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Philanthropic Dictionary

As your partner in giving, our goal is to make it easier for you to achieve your philanthropic goals. This dictionary defines many of the terms you’ll encounter in your charitable giving.

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501(c)(3)

US specific
Section of the Internal Revenue Code that designates an organisation as charitable and tax-exempt. Organisations qualifying under this section include religious, educational, charitable, amateur athletic, scientific or literary groups, organisations testing for public safety, or organisations involved in prevention of cruelty to children or animals. All organisations with this designation are eligible to receive grants from a DAF.

509(a)(1), (2), and (3)

US specific
Section of the US Internal Revenue Code that defines public charities (as opposed to private foundations). A nonprofit 501(c)(3) organisation must have a 509(a), (2), or (3) in order to be defined and designated a public charity. (Also: See Public Support Test)

Adjusted Gross Income

US specific
The adjusted gross income is the level of income on which you pay US federal income tax before any deductions and personal exemptions are made. This amount may be used for computing limitations on certain deductions.

Advisor

An individual authorised to recommend grants from a DAF. The donor names an advisor to a fund. An advisor can also serve as a successor to the fund.

Affidavit

A written statement made under oath and sworn to be true.

Altruism

Altruism, like passion, is the key intent that philanthropy expresses; a concern for the welfare of others; selflessness.

Annual Gift

A gift that is made every year.

Annual Report

A report published by a charity, foundation or nonprofit organisation describing their activities and financial conditions. These reports are important tools for assessing the organisation’s effectiveness.

Annuity

Payment of a fixed sum of money to a specified person at regular intervals.

Appreciation

Increase in the value (from date of purchase) of an asset such as a stock, a bond, a commodity, or real estate.

Articles of Association

UK specific
The governing document for charitable companies in England and Wales that specifies how the charity is run, including its charitable purposes, what it can do to carry out its purposes, who runs it and other administrative matters. (See also Constitution for charitable incorporated organisations (CIOs) and Trust Deed for charitable trusts)

Articles of Incorporation

US specific
A document filed with the secretary of state or other appropriate state office by persons establishing a corporation. This is the first legal step in forming a nonprofit corporation.

Asset

Cash, stocks, bonds, property or other holdings of an individual or institution. Generally, assets are invested and the income is used to make grants.

Basis

The amount paid for an asset. The value is used to determine gain or loss for income tax purposes.

Basis Point

One one-hundredth of a percent (0.01 percent); 2 percent is equal to 200 basis points. A term commonly used to measure returns, earnings, and fees paid to investment managers.

Beneficiary

A person or organisation who is legally entitled to receive gifts made under a legal document such as a will or trust.

Bequest

A sum of money or other property directed by a will to a specified person or organisation. (See Will)

Board of Directors (Board of Trustees)

An organised and/or elected body of advisors with fiduciary and oversight responsibility.

"Bricks and Mortar"

An informal term indicating grants for buildings or construction projects.

Building Campaign

A fundraising drive that seeks funds for construction or renovation of buildings and facilities.

Bylaws

US specific
Rules governing the operation of a nonprofit corporation. Bylaws often provide the methods for the selection of directors, the creation of committees, and the conduct of meetings. (See Articles of Association, Constitution, Trust Deed)

Bypass Trust

US specific
Any trust that creates a life estate for a life beneficiary, with the trust principal going to the final beneficiary when the life beneficiary dies.

Capital Campaign

A capital campaign is an organised drive to raise substantial funds to finance major needs of an organisation, including construction, renovations, or endowments.

Capital Gains

Profit realised from the sale of appreciated securities, real estate, and other capital assets. A capital gain is the difference between the net sales price of securities and their net cost, or original basis.

Capital Grant

A capital grant is a grant to provide funding for buildings, construction, or equipment, rather than program expenses.

Cash Gift

Cash gifts are outright gifts of checks and bank transfers.

Challenge Grant

A grant that is paid only if the grantee organisation is able to raise additional funds from other sources, usually within a specified period of time. Challenge grants are often used to stimulate giving from other donors.

Charitable Company

UK specific
One type of charity structure in England and Wales (versus a charitable trust or a charitable incorporated organisation). The organisation must demonstrate both a charitable purpose and a public benefit. Charitable companies are registered at the Charity Commission and Companies House. Charitable companies are typically limited by guarantee.

Charitable Gift Annuity

US specific
An agreement between a donor and a public charity whereby the donor irrevocably makes a gift of cash or stock and, in turn, the public charity agrees to pay a fixed annuity to one or two beneficiaries for life. Upon the donor’s death, the remainder is the public charity’s to utilise for charitable purposes.

Charitable Giving Plan

A plan that best reflects one’s life experiences, values, goals, and passions that structures giving to a charitable organisation(s).

Charitable Incorporated Organisation (CIO)

UK specific
One type of charity structure in England and Wales (versus a charitable company or a charitable trust). The organisation must demonstrate both a charitable purpose and a public benefit. CIOs are administered by the Charity Commission who has sole responsibility for their formation and registration. CIOs are not registered at Companies House.

Charitable Lead Trust

US specific
A legal device used to set aside money or property of one person for the benefit of one or more persons or organisations. Specifically, this type of trust allows for a regular, fixed amount to go to a charity for a specific number of years. At the end of that time, the remainder of the trust passes to one’s heirs.

Charitable Organisation

US specific
In its traditional legal meaning, the word “charity” encompasses religion, education, assistance to the government, promotion of health, relief of poverty or distress, and other purposes that benefit the community. Nonprofit organisations that are organised and operated to further one of these purposes generally will be recognised as exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code and will be eligible to receive tax-deductible charitable gifts. (See Charity)

Charitable Remainder Trust

US specific
A legal device used to set aside money or property of one person for the benefit of one or more persons or organisations. Specifically, this type of trust allows one to take a deduction for a gift to the trust in the year in which the trust is formed. One receives income from this type of trust for life and after one’s death, the assets pass to the designated charity.

Charitable Trust

UK specific
One type of charity structure in England and Wales (versus a charitable company or a charitable incorporated organisation). The organisation must demonstrate both a charitable purpose and a public benefit.

Charity

UK specific
An organisation established exclusively for charitable purposes. The Charities Act defines charitable purposes to be the prevention or relief of poverty, the advancement of education, the advancement of religion, the advancement of health or the saving of lives, the advancement of citisenship or community development, the advancement of the arts, culture, heritage or science, the advancement of amateur sport, the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity, the advancement of environmental protection or improvement, the relief of those in need, by reason of youth, age, ill-health, disability, financial hardship or other disadvantage, the advancement of animal welfare, and the promotion of the efficiency of the armed forces of the Crown, or of the efficiency of the police, fire and rescue services or ambulance services. Charities are registered and regulated by the Charities Commission of England and Wales. (See Charitable Organisation)

Charity Commission

UK specific
The public register and regulator of charities in the UK. These include the Charity Commission of England and Wales, the Charity Commission of Northern Ireland, and the Office of the Scottish Charity Regular.

Codicil

A separate legal document which, after it has been signed and properly witnessed, changes an existing will.

Community Amateur Sports Club (CASC)

UK specific
A sports club that has registered with HMRC and is eligible for certain types of tax relief. A CASC is not a charity and is not regulated by the Charity Commission.

Community Interest Company (CIC)

UK specific
A type of company in the UK designed for social enterprises that want to use their profits and assets for the public good. A CIC is not a 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 that makes grants for charitable purposes in a specific community or region.

Companies House

UK specific
The United Kingdom's registrar of companies.

Constitution

UK specific
The governing document for a charitable incorporated organisation (CIO) in England and Wales that specifies how the charity is run, including its charitable purposes, what it can do to carry out its purposes, who runs it and other administrative matters. See also articles of association for charitable companies and trust deed for charitable trusts.

Contribution

An unconditional transfer of cash or other assets to an organisation for no consideration. The contribution is irrevocable and immediately tax deductible. In order to open a donor-advised fund (DAF), the donor must make an initial contribution of at least £250,000. Subsequent contributions must be for at least £2,000.

Corporate Foundation

A corporate (company-sponsored) foundation is a charitable legal entity 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 organisation, sometimes with its own endowment, and is subject to the same rules and regulations as other private foundations. (See Corporate Giving Program)

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 organisations from the corporation. Corporate giving programs do not have a separate endowment; their expense is planned as part of the company’s annual budgeting process.

Custodian

A bank or other financial institution that has custody of financial assets of a fund, individual, corporation, or institution. All custodians can hold assets in safekeeping, collect income on securities in custody, settle transactions, invest cash overnight, handle corporate accounting, and provide accounting reports.

DAF Sponsor

A charitable organisation that manages donor- advised fund accounts. Charitable sponsors provide services to ensure that potential grant recipients are qualified charitable organisations and administer donor-advised fund accounts to ensure compliance with all regulations. Also called Umbrella Charity.

Deed

The legal document by which one person transfers title to real estate to another person or persons.

Demonstration Grant

A grant made to establish an innovative project or program, which if successful, would serve as a model and may be duplicated by others.

Designated Funds

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

Disqualified Person (Private Foundation)

US specific
Substantial contributors to a private foundation, foundation managers, certain public officials, family members of disqualified persons, and corporations and partnerships in which disqualified persons hold significant interests. The law bars most financial transactions between disqualified persons and foundations. (See Self-Dealing)

Disqualified Person (Public Charity)

US specific
As applied to public charities, the term disqualified person includes (1) organisation managers, (2) any person who, within the past five years, was in a position to exercise substantial influence over the affairs of the organisation, (3) family members of the above, and (4) businesses they control. Paying excessive benefits to a disqualified person will result in the imposition of penalty excise taxes on that person and, under some circumstances, on the charity’s board of directors. (See Intermediate Sanctions)

Donee (See Recipient)

Donor

A donor is an individual or company making a contribution to a nonprofit organisation, public charity, or fund. In the case of a donor-advised fund (DAF), the donor opens their fund by making a contribution to a public charity like National Philanthropic Trust UK.

Donor-Advised Fund (DAF)

A philanthropic fund administered by an umbrella charity. A donor-advised fund allows donors to establish and fund the account by making irrevocable, tax-relieved contributions to the umbrella charity. Assets in the account are invested based on the donor’s recommendation. Donors then recommend grants from those funds to any other qualified charitable organisations.

Dual Qualified Charity

A charitable structure involving two separate charities – one US charity and one UK charity – connected through shareholding. The result is that any donation qualifies as a charitable donation for tax purposes in both the UK and US simultaneously.

EIN

US specific
The EIN is the Employer Identification Number—a number assigned by the US Internal Revenue Service to any organisation (nonprofit or for profit) with paid employees. The EIN is requested when a donor recommends a nonprofit as a grant recipient, so that the nonprofit can be identified and verified by National Philanthropic Trust UK.

Eligible Charitable Organisations

Eligible charities are those charities that have proven that they exist for charitable purposes and/or any grant they received would be used for charitable purposes. Typically, eligible organisations are those that have been registered as charities by the Charity Commission of England and Wales or have been granted 501(c)(3) status by the US Internal Revenue Service. Foreign grantees must meet the guidelines for acceptable foreign grants by the Charity Commission and HMRC.

Eligible Donors

Individuals, companies, foundations, trusts and estates, as well as certain other qualifying entities, are all eligible to open a donor-advised fund (DAF). Corporations and other businesses may create a DAF rather than start a foundation.

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.

Endowment Grant

Some nonprofit organisations set aside money that is invested and earns interest. The charity spends only the interest and keeps the original sum untouched. Such a fund is called an endowment and is commonly found within charities with large physical plants, such as hospitals and colleges. From time to time, charities launch fundraising efforts to start, or add to, an endowment. Funders of an endowment want to be sure that the gift to an endowment will remain in the endowment earning interest and not be drawn out of the endowment to satisfy transitory operating expenses.

Equity

The current market value of an asset less any liability or loan.

ESG

Environmental, Social, and Governance criteria used to screen potential investments.

Estate

Generally, all the property a person owns at the time of their death.

Estate Planning

The process of creating an orderly and desirable arrangement for the disposition of a person's estate by working with an advisor (lawyer, accountant, trust officer, life insurance agent, etc.). The main objective is to ensure that the individual's wishes regarding the security of their family and others are fulfilled after their death. Advisors also take tax consequences into consideration during estate planning. A well-drafted estate plan can provide significant benefits to the individual and their family and helps ensure that their philanthropic legacy continues.

Estate Taxes

Tax levied on the estate (property, money and possessions) of a person who has died. (See Inheritance Tax)

Excise Tax

US specific
A tax on the net investment income of private foundations. Normally set at 2% per year, the rate may be reduced to 1% if the foundation meets certain expenditure requirements.

Executor

The person named in an individual's will to manage their estate, deal with the probate court, collect assets, and distribute them as the individual has specified.

Family Foundation

“Family foundation” is not a legal term, but it describes an independent charitable legal entity whose funds are derived from members of a single family. Family members often serve as officers or board members of family foundations and have a significant role in their grantmaking decisions.

Fiduciary Duty

The legal responsibility for investing money or acting wisely on behalf of another. Managers of charitable entities have fiduciary obligations to the charity.

Field of Interest

A field of interest is a charitable cause reflecting an area of the donor’s personal interest. A donor can use their donor-advised fund (DAF) to grant to nonprofit organisations that work in that charitable area. Fields of interest may include, but are not limited to the arts, the environment, women’s services, education, youth services, religion, and health.

Financial Report

An accounting statement detailing financial data, including income from all sources, expenses, assets, and liabilities. Typically included in a charity’s annual report. A financial report may also be an itemised accounting that shows how grant funds were used by a charitable organisation.

Form 1023

US specific
Application for Recognition of Exemption under US IRC Section 501(c)(3) that organisations must file in order to receive tax-exempt status.

Form 990

US specific
The information return that US public charities are required to file annually with the IRS unless the organisation is a church or entity association with a church, synagogue, mosque, a certain type of governmental unit affiliate, or falls below certain gross receipts thresholds. The IRS uses this form to assess compliance with the Internal Revenue Code. Form lists organisation assets, receipts, expenditures, and compensation of officers.

Form 990-PF

US specific
Form 990 PF must be filed annually with the IRS by all US private foundations. The IRS uses this form to assess compliance with the Internal Revenue Code. This form provides financial information, names of officers, trustees or directors, and a list of grant recipients and amounts contributed during the year.

General Purpose or General Operating Support Grant

A grant that is used to support the general expenses of operating an organisation, including salaries, materials and supplies, or utility bills. An operating grant supports an organisation’s overall mission and entrusts that entity to make the best use of the money. It is often helpful to an organisation when making an operating support grant to do so over a multi-year period. This enables the organisation to have the kind of basic support that frees them up to focus on their core projects and initiatives.

Generation-Skipping Trust

US specific
An estate tax-saving trust, where the principal is left in trust for one’s grandchildren, with one’s children receiving only the trust income.

Gift Aid

UK specific
Gift Aid is the name of the tax incentive for cash donations. Gift Aid is a split tax incentive between the donor and the charity. The charity is eligible to claim 25% extra on a donation from HMRC. If the donor pays over the basic rate of tax, they are eligible to claim the difference between their tax rate and the basic tax rate on the gross donation.

Gift to a Donor-Advised Fund

A gift to a DAF is an irrevocable donation of assets that you would eventually like to be granted to qualifying charitable organisations. These gifts may be comprised of cash, shares, or other assets. All gifts made to a donor-advised fund are eligible for tax relief.

Giving Pattern

The overall picture of the types of projects and programs that a donor has supported historically. The past record may include areas of interest, geographic locations, dollar amount of funding, or kinds of organisations supported.

Governing Document

The governing document sets out the charity’s objects or purposes and how it is to be administered. See Bylaws, Articles of Association, Constitution, and Trust Deed.

Grant

An award of funds to a charitable organisation. In a donor-advised fund (DAF), a donor can recommend that a grant be awarded to a charity of their choice worldwide.

Grant Monitoring

The ongoing assessment of the progress of the activities funded by a donor, 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.

Grant Recommendation Form

The grant recommendation form is a form that must be completed by an advisor in order to begin the process of grant making. Each recommendation must be for a minimum of £200. Grants may be recommended anonymously.

Grantee

The individual or organisation that receives a grant (see Recipient).

Her Majesty's Revenue and Customs (HMRC)

UK government department responsible for the collection of taxes.

Impact Investing

Investing that aims to achieve social impact in addition to financial return.

In-Kind Contribution

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

Independent Foundation (Private Foundation)

US specific
These private foundations are usually founded by one individual, often by bequest. They are occasionally termed “non-operating” because they do not run their own programs. Sometimes individuals or groups of people, such as family members, form a foundation while the donors are still living. Many large independent foundations 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. Private foundations make grants to other tax-exempt organiSations to carry out their charitable purposes. Private foundations must make charitable expenditures of approximately 5% of the market value of their assets each year. Although exempt from US federal income tax, private foundations must pay a yearly excise tax of 1% or 2% of their net investment income.

Inheritance Tax (IHT)

Tax levied on the estate (property, money and possessions) of someone who has died (See Estate Tax)

Intermediate Sanctions

US specific
Penalty taxes applied to disqualified persons of public charities (see Disqualified Person) that receive an excessive benefit from financial transactions with the charity. An excessive benefit may result from overcompensation for services or from other transactions such as charging excessive rent on property rented to the charity. Unlike private foundations, public charities are not barred from engaging in financial transactions with disqualified persons as long as the transaction is fair to the charity. Penalty taxes also may apply to organisation managers, such as the charity’s board, that knowingly approve an excess benefit transaction.

Internal Revenue Service (IRS)

US specific
The US federal agency with responsibility for regulating both public charities and foundations and their activities.

Intestate

Lacking a will or other valid estate transfer device at the time of death.

Inurement

US specific
To transfer or use a charity’s assets or income for the benefit of a charity’s insiders. Inurement is a specific form of private benefit and is prohibited for all 501(c)(3) organisations.

IRS Form 1023 (see Form 1023)

US specific
Application for Recognition of Exemption under IRC Section 501(c)(3) that organisations must file in order to receive tax-exempt status.

IRS Form 990 (see Form 990)

US specific

IRS Form 990-PF (see Form 990-PF)

US specific

Jeopardy Investment

US specific
An investment that risks the foundation’s ability to carry out its exempt purposes. Although certain types of investments are subject to careful examination, no single type is automatically a jeopardy investment. Generally, a jeopardy investment is found to be made when a private foundation’s managers have failed to exercise ordinary business care and prudence. The result of a jeopardy investment may be penalty taxes imposed upon a private foundation and its managers.

Joint Advisor

The joint advisor is an individual named by the donor to advise concurrently with the donor in advising a DAF. The joint advisor can be named as a successor advisor also.

Legacy

The gift that an individual leaves, both in the details of their will and in the tradition of giving they shared with their descendants. (See Bequest)

Leverage

A method of grantmaking practiced by some foundations. Leverage occurs when a small amount of money is given with the express purpose of attracting funding from other sources or of providing the organisation with the tools it needs to raise other kinds of funds. Sometimes known as the “multiplier effect.”

Liabilities

Claims on assets held, excluding ownership equity. For a charity, payments outstanding for grants authorised and not yet paid or remaining grants to be paid over multiyear periods, are liabilities.

Matching Gifts Program

A grant or contributions program that will match employees’ gifts made to qualifying charities. Specific guidelines are established by each employer.

Matching Grant

A matching grant is a way of leveraging additional funds from other funders. A funder agrees to match an amount the grant seeker is raising from other sources. For example, if a grant is made on a 1:1 match, for every pound raised by the grant seeker, the funder will match that amount, up to a specified amount.

Memorialise

To commemorate; to present a memorial to; to honour the memory of an individual or group by donating resources or establishing a fund that reflects the gifts, values, or concerns of the individual or group.

Multi-Year Grants

A multi-year grant is extremely important to grantees, particularly when they are seeking funding for a project that may be planned over several years, or need funding for general operations. Providing multi-year funding allows grant seekers to focus on the mission of their work rather than seeking funding on an annual basis.

Noncash Contribution

An asset other than cash donated to a tax-exempt organisation, e.g. shares, bonds, property, artwork or illiquid investments.

Nonprofit (a.k.a. Non-profit, Not-for-profit)

A nonprofit is an organisation whose income is not used for the benefit or private gain of persons with an interest in the organisation. Funds received by a nonprofit must be used only in support of its mission and operations. (see Charity)

NTEE

US specific
US National Taxonomy of Exempt Entities, a comprehensive coding scheme developed by the National Center for Charitable Statistics. NTEE establishes a unified national standard for classifying nonprofit activities; it also provides a more concise and consistent hierarchical method to classify and index grants.

Operating Foundation

US specific
Also called private operating foundations, these are classified by the IRS as a private foundation whose primary purpose is to conduct research, social welfare, or other programs determined by its governing body or establishment charter. Operating foundations 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 organisations. To qualify as an operating foundation, specific rules, in addition to the applicable rules for private foundations, must be followed.

Operating Support

A contribution given to cover an organisation’s day-to-day, ongoing expenses, such as salaries, utilities, office supplies, etc.

Payout Requirement

The minimum amount that US private foundations are required to expend for charitable purposes (including grants and, within certain limits, the administrative cost of making grants). In general, a US private foundation must meet or exceed an annual payout requirement of five percent (5%) of the average market value of its total assets. There is no payout requirement in the UK.

Pecuniary Legacy

A gift in a will of a specified amount of money.

Philanthropy

The word is derived from Greek and means “love for mankind.” Modern definitions include the concept of voluntary giving by an individual or group to promote the common good and improve the quality of life.

Planning Grant

If an organisation is planning a major new program, a good deal of time and effort may be needed to figure out how it will operate. A planning grant will enable an organisation to research the needs of the constituency being served, consult with experts in the field or conduct other planning activities. A common planning assignment is to support initial project development work.

Pledge

A written or oral agreement to make future contributions of cash or other assets to another entity. A pledge may be either conditional or unconditional.

Private Foundation

US specific
A 501(c)(3) organisation, further defined in the IRC section 509(a), that does not qualify as a public charity. Generally, a private foundation is a nonprofit organisation established and supported primarily by private funds. Private operating foundations conduct their own programs, expending funds directly for charitable activities. A private non-operating foundation supports charitable activities by making grants to other nonprofit organisations. A donor-advised fund (DAF) can make grants to private operating foundations, but not to private non-operating foundations.

Private Benefit

The transfer or use of a charity’s assets or income, or the conferment of undue advantage, to private persons who are not necessarily charity insiders. Some private benefit is permitted, but it must not be more than incidental to the charitable purpose being served.

Probate

The court proceeding in which the authenticity of a person's will is established, the executor or administrator is appointed, related debts and taxes are paid, heirs are identified, and property is distributed according to the will.

Professional Advisors

Individuals who assist in planning and executing charitable giving through providing information on giving options according to one’s specific financial situation. Types of professional advisors include: attorney, accountant, estate planner, financial planner, stockbroker, insurance broker, planned giving officer, and philanthropy consultant.

Program or Project Support Grant

A project grant is given to a specific, connected set of activities, with a defined beginning and end, explicit objectives and a predetermined cost. When a funder gives a grant for a specific project, it is generally a restricted gift and must be used for that project.

Public Charity

US specific
A nonprofit organisation that is exempt from federal income tax under Section 501(c)(3) of the US 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 organisations 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 organisation that is a public charity (see Supporting Organisation). Charitable organisations that are not public charities are private foundations (see Private Foundation) and are subject to more stringent regulatory and reporting requirements.

Public Foundation

US specific
Public foundations are nonprofit organisations that receive at least one-third of their income from the general public. Public foundations, along with community foundations, are recognised as public charities by the IRS. Although they may provide direct charitable services to the public as other nonprofits do, their primary focus is on grantmaking.

Public Support Test

US specific
There are two public support tests, both of which are designed to ensure that a charitable organisation is responsive to the general public rather than a limited number of persons. One test, sometimes referred to as 509(a)(1) or 170(b)(1)(A)(vi) for the sections of the Internal Revenue Code where it is found, is for charities that mainly rely on gifts, grants, and contributions. To be automatically classed as a public charity under this test, organisations must show that they normally receive at least one-third of their support from the general public (including government agencies and foundations). However, an organisation that fails the automatic test still may qualify as a public charity if its public support equals at least 10 percent of all support and it also has a variety of other characteristics, such as a broad-based board, that make it sufficiently “public.” The second test, sometimes referred to as the section 509(a)(2) test, applies to charities, such as symphony orchestras or theater groups, that get a substantial part of their income from the sale of services that further their mission, such as the sale of tickets to performances. These charities must pass a one-third/one-third test. That is, they must demonstrate that their sales and contributions normally add up to at least one third of their financial support, but their income from investments and unrelated business activities does not exceed one-third of support.

Recipient (Grantee)

The recipient is a nonprofit organisation recommended to receive a grant by a donor from a donor-advised fund (DAF).

Residuary Legacy

A gift in a will of all of the remainder in the estate after all other payments and legacy gifts have been made.

Restricted Funds

Assets or income that are restricted in their use, in the types of organisations that may receive grants from them or in the procedures used to make grants from such funds.

Sustainable Development Goals (SDGs)

UN Sustainable Development Goals that are often used as criteria to screen potential grants or investments.

Security

A general term that refers primarily to stocks and bonds, as compared to other investments such as real estate, limited partnerships and the like. Publicly traded securities can be contributed to a donor-advised fund (DAF).

Seed Money or Start-up Grant

A grant or contribution to help a new nonprofit organisation or a program during its first few years. Such grants are often for more than one year, and frequently decrease in amount each year. For example, a grant might be £25,000 in the first year, £15,000 the second year, and £7,000 the last year. The funder usually assumes that the new organisation will begin to raise other funds to replace the decreasing start-up grant.

Self-Dealing

US specific
A private foundation is generally prohibited from entering into any financial transaction with disqualified persons (see Disqualified Person) that involve (1) sale, exchange, or lease of property; (2) lending of money or other extensions of credit; (3) providing goods, services, or facilities; (4) paying compensation to or reimbursing expenses of a disqualified person; (5) transferring foundation income or assets to, or for the use or benefit of, a disqualified person; and (6) certain agreements to make payments of money or property to government officials. The few exceptions to this rule include paying reasonable compensation to a disqualified person for services that are necessary to fulfilling the foundation’s charitable purposes. Violations will result in an initial penalty tax equal to five percent of the amount involved, payable by the self-dealer.

Successor

The successor is an individual named by the donor who will take on advising duties for a donor-advised fund (DAF) after the primary donor’s death. A successor has no authority over the fund until the donor’s death, at which time the successor takes on all the responsibilities of the donor, including recommending grants and naming advisors and successors. A donor may name more than one successor and can declare that the successors will share responsibility for the fund or that the fund will be split with each successor becoming responsible for a portion.

Supporting Organisation (Supporting Foundation)

US specific
A Supporting Organisation is a charity that is not required to meet the public support test because it supports a public charity. To be a Supporting Organisation, a charity must meet one of three complex legal tests that assure, at a minimum, that the organisation being supported has some influence over the actions of the supporting organisation. Although a Supporting Organisation may be formed to benefit any type of public charity, the use of this form is particularly common in connection with public charities like National Philanthropic Trust. Supporting Organisations are distinguishable from donor-advised funds (DAFs) because they are distinct legal entities. There are three types of supporting organisations defined by their relationship with their supported organisation(s): Type I—operated, supervised, or controlled by a supported organisation (parent-subsidiary relationship); Type II—supervised or controlled in connection with the supporting organisation (brother-sister relationship); and Type III—operated in connection with the supported organisation(s).

Tax-Exempt Organisations

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

Tithing

A practice, rooted in many faiths, of giving 10% of a person's assets back to their place of worship.

Trust

A legal arrangement used to set aside money or property of one person or institution (trustee) for the benefit of one or more persons or organisations (beneficiary).

Trust Deed

UK specific
The governing document for a charitable trust in England and Wales that specifies how the charity is run, including its charitable purposes, what it can do to carry out its purposes, who runs it and other administrative matters. See also articles of association for charitable companies and articles of association for charitable companies.

Trustee

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

Testator

A person making a will.

Umbrella Charity

A charitable organisation that manages donor-advised fund accounts. Charitable sponsors provide services to ensure that potential grant recipients are qualified charitable organisations and administer donor-advised fund accounts to ensure compliance with all regulations. Also called DAF Sponsor.

Unrestricted Funds

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.

Valuation

Valuation is an assessment of the actual value of an item to the person or organisation that possesses it. Value may be determined by any number of methods and may reflect net present value, the future purchasing value, or even a subjective value, such as a qualified appraisal by a qualified appraiser.

Will

A legal document in which a person states various binding intentions about what happens to their property after their death.