Three Types of Foundations Explained

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There are three types of foundations: community foundations, corporate giving programs and private foundations. Minnesota is fortunate to have a strong philanthropic community of private, community and corporate foundations and giving programs. Nationally, the average annual grant making is $680,000.  In Minnesota, the average annual grant making is over $900 million – nearly double the national average! (according to data available from the Foundation Center).

Community Foundations

Community foundations are publicly supported and are operated by and for the benefit of a specific geographic community, population group or area of interest. These foundations all actively fundraise and pool the funds of many donors to enable them to make larger investments and increase their returns. Community foundations serve three publics, including its donors, the nonprofit sector and the community that they were established to serve. Individual community foundations make decisions regarding their emphasis, but by structure and regulation they must always serve all three of these publics. There are three categories of funding to which donors can contribute to community foundations.

  1. Unrestricted funds are a general gift to the foundation.
  2. Field of interest funds are a gift to a particular activity or program of the foundation.
  3. Donor advised funds is the most restricted. Donors typically want to be very involved in making recommendations regarding the organizations to receive support from their fund. This is a fast growing area in philanthropy and for most of the community foundations in Minnesota, donor advised gifts represent the largest portion of their grants payout.

Examples of Community Foundations in Minnesota Include:

Corporate Foundations and Giving Programs

Corporate foundations and corporate giving programs are a type of private foundation that receive funding and award grants for a corporation. This type of foundation most often makes grants to nonprofits that operate or provide services that improve the quality of life in their employees and customers’ communities. Many of these foundations and giving programs emphasize employee involvement, such as the TCF Foundation. There are some corporate foundations and giving programs that will also donate products in addition to making grants, such as the General Mills Foundation and 3M.

When appealing to corporate foundations and giving programs, remember that these organizations:

  • Want to be good citizens and community members;
  • Want to support their employees; and
  • Want to draw attention to or market their business or products.

Private Foundations

Private foundations use a single source of funding from which to make grants, usually from an individual, family, or a business. The foundation will invest the majority of the endowment, earning dividends and interest on its investments. The IRS requires private foundations to make grants equal to at least five percent of its investment assets each year and pay a two percent excise tax on net investment earnings.

Private foundations are concerned with making a difference in the community or around a particular issue. They typically have guidelines that will let the public know what they are attempting to accomplish through their grantmaking. While the guidelines are very helpful in learning about a foundation’s interests and priorities, it is also very important to carefully examine a foundation’s grants list, which is part of their annual IRS Form 990 PF filing. This information is readily accessible for free with Guidestar.

In recent years private foundations have trended toward specific priorities that they see as niche markets for their giving. This trend further constricts the number of organizations that are eligible for these funds, while those within these prioritized issues do very well for the time that the foundation’s attention is on its issue. The Bush Foundation, The Otto Bremer Trust, and The McKnight Foundation are a few well-known examples of Minnesota private foundations.

Private foundations range in size from very large foundations that give away nearly $100 million a year, such as The McKnight Foundation to smaller family foundations, such as Patrick and Aimee Butler Family Foundation whose total annual giving is about $3 million. The very large, mid-sized and even small foundations generally have staff that review proposals and make recommendations to their trustees.