Glossary of Terms

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ORGANIZATION & TAX CODES

501(c)(3) - Nonprofit organizations to which contributions are tax deductible. Those organizations designated as public charities qualify for the highest possible tax deductions.

990/Form - An Internal Revenue Service form that public charities must file each year (private foundations file 990-PF) to prove compliance with tax laws.

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AGI (Adjusted Gross Income) - Includes income from salary and wages, investments and capital gains.

Agency Endowment Fund - We use the term "agency" to refer to all endowments established by nonprofit organizations to support their work in perpetuity. The fund is established by contributions from the organization itself, but may be added to through individual donations.

Annual Report - A report published by a foundation or corporation describing its mission, leadership, program, services, activities, and accomplishments. In the case of community foundations, it also describes its grantmaking and donor services and includes a listing of contributors, selected policies and guidelines, and an audited financial statement.

Appreciated Assets - Those assets that have increased in value since they were acquired. Such assets are usually subject to capital gains tax if sold, unless sold by a nonprofit organization.

Appreciated Property - Property that has increased in value over time.

Asset Allocation - The distribution of a pool of assets among various asset classes, including domestic and foreign bonds, cash, real estate, etc.

Assets - Money, stocks, bonds, real estate or other resources. Generally, assets are invested and the income is used to make grants.

Bargain Sale - The sale of securities, real estate, tangible personal property, or other assets to a charity for less than its current value.  The donor receives a charitable deduction for the difference between the appraised value and bargain price.  The charity sells the property and retains the difference between the price it paid and the price for which the asset was sold.

Basis Point - One hundredth of a percentage point (0.01%) used frequently to measure changes in yields or fixed income securities, since they often change by very small amounts.

Bequest - A gift made at death by an individual through a will or trust.  The Foundation accepts bequests of specific sums or assets or as a percentage of the residual of the estate and contingent bequests.  Bequests may establish new funds or add to existing funds.

Capacity Building - A term to describe building the infrastructure of an organization so that it is positioned for growth.  It often refers to governance (board and staff knowledge and maturity), strategic planning, technology, fund development, etc.

Capital Campaign - A substantial fundraising effort to raise a specific sum of money within a given time frame.  Capital campaigns are intended to provide for major organizational needs, such as buildings, endowments or other major expenses.

Cash - The most common type of gift made to most nonprofit organizations. Includes cash, checks, and credit card gifts.

Challenge Grant - See "Matching Grants".

Charitable Lead Trust - This trust provides income to a charity such as WSF for a specified period of time.  At the end of that period, trust assets are distributed to non-charitable beneficiaries such as the donor's spouse, children, or grandchildren.  The donor is able to make gifts of assets to his/her heirs at favorable gift tax rates and remove assets from his/her estate while benefiting his/her favorite charity.

Charitable Remainder Trust - This trust provides income to non-charitable beneficiaries for their lifetime(s) or a term of years. These beneficiaries can include the donor, his/her spouse, their children, or any non-relative.  At the end of that period, the trust assets are distributed to a charity such as WSF.  The donor receives an immediate tax deduction, removes assets from his/her estate (thus eliminating estate taxes on those assets) and often increases the income produced by those assets while ultimately benefiting his/her favorite charity.

Community Foundation - A public charity primarily serving a specific geographic area and enabling residents of that area to establish funds for charitable giving without the costs of establishing separate private foundations.

Component Fund - An individual fund treated as part of a community foundation and permitted by the IRS to be included among the exempt assets of the foundation.  The foundation's governing board must have total control over all assets (principal and income) of a component fund.

Corporate Form - A community foundation that is incorporated as a nonprofit corporation is said to be in corporate form.  Investment management of assets held is the responsibility of the board of the foundation. A community foundation may include both a corporate entity and component trusts.  WSF has both forms.

Cost Basis - The original cost of an asset.

Custodian - A bank or other financial institution that has custody of stock certificates and other assets of a mutual fund, individual, corporation, or institution.  Custodians hold assets in safekeeping, collect income on securities in custody, settle transactions, invest cash overnight, handle corporate accounting, and provide accounting reports.

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Designated Funds - Funds that benefit one or more specific charitable organizations named by the donor.  Designated funds are often endowed in perpetuity with the income used to support the organizations on an ongoing basis.  The Foundation ensures that disbursements are made to appropriate charitable agencies as specified in the establishing fund document.  If an agency stops functioning as an exempt charity or ceases to exist, the Foundation's board may select an alternative charity as indicated in the fund document.

Donor - An individual or organization that makes a grant or contribution to the Foundation or another charity.

Due Diligence - In grantmaking, this speaks to the practices one applies to reviewing grant requests prior to approving them. It generally includes confirming the charitable status of the grantee, the charitable purpose of the grant, and the financial and organizational capacity of the organization to undertake the proposed activities.

Endowed Donor-Advised Funds - An endowed, flexible tool for charitable giving, operating much like a personal or family foundation. Donors can contribute to their fund when it is most convenient and then recommend grants over time to nonprofit organizations of their choice.  The donor selects a fund name and investment manager and then makes grants to organizations committed to the causes he or she cares about.  Donors sometimes involve their children or grandchildren to share in a family tradition of giving.   

Endowment - Money donated to the Foundation with the intention that it be invested to generate income for philanthropic purposes. The principal ususally remains intact in perpetuity.

Field of Interest Funds - Funds that support an area of charitable interest such as youth or human services.  Grants from these funds are made at the discretion of the Foundation.  These are also called flexible funds because they give the Foundation the flexibility to meet changing community needs.

Fund - An entity established for the purpose of accounting for resources used for specific activities or objectives in accordance with special regulations, restrictions, or limitations. Community foundation assets are held in many named component funds established by donors or by the foundation for specific or unrestricted purposes.

Fund Addition - The term used by the Foundation to describe an asset contributed by a donor to a fund at the Foundation.  This could be cash, appreciated stock, real estate, etc.  

Fund Agreement - A contract between the Foundation and the donor stipulating the purposes for which the fund will be used.

Grant - An amount of money given to an organization in order to fulfill a charitable purpose.

Grant Monitoring - Continuing evaluation of the progress of programs to determine if the terms and conditions of the grant are being met and if the objectives of the grant are being achieved.

Grantee - The recipient of a grant. (Also known as the grant recipient or beneficiary.)

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Investment Consultant - A counselor or consultant whose principal business is advising, analyzing or supervising investment managed by others.  Differs from an investment manager who is responsible for the investments in a portfolio. 

Investment Manager
 - An advisor who manages the investments of others.  Generally a manager with more than $25 million must register with the Securities and Exchange Commission (SEC).

Legacy Society - Individuals who have established unrestricted endowment funds with a market value of $10,000 through the Foundation or those who have established other types of permanent endowments or made deferred gifts with a market value of $25,000 or more through the Foundation. 

Life Income Plans - Planned gift arrangements that offer a current income and a current tax deduction to the donor in exchange for an irrevocable commitment to a charitable purpose or purposes.

Life Insurance (gift of) - Life insurance is easy to give and to receive.  The donor must make the organization both owner and beneficiary of the insurance policy for the IRS to regard the transaction as a charitable gift.  Naming the Foundation as a contingent beneficiary does not qualify for an immediate tax deduction, but it may be used to establish a charitable legacy.

Living Trust - A revocable trust established by the grantor during his or her lifetime. 

Matching Grant - A grant that is paid only if the grantee organization is able to raise additional funds from other sources. Matching grants are often used to stimulate giving from other donors. They are sometimes called challenge grants.

National Standards for U.S. Community Foundations - Approved in September 2000, the National Standards are the minimum requirements for the governance, structure, and activities of community foundations.   Adoption of these standards throughout the field will provide a level of consistency that will help the field build capacity, distinguish itself, and market nationally and regionally. The Foundation was approved as being compliant with National Standards in 2006 and was reconfirmed in 2012.

Net of Fee - The rate of return reported on a portfolio after the removal of a money manager's fee.

Non-Endowed Advised Fund (NEAF) - Monies are received and distributed with 100% of the fund being potentially spendable.  The fund does not operate under the Foundation's total return spending policy for endowed funds.  A minimum balance of $1,000 must be maintained.

Operating Support - A grant made to further the general purpose or work of an organization, rather than for a specific project or purpose.

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Payout Requirement - The minimum amount that private foundations are required to expend for charitable purposes (including grants and, within certain limits, the administrative cost of making grants).  In general, a private foundation must meet or exceed an annual payout requirement of five percent of the average market value of its total assets.

Philanthropy - Philanthropy is defined in different ways.  The word is of Greek origin, meaning, "love for humankind".  Today, philanthropy includes the concept of voluntary giving by individuals or groups to promote the common good.  It also commonly refers to grants of money given by foundations to nonprofit organizations.  Philanthropy addresses contributions by individuals or groups to other organizations that in turn work to alleviate the causes of poverty or social problems, improving the quality of life for all citizens.  Philanthropic giving also supports a variety of activities in the areas of research, health, education, arts and culture, and environmental issues.

Planned Gift - Any gift given for any amount and for any purpose, whether for current or deferred use, which requires the assistance of a professional staff person, a qualified volunteer, or the donor's advisors to complete.  It also includes any gift that is carefully considered by a donor in light of estate or financial plans.  (Robert F. Sharpe & Co.)

Principal - The dollar value of an asset.  When used in relation to an endowment, it means the sum of the dollar values of all gifts to the endowment using the dollar value of each gift on the day the gift was completed.

Private Foundation - A 501(c)(3) organization that is originally funded from one source, that derives revenue from its earnings on investments and that makes grants to other charitable organizations as opposed to administering its own programs.

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 also 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 Support Test - A standard designed to ensure that a charitable organization is responsive to the general public rather than a limited number of persons.  For community foundations (which rely on gifts and contributions) to automatically be classified as a public charity, they must show that they normally receive at least one-third of their support from the general public (this includes government agencies and government foundations).  However, an organization that fails the automatic test still may qualify as a public charity if its public support equals at least ten percent of all support and it also has a variety of other characteristics that make it sufficiently public (such as a broad-based board of directors).

Real Property - Real estate, land, homes (residence or vacation), or farms.

Realized Gains/Losses - Increases/decreases in investments attributable to the sale of investments.

Retirement Plan Assets - Assets held in qualified retirement plans including employers' pension or profit-sharing plans or salary deferral plans such as 401(k) and 403(b).

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Scholarship Fund - A specialized type of designated fund established to provide support for individuals who are pursuing training or educational opportunity.  While different foundations handle this in different ways, The Winston-Salem Foundation makes the grants from such funds co-payable to the educational institution and to the student rather than just to the student.

Securities, Closely Held - Stocks and bonds not traded on public exchanges which are often owned by family members or a few individuals.  Same as "Securities, Privately Held".

Securities, Publicly Traded - Stock and bonds traded on public exchanges.

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

Site Visit - The donor or grantor's visit to the physical location of a grantee to meet with the grantee's staff, directors and/or clients.

Spendable Fund Balance - Amount in an endowment fund which can be spent according to the spending policy of the Foundation.

Spending Policy - A policy that determines what percentage of a group of assets, such as an endowment, should be spent. This is a formula for grantmaking that is based on a designated percentage of an endowment fund's fair market value.  The Foundation's current spending policy is 4.3% of the fund's value over 12 quarters.  It is intended to allow grants to be made from the fund in perpetuity.

Supporting Organization - The community foundation version of a private foundation. Supporting organizations or supporting foundations allow major donors to create a foundation distinct from WSF but administered by the Foundation. In order to qualify as a supporting organization, the organization must ensure that the organization being supported has some influence over the actions of the supporting organization. Supporting organizations are distinct legal entities, which distinguishes them from donor-advised funds.

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 or 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.

Trust - A legal device used to set aside assets of one individual for the benefit of one or more persons or organizations.

Unrealized Gains/Losses - Increases/decreases in investments attributable to the fluctuations in value of the investments from one time period to another.

Unrestricted Funds - Funds that allow the Foundation to determine where grants will do the most good.  They offer maximum flexibility to react to changing needs in the community.  By using grants from unrestricted funds in combination with board leadership, the Foundation acts as a community problem solver in areas ranging from advocacy for children's issues to increasing participation in the arts and addressing homelessness issues.  These are also called flexible funds because they give the Foundation the flexibility to meet changing community needs.

Variance Power - As a distinguishing characteristic of community foundations, the variance power permits the community foundation's governing body to redirect resources in component funds 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.

Will - A written instrument legally executed by which a person makes disposition of his or her estate to take effect after death.

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860 W. Fifth St • Winston-Salem, NC 27101 • 336.725.2382