Professional Advisor News - October 2008

In This Issue...

1. Strategies for Giving in a Down Market
2. Seven Steps to Terminating Private Foundations
3. All the Benefits of Your Own Foundation Without the Headaches: The San Francisco Foundation Donor Advised Fund
   
4. Upcoming Event on October 29th: Managing Wealth in Down Markets
   

Strategies for Giving in a Down Market

By James W. Head, Director of Programs, The San Francisco Foundation

The Bay Area, along with the rest of California and the nation, continues to be challenged by a global economic slowdown. California’s unemployment rate recently reached 7.8 percent, its highest level in 12 years. On the mortgage foreclosure front, recent data indicates that mortgage defaults in the Bay Area have increased more than 140 percent from a year ago, while foreclosures have risen nearly 315 percent from last year. The weak job market, combined with the housing mortgage crisis, and our inability to approve a state budget that addresses a significant deficit, have pushed many Californians to seek assistance from nonprofit organizations to help them meet basic shelter, food, and income-support needs.

The San Francisco Foundation has witnessed the impact of these economic forces, as well as the delayed state budget, in the request for grant assistance from nonprofit organizations. The number of requests for grants continues to rise, and the kinds of support needed are different than in the past.

The San Francisco Foundation is dedicated to serving the community for the long run, and our diversified investment strategy helps us continue to serve as a consistent, stable partner for the Bay Area. This is the time to give more and support a range of strategies to address both the short- and long-term needs of our five Bay Area counties. Based on nonprofit requests, our grant sizes are increasing; we are providing more general support grants; and we are exploring ways to make more multi-year commitments.

We are also bringing a wider array of partners to the table to address specific needs. For example, we are participating in a $5 million, two-year special grants program with financial institutions and community advocates to increase the availability of mortgage counselors throughout California. We are also continuing to support a number of emergency loan funds for nonprofit organizations who receive local, state, and federal contracts that allow them to borrow money for cash flow so that they can continue to provide critical services during a time of temporary government payment interruption.

Individual philanthropists can play critical roles in economic down times such as now. Your clients should consider:

1. Increasing their giving during the downturn.
   
2. Making grants that are larger, less restricted, and have a multi-year component.
3. Providing more assistance to nonprofits that address basic shelter, food, and income-support needs.
   
4. Recruiting additional partners for special programs like nonprofit loan funds, which provide short-term financing to nonprofits.

What we know is that the down market will ultimately improve. Our goal is to ensure that Bay Area individuals and families are able to meet their essential support needs during these down times, and are in a position to improve their economic and social conditions as the market improves. Success can only be achieved through a collective effort, and we look forward to partnering with you and your clients.

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Seven Steps to Terminating Private Foundations

By Erik Dryburgh, Partner, and Amy Rodriguez, Associate, at Adler & Colvin

Our firm has assisted a number of clients in terminating their private foundation, and their motivations vary. For some the administration may have become too burdensome, or the asset value may not be sufficient to support the cost of operations. For others, there may be no obvious successor to take over, or the donor’s children may not agree on how to conduct their grantmaking.

Many of our clients terminate their foundation by granting its assets to a donor advised fund, like those available at a community foundation. By being involved in a local organization like The San Francisco Foundation, they stay involved in grantmaking while benefiting from a lower cost structure, grantmaking expertise, and educational opportunities.

To assist your clients in terminating a California private foundation in corporate form, follow these steps:

1. The board passes a resolution approving (i) the dissolution of the corporation, (ii) the transfer of all remaining assets to one or more public charities, and (iii) the preparation of a Certificate of Dissolution (or, if the vote is not unanimous, the preparation of a Certificate of Election to Dissolve and a Certificate of Dissolution).
2. Each board member signs (but does not date) the Certificate of Dissolution.
3. The foundation requests a written waiver of objections to the plan of dissolution from the California Attorney General’s office. The waiver request must contain certain specific information about the recipient charity(ies) and the planned distributions, and a copy of the signed, but undated, Certificate of Dissolution.
4. After the waiver is received, the foundation notifies its creditors of the proposed dissolution, winds up its affairs, settles any outstanding debts, and transfers all remaining assets to the designated recipient charity(ies).
5. After all debts are paid and the funds are distributed, the Certificate of Dissolution is dated and filed, along with the Attorney General’s waiver of objections, with the California Secretary of State.
6. The foundation prepares and files the final information returns with the IRS and FTB, and files a final RRF-1 form with the Attorney General’s office.
7. The foundation sends written notification, including the required information, to the IRS’s exempt organization’s unit.

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All the Benefits of Your Own Foundation Without the Headaches: The San Francisco Foundation Donor Advised Fund

The San Francisco Foundation is a resource for philanthropists and their advisors who are dissolving private foundations. We have worked with dozens of private foundations in the recent past, and we are currently partnered with two private non-operating foundations that are dissolving and transferring their assets to donor advised funds at the Foundation. With both clients, we met with the directors of the foundations, outlined the steps for dissolution, and recommended legal counsel who could assist them with the process.

There are two primary options at The San Francisco Foundation for private foundations that are considering terminating:

The Foundation can also help private foundations needing assistance satisfying their five percent distribution requirement. By transferring assets to a donor advised fund, they are able to meet their requirement and have flexibility in making grants into the community.

The advantages for donor advised funds and supporting organizations at the Foundation are numerous. In addition to the ease and efficiency of our donor advised funds, through the Foundation’s Donor Choice program, a private foundation can recommend an investment manager for their donor advised fund if the amount of the fund is greater than $5 million.

If you have a private foundation client that is looking for an exit strategy or needs to meet their distribution requirement, please contact Chris Nicholson at 415.733.8521 or cmn@sff.org.

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The events of the past few months have been nothing short of remarkable. Global markets have become increasingly unstable. Credit markets are almost frozen. The United States government has sought and obtained approval for sweeping changes in the regulation and administration of the financial services industry. And further changes are on the horizon once a new President is elected early next month.