needs.
WE PARTNER WITH YOU.
We provide support, information and expertise around charitable giving options; think of us as your own planned giving center.
WE HELP YOU BUILD STRONGER RELATIONSHIPS.
Your clients will appreciate the charitable impact and tax advantages you help them achieve by working with the Community foundation of West Kentucky, Inc.
WE HELP YOU CONNECT ACROSS GENERATIONS.
When you help families establish an advised fund at the Foundation, you begin an ongoing process of involvement with current and future generations. |
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DONOR OPTIONS
Some clients may come to you with the belief that a private foundation provides their only option for long-term involvement with assets they set aside for charitable purposes. In reality, a donor advised fund at a community foundation offers numerous advantages to these clients, provide real ways for them to stay engaged in giving, and avoids many of the hassles of private foundation management.
In the alternative, some of your clients may have an existing private foundation. In this case, they may find that there are several benefits to transferring it to an advised fund with the community foundation. Through a simple transfer process, your client may be able to avoid some of the costs of operating a private foundation. |
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ESTABLISHING A FUND vs. CREATING A FOUNDATION
There are many practical reasons why establishing a community foundation charitable fund might make more sense than creating a private foundation.
• A fund is easy and inexpensive to establish. A private foundation requires the donor to create a new organization, apply for tax-exempt status, pay
filing fees and incur legal and accounting expenses.
• A gift of cash to a charitable fund within a community foundation
allows a deduction of up to 50% of a donor’s adjusted Gross Income (AGI). A gift of cash to a private foundation allows a donor to deduct up to 30% of AGI.
• By creating a charitable fund, a donor may deduct gifts of closely held
Long-term appreciated stock at its fair market value, up to 30% of AGI.
If the same gift is given to a private foundation, deductibility may be limited to its cost basis up to 20% of AGI.
• No tax is imposed on the investment income of a community foundation charitable fund because it is a component fund of a public charity. A public foundation pays up to 2% federal excise tax on its investment income and net realized capital gain.
• A community foundation donor may remain anonymous. A private foundation must make available to the public the name and address of any substantial contributor.
• There is no minimum distribution requirements for a charitable fund at a community foundation. A private foundation must annually distribute at least 5% of its net investment assets, regardless of whether the amount is actually earned.
• There are fewer restrictions on a charitable fund. For private foundations, however, there are strict regulations regarding self-dealing between the foundation and those who manage, control, or contribute to it and persons or corporations closely related to them. For example, a private foundation, along with its donor and other “disqualified persons” (including members of the board and staff), may not hold more than 20% of a related corporation’s voting stock.
• There are fewer investment restrictions on a community foundation’s funds. A private foundation may not make certain types of investments. For example, a community foundation may hold more than 20% ownership in a particular corporation, but a private foundations may not.
• There are fewer IRS reporting requirements on community foundation grants and funds, and requirements that do exist are handled by the foundation’s staff at no extra charge to individual donors.
• Charitable gifts to a community foundation fund are almost always considered “public support,” thus helping the recipient charity retain its public charity status. A private foundation grant is usually not considered “public support” in its entirety and, thus, may not be as helpful to the recipient charity in retaining its public charity status. |
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ADVANTAGES FOR YOU AND YOUR CLIENTS
In the initial set-up as well as the day-to-day operation, the Foundation offers a breadth of advantages that provide both efficiency and effectiveness for you and your clients.
Simplicity. Creating a charitable fund with the community Foundation of West Kentucky, Inc. is the easy, low-cost alternative to forming and administering a private foundation.
Tax benefits. Community foundations offer maximum federal and state tax benefits; we can work with you to create specialized charitable instruments tailored to your estate and financial plans.
Flexibility. Community foundations accept a wide variety of gifts - including cash, stocks, real estate, and other assets. We can help individuals, families, and businesses create a fund that addresses virtually any charitable purpose.
Community impact. You and your clients can work closely with our professional staff; we will help you understand community needs, assess local organizations, and direct gift dollars to high-impact areas.
Stability. Community foundations are professional organizations that meet published standards of performance for investment practices, donor services, and grant making practices. |
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INVESTMENT AND SPENDING POLICY
Introduction
This policy is adopted by the Board of Directors (the Board) of the Community Foundation of West Kentucky (CFWK) to codify the principles that are use to guide its investment and spending activities. The Board shall delegate responsibility for execution of this policy to its Investment Committee. The Committee is comprised of a mix of board members and community investment leaders and who have expressed an interest in serving on the Committee.
The Investment Committee is charged with establishment of policies and direction to implement prudent investment objectives for the Foundation. The principal duties of the Investment Committee shall be as follows:
1. To implement and periodically review Investment and Spending Policy;
2. To identify and recommend Investment Consultant and Investment Managers to be utilized by the Board;
3.
To recommend to the Board the allocation of funds to Investment Managers.
4. To monitor the performance of all such investments and managers.
5. Recommend fiscal policies to the Board
All actions of the Investment Committee are subject to review by the Board. The Committee will make recommendations to the Board regarding adoption of Investment Policy guidelines, the hiring of Investment Consultants and Managers.
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ASSET ALLOCATION AND INVESTMENT OBJECTIVES
A. Investment Objective
The primary objective of the investments for the Foundation will be to provide long-term growth of principal and income, without undue exposure to risk. Investments are intended to remain in stocks, bonds, and a limited investment in cash.
B. Asset Allocation
To insure that negative results achieved by one asset class shall not skew the entire portfolio, assets are to be diversified. Diversification will include intentional division of investments by type, characteristic, and numbers, as well as by past performance.
The Board recognizes that asset allocation will be the single most important determinant of portfolio risk and return. Thus, it is the Board’s responsibility to set long-term asset allocation ranges and review them from time to time. The Foundation’s Investment Consultant or Manager shall advise the Investment Committee if the parameters provided in this policy are inappropriate to achieve the Board’s investment objectives. Rebalancing of the allocation of assets shall be considered at least annually by the Investment Committee during the first quarter of each fiscal year to insure that such allocation is within policy guidelines.
Asset Allocation Guidelines
Fund A - 70% Equities 30% Bonds
Fund B - 30% Equities 70% Bonds
Fund C- Government Securities
Fund D- Special blend of securities, bonds and government securities
Each fund may have a variance of not more than 10% up or down and adjustments recommendations will be made by the Investment Committee quarterly. It is the position of the Investment Committee and the Board of Directors of the Foundation to be conservative in its investing stance. Each fund with a Fixed Income basis must have an overall weighted average credit rating of “Aa” or better by Moody’s or “AA” by Standard & Poors’ rating services. In addition, there shall be no bond investment below an investment grade as stated. Such funds in a portfolio that may decline in grade will be moved as it is appropriate.
In the event of severe economic or market conditions that would negatively impact the Foundation, the Investment Committee may instruct the Investment Manager to deviate from the stated asset structure with their approval. Any other deviations must first be communicated to, and approved by, the Investment Committee.
A Liquidity or Cash Account will be used to provide for the preservation and stability of principal and the maximization of current income through investment in high quality and liquid investments, including but not limited to, money market or other such accounts. This account will be used for funds held in an Administrative Fund, pass-through accounts, and other accounts that are short term in nature or awaiting more permanent investment.
C.Investment Time Horizon
Due to the inevitability of short-term market fluctuations that may cause variations in the investment performance, it is intended that the Investment Committee and its Investment Manager will strive to achieve the objective of meeting the Investment Benchmark as set over a multi-year period of time. These benchmarks are reviewed quarterly and may require the Investment Manager to ladder certain investments for as much as 10 years.
D. Operating Policy
The Board has fiduciary responsibility for the CFWK assets. At least annually, it receives an investment report submitted by the Investment Committee for the Board’s review and approval.
The Committee (which may include members of the community who are not members of the Board) is delegated responsibility to manage the assets of the CFWK. The Treasurer of the Foundation serves as a member of the Investment Committee. The Committee meets not less than four times each year. In discharging its responsibilities, the Investment Committee is authorized, within the parameters of this Policy, to engage and discharge investment managers and make asset allocation decisions. The Investment Committee may also recommend to the Board for approval the establishment of reserves, special funding requirements, conditions upon which funds should be accepted and other related matters.
The Treasurer, and such other persons as may be designated by the Committee or the Board, are responsible for implementing decisions of the Committee and the Board with respect to custody and investment of the assets of CFWK in accordance to this policy.
In discharging their responsibilities with respect to investment and application of assets of the CFWK, the Board and its committees, officers and employees will act as prudent investors in accordance with this Policy. They will display the skill and prudence which an ordinarily capable and careful person would use in the conduct of his or her own business of like character. With respect to investing funds they will use the care and skill of a reasonably prudent investor while recognizing the inevitability of assumption of risk. In this Policy and its implementation, the CFWK seeks a prudent balance between investment risk and potential return.
Accounting for contributions and withdrawals and calculations of investment rates of return are in accordance to standards approved by the Board of Directors. Allocation of investment expenses is based upon actual results for each fiscal year using monthly data. |
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INVESTMENT MANAGER GUIDELINES
General Guidelines
Unless prior written approval is obtained from the Investment Committee to the contrary:
1. The Investment Manager shall have the full investment discretion with regard to market timing, and security election, consistent with the philosophy as articulated.
2. The Investment Manager shall be with the Investment Committee at least quarterly.
3. The Investment Manager shall immediately notify the Investment Committee of any material changes in its investment outlook, strategy, portfolio structure, ownership, etc.
4. The Investment Manager is prohibited from investing in non-marketable securities. However, assets not otherwise publicly traded can be received from donors and held by the Foundation with approval of the Investment Committee. Such assets include but are not limited to shares of stock in closely held corporations and real estate, which the Foundation may sell (at its discretion) at fair market value as it shall determine.
5. It is the intention that the Investment Manager will be fully invested at all times. However, the Committee recognizes that the portfolio may hold residual cash as part of the investment process. Therefore, the portfolios are expected to have no more than 10% of the portfolio at any time in cash equivalents.
Acknowledgment
The Board of Directors, Investment Committee, the Investment Manager, each recognize the importance of adhering to the mission and strategies detailed in this document and agree to work to fulfill the objectives stated herein, within the guidelines and restrictions, to the best of their ability. It is acknowledged that open communication is essential to fulfilling this mission and if at any time it is necessary to discuss improvements to this document, they are welcome and should contact the CFWK.
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Questions?
We welcome the opportunity to consult with you and your clients to discuss the advantages and disadvantages of each approach. Our desire is to help you find the solution that works best for your client.
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SPENDING POLICY STATEMENT
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In fulfilling its mission as stated in the Mission Statement and in the Articles of Incorporation of the Community Foundation of West Kentucky, Inc. (hereafter “Foundation”), the Board of Directors of the Foundation desires to establish this Spending Policy with the objective of preserving or enhancing the real (inflation adjusted) purchasing power of the permanent as well as quasi endowment funds of the Foundation, while producing a relatively predictable and stable payout stream that is maximized over the long run. With this objective in mind, this policy statement is set forth in order to:
1.Provide an understanding among the Board of Directors of the Community Foundation of West Kentucky, Inc., the Investment Committee of the Board, donors, and any Investment Managers.
2.Establish the method for determining an annual spending budget for the Foundation.
3.To give donors a clear statement of the Foundation’s spending policy.
SPENDING POLICY
The spending policy has been determined for each calendar year at the rate of up to 5% of the fair market value of the assets of each individual fund managed as an endowment fund within the Foundation ending December 31st of the current year. It is intended that the value of the fund will be maintained over time. The spending policy are governed by the total return philosophy recognizing that funds under the guidelines of these policies are managed as endowments. The distribution may be spent as determined in this paragraph, may be drawn from both ordinary income earned (dividends, interest, rents, royalties, etc.) and principal including appreciation, both earned and unearned.
The spending budget amount is used for both amounts available to grant from each fund as well as administrative fees charged to each fund. The administrative fee is calculated based on the Fund Fee Schedule approved by the Board of Directors and in effect at the time the calculation is made. Amounts available to grant are calculated subtracting the administrative fee from the total calculated spending amount. There will be no granting permitted for any fund managed as an endowment fund until it has been at the Foundation for four quarters in one calendar year. Pass through and donor advised funds do not have the one year restriction. For the purpose of this calculation, a gift that arrives at the Foundation on any given day within a calendar quarter will be considered to be at the Foundation for the entire quarter. Administrative fees will be charged to funds from the date that the fund is established, as prescribed by the Fund Fee Schedule in effect at the time. This Spending Policy will be determined and recommended in the future by the Investment Committee and approved by the Board of Directors annually.
This Spending Policy is reviewed by the Board of Directors on July 28, 2006 and unanimously approved.
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