Glossary of Philanthropic Terms

Below are definitions for some commonly-used terms in philanthropy and grantmaking.

A

Advisory Board 

A group of individuals who offer advice or guidance.  Unlike an elected board, an advisory board does not have responsibility for formal oversight.

Annual Report

A voluntary report published by a foundation or other funding organization, which typically describes its mission, funding priorities and grantmaking activities.

Assets

Cash, stocks, bonds, real estate or other holdings of a foundation.  Generally, assets are invested and the income is used to make grants. (See Payout Requirement)

 

B

Bequest 

A sum of money committed to an organization and donated upon the donor's death.

Board of Directors 

The leadership body which holds oversight responsibility. 

 

C

Challenge Grant

A grant made on the condition that other funding be secured, often on a matching basis, within a specified period of time.  Challenge grants are generally made to encourage an organization to raise funds from additional sources.

Charitable Lead Trust

A type of trust used to set aside money or property for the benefit of one or more persons or organizations.  This type of trust allows a donor to give a regular, fixed amount to a charity over a certain number of years, after which the remainder of the trust passes to the donor’s heirs.

Charitable Remainder Trust

A type of trust that allows a donor to set aside money or property for the benefit of one of more persons or organizations, claiming a tax deduction for the charitable gift to the trust in the year in which the trust is created.  The donor may receive income from this type of trust for life; after the donor’s death, the assets pass to the designated charity.

Community Foundation

A community foundation is a tax-exempt, nonprofit, autonomous, publicly supported, philanthropic institution composed primarily of permanent funds established by many separate donors for the long-term benefit of a defined geographic area. Typically, a community foundation serves an area no larger than a state.   Community foundations provide an array of services to donors who wish to establish endowed and non-endowed funds without incurring the administrative and legal costs of starting independent foundations.

Corporate Foundation

A corporate (company-sponsored) foundation is a private foundation that derives its grantmaking funds primarily from the contributions of a profit-making business. The company-sponsored foundation often maintains close ties with the donor company, but it is a separate legal organization.  The corporate foundation may be endowed or it may be funded by an annual contribution from the business.  Corporate foundations are subject to the same rules and regulations as other private foundations.

Corporate Giving Program

A corporate giving (direct giving) program is a grantmaking program established and administered within a profit-making company. Gifts or grants go directly to charitable organizations from the corporation. Corporate foundations/giving programs do not have a separate endowment; their expense is planned as part of the company's annual budgeting process and usually is funded with pre-tax income.

 

D

Designated Fund

A type of restricted fund in which the fund beneficiaries are specified by the grantors.

 

Discretionary Fund

Grant funds distributed at the discretion of one or more people in a foundation’s leadership; such grants usually do not require prior approval by the full board of directors. The governing board can delegate discretionary authority to staff.

Donee

The receiving organization of a donor's resources. (See Grantee)

Donor

A donor is anyone who gives resources - financial, social, intellectual and time - to a nonprofit organization, public charity or fund.  (See Grantor)

Donor-Advised Fund

A fund held by a community foundation or other public charity, where the donor (or a committee appointed by the donor) may recommend eligible charitable recipients for grants from the fund.  The public charity's governing body must be free to accept or reject the grant recommendations.

Donor-Designated Fund

A fund held by a community foundation where the donor has specified that the fund's income or assets be used for the benefit of one or more specific public charities. These funds are sometimes established by a transfer of assets by a public charity to a fund designated for its own benefit, in which case they may be known as grantee endowments. The community foundation's governing body must have the power to redirect resources in the fund if it determines that the donor's restriction is unnecessary, incapable of fulfillment or inconsistent with the charitable needs of the community or area served.

 

E

Endowment

The principal amount of gifts and bequests that are accepted subject to a requirement that the principal be maintained intact and invested to create a source of income for a foundation.  Donors may require that the principal remain intact in perpetuity, or for a defined period of time or until sufficient assets have been accumulated to achieve a designated purpose.

Excise Tax

Private foundations are subject to an annual 2 percent excise tax on their net investment income.  The tax is reduced to 1 percent in any year in which the foundation’s percentage of charitable distributions exceeds the average percentage of its distributions over the previous five taxable years.

 

F

Family Foundation

"Family foundation" is not a legal term, and therefore, has no precise definition. Generally it describes a foundation whose funds are derived from members of a single family and in which family members serve as trustees or directors.  In many cases, second- and third-generation descendants of the original donors manage the foundation. Approximately two-thirds of the over 50,000 private foundations in the U.S. are believed to be family managed.

Federated Fund

A centralized campaign whereby one organization raises money for its member agencies. These annual workplace giving campaigns raise millions of dollars for distribution to local, state, and national nonprofit organizations. United Ways and the Jewish Federation of Pittsburgh are local examples.

Field of Interest Fund

A fund held by a community foundation that is used for a specific charitable purpose such as education, health or arts and culture.

Form 990

The annual federal tax return filed by most tax-exempt 501(c)(3) organizations.

Form 990-PF

The annual federal tax return that private foundations must file with the IRS.  It includes information useful to grantseekers, including a list of the grants paid out during the tax year.

 

G

General Operating Support

A contribution given to cover an organization's day-to-day, ongoing expenses such as salaries, utilities or office supplies.

Giving Circle

A relatively new granting vehicle where a group of people come together usually around a specific interest or issue, to pool their funds and make joint decisions about where to direct their charitable dollars.

Grant

An award of funds to an organization or individual to undertake charitable activities.

Grant Monitoring

The ongoing assessment of the progress of grant-funded activities, with the objective of determining if the terms and conditions of the grant are being met and if the goal of the grant is likely to be achieved.

Grantee

The individual or organization that receives a grant.

Grantor

The individual or organization that makes a grant.

 

I

Impact Investing

A form of socially responsible investment in which the investor seeks both a reasonable rate of return and social benefit.  Impact investors may be individuals or institutions.  (See also Mission Investing)

In-Kind Contribution

A donation of goods or services rather than cash or appreciated property.

Independent Foundation

A private foundation, usually funded by an individual, often by bequest.  Independent foundations are occasionally termed "non-operating" because they do not run their own programs.  Many large independent foundations, such as the Ford Foundation, are no longer governed by members of the original donor's family but are run by boards made up of community, business and academic leaders.  All private foundations make grants to other tax-exempt organizations to carry out their charitable purposes. Private foundations must make charitable expenditures of approximately 5 percent of the market value of their assets each year.

 

L

Leverage

An approach to grantmaking practiced by some foundations and individual donors.  Leverage occurs when a small amount of money is given with the express purpose of attracting funding from other sources or of providing the organization with the tools it needs to raise other kinds of funds. 

 

M

Matching Gifts Program

A grant or contributions program housed at a business or a foundation that will match employees' or directors' gifts to qualifying educational, arts and cultural, health or other organizations. Specific guidelines are established by each employer or foundation.  

Matching Grant

A grant or gift made with the specification that the amount donated must be matched by gifts from other sources according to a prescribed formula, such as one dollar of outside funding to release one dollar of the matching grant.

Mission Investing

Mission investments are investments made by foundations to advance their philanthropic goals.  They can be market-rate (also known as "mission-related investments"), or below-market rate (an example might be a program-related investment such as a loan at a below-market interest rate).  (See also Socially Responsible Investing, Program-Related Investments)

 

N

Nonprofit Organization

A term describing the Internal Revenue Service's designation of an organization whose income may not be used for the benefit or private gain of stockholders, directors, or any other persons with an interest in the group.  A nonprofit organization's income must be used solely to support its operations and stated purpose.

 

O

Operating Foundation

Also called private operating foundations, operating foundations are private foundations that use the bulk of their income to provide charitable services or to run charitable programs of their own. They make few, if any, grants to outside organizations. To qualify as an operating foundation, specific rules, in addition to the applicable rules for private foundations, must be followed. The Carnegie Endowment for International Peace and the Getty Trust are examples of operating foundations.

 

P

Pass-Through Foundation

A foundation that is funded periodically (often annually) by its donor or donors, but that does not seek to preserve or build an endowment.  Note that the term is not a legal definition; it describes the way the donor and board of directors have elected to operate the foundation.   

Payout Requirement 

The minimum amount that a private foundation is required to expend for charitable purposes each year.  Payout includes both grants and necessary and reasonable administrative expenses. By law, a private foundation must pay out annually approximately 5 percent of the fair market value of its assets, which may be based on a three-year rolling average.

Philanthropy

Philanthropy is defined in different ways. The origin of the word philanthropy is Greek and means “love for mankind.” Today, philanthropy includes the concept of voluntary giving by an individual or group to promote the common good.   Philanthropy also commonly refers to grants of money given by foundations to nonprofit organizations.   Philanthropic giving supports a variety of activities, including research, health, education, arts and culture, as well as alleviating poverty.

Pledge

A promise to make future contributions to an organization.   For example, some donors make multi-year pledges promising to grant a specific amount of money to a nonprofit organization each year.

Private Foundation

A non-governmental, nonprofit organization with funds (usually from a single source, such as an individual, family or corporation) and program managed by its own trustees or directors, established to maintain or aid social, educational, religious or other charitable activities serving the common welfare, primarily through grantmaking.  U.S. private foundations are tax-exempt under Section 501(c)(3) of the Internal Revenue Code and are classified by the IRS as private foundations as defined in the code.

Program Officer

In a staffed foundation, a professional employee whose responsibilities typically include assessing community needs, developing grantmaking strategies, working with grantseekers and making recommendations to senior leadership and the board of directors.  

Professional Advisor

Individuals who assist in planning and executing charitable giving by providing information on giving options specific to an individual's financial situation. Types of professional advisors include attorneys, accountants, estate planners, financial planners, stockbrokers, insurance brokers, planned giving officers and philanthropy consultants.

Program-Related Investment (PRI)

An investment made by a foundation that serves to accomplish a charitable objective, but that is not an outright grant; some examples include loans and loan guarantees.  Once an investment is determined to be program-related, it is considered a qualifying distribution and counts toward satisfying the foundation's 5 percent payout requirement.

Public Charity

A nonprofit organization that is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code and that receives its financial support from a broad segment of the general public.  Religious, educational and medical institutions are deemed to be public charities.  Other organizations exempt under Section 501(c)(3) must pass a public support test (See Public Support Test) to be considered public charities, or must be formed to benefit an organization that is a public charity (see Supporting Organizations). Charitable organizations that are not public charities are private foundations and are subject to more stringent regulatory and reporting requirements (See Private Foundations).

Public Foundation

Public foundations are nonprofit organizations that receive at least one-third of their income from the general public. Public foundations may make grants or engage in charitable activities. The IRS recognizes public foundations, along with community foundations, as public charities. Religious, educational and medical institutions are deemed to be public charities.

Public Support Test

For an organization to be considered a public charity, the Internal Revenue Code stipulates that at least one-third of its total revenue must come from gifts, grants and contributions from the general public, or from a combination of gifts, grants contributions and fees charged for the performance of charitable services if not more than one-third total revenue is derived from investment income.

 

Q

Qualifying Distributions

In a private foundation, the total amount of grants and certain operating expenses that satisfy the foundation’s annual payout requirement of 5 percent.

 

R

Restricted Funds

Assets or income that is restricted in its use, in the types of organizations that may receive grants from it, or in the procedures used to make grants from such funds.

 

S

Seed Money

A grant or contribution used to start a new project or organization.

Self-Dealing

Refers to business and/or financial transactions between a foundation and its "disqualified persons."  Disqualified persons include foundation "insiders" such as contributors, managers and certain public officials.

Socially Responsible Investing

The practice of aligning a foundation’s investment policies with its mission.  This typically includes refraining from investing in businesses that manufacture certain products (e.g. tobacco) or that operate under policies inconsistent with the foundation's values.  (See also Impact Investing, Mission Investing and Program-Related Investments).

 Strategic Giving

Engaging in philanthropy in a strategic manner to make a major philanthropic impact through making better choices surrounding how much one spends, invests and gives back to society.

Supporting Organization

A supporting organization is a charity that is not required to meet the Public Support Test because it supports a public charity. To be a supporting organization, a charity must meet one of three complex legal tests that assure, at a minimum, that the organization being supported has some influence over the actions of the supporting organization. Although a supporting organization may be formed to benefit any type of public charity, the use of this form is particularly common in connection with community foundations. Supporting organizations are distinguishable from donor-advised funds because they are distinct legal entities.

 

T

Tax-Exempt Organizations

Organizations that do not have to pay state and/or federal income taxes. Organizations other than churches seeking recognition of their status as exempt under Section 501(c)(3) of the Internal Revenue Code must apply to the Internal Revenue Service. Charities may also be exempt from state income, sales and local property tax.

Technical Assistance

Operational or management assistance given to a nonprofit organization. It can include fundraising assistance, budgeting and financial planning, program planning, legal advice, marketing and other aids to management. Assistance may be offered directly by a foundation or corporate staff member or in the form of a grant to pay for the services of an outside consultant. (See In-Kind Contribution)

Tipping

Occurs when a private foundation's support "tips" a public charity out of compliance with the public support test, converting it into a private foundation.

Trust

A legal device used to set aside money or property of one person for the benefit of one or more persons or organizations.

Trustee

The person(s) or institutions responsible for the administration of a trust.

 

U

Unrestricted Funds

Normally found at community foundations, an unrestricted fund is one that is not specifically designated to particular uses by the donor, or for which restrictions have expired or been removed.

 

V

Venture Philanthropy

A philanthropy that borrows some of the best practices of the venture capital world to invest deeply in nonprofits to build their capacity effectively. Venture philanthropists value their donor dollars in terms of the social return of investment.

 

Source document: Philanthropy Network Greater Philadelphia