1. Starting A Foundation: Guidance for Advisors Hilary Pearson President & CEO Philanthropic Foundations Canada October 2008

2. 2 Outline of Presentation Overview – The Canadian foundation sector Starting A Foundation – Why Give? – Giving Options – Key Questions – Advice for Advisors

3. 3 Overview: The Foundation Sector in Canada Over 9,000 registered grant making Canadian foundations (all types)* – Of these, half are family foundations – Others include community, institutional, corporate and special purpose foundations Assets of private foundations total about $15 billion (another $14 billion for public foundations) – Few have assets of more than $50 million – Majority of family foundations have assets under $10 million – From 2006-2008, the number of private foundations increased by 7% Source: Imagine Canada Note: The total number of CRA registered public and private foundations is over 9,300.

4. 4 Types of Foundations Public foundations (about 4,800) – Community foundations (150 + across Canada) – Institutional foundations (hospitals, universities etc.) – Donor-advised foundations Private foundations (about 4,500) – Mostly family – Some independent (not controlled by families) Key difference between public and private foundations: – Control by individual or family at time of registration (Board membership)

5. 5 Family Foundation Profile Family foundations are diverse – Most are over $1 million but under $10 million in endowment – Typically run by family board – Governed by federal regulations Must give to registered charities (not individuals) 3.5% minimum annual distribution Annual report tto Canada Revenue Agency – No restrictions on investment strategies other than No control of a business Excess business holdings rules

6. 6 Looking Ahead Baby boomers keenly interested in philanthropy Steady increase in foundation creation – Family foundations in U.S. grew by 22% from 2001 to 2005 – Fastest growing type of giving New tax incentives in Canada since 2007 are fostering private foundation growth – Just beginning to see impact of elimination of capital gains tax on gifts of public securities

7. 7 Trends in Giving New options for structured giving are multiplying … – Growth in family foundations – Growth in donor-advised funds Within community foundations Through financial institutions Stand-alone donor-advised funds … Increasing the need for donor education – Need for standards – “how-tos” and best practices – Advice from consultants and financial planners.

8. 8 Starting A Foundation Why Give? Long-term giving: a more structured giving, typically a fund, endowed or periodic Long-term giving is an opportunity: to give back to community for personal engagement to involve the family to create a legacy to make a unique contribution

9. 9 Starting A Foundation Giving Options  Setting up a Fund at a public foundation  local community foundation  public foundation focused in particular areas, eg. Tides Canada  public foundation offered by financial institution or wealth manager, eg. TD Private Giving  institutional foundation, eg. Sick Kids in Toronto  Starting a private foundation To make grants that reflect your interests To manage your assets directly To set-up a board of family or other close advisors

10. 10 Starting A Foundation Key Questions for Donors How much capital do you need? No minimum requirement Rule of thumb: $1 Million or more in initial capital Depends on operating budget What are typical start-up costs? Legal and accounting expertise to incorporate, register and organize Office and supply costs Web site development Staff salaries

11. 11 Starting A Foundation Key Questions for Donors How much time do you want to spend on the foundation? Typical functions: governance, investment management, grant application review, site visits, grant administration, evaluation, reporting What are typical administration costs? No widely accepted benchmark Can range from.75% to 1.5% of endowed assets (not including investment fees) Depends largely on staffing levels

12. 12 Starting A Foundation Key Questions for Donors How do you set up a board? No legal parameters other than minimum of 3 if incorporated In practice, ranges from 0% to 100% family members Others include advisors, outside experts What about family involvement? A personal choice Considerations: family size, sibling relationships, role of in-laws and succession planning

13. 13 Starting A Foundation Key Questions for Donors What do you need to do to create the charity? Choose a legal structure: non-profit corporation or trust Register with appropriate federal or provincial authorities Register as a charity with Canada Revenue Agency The charitable registration step can take 3 to 9 months

14. 14 Starting A Foundation Key Questions for Donors What are the tax benefits? Same as if donation is made to a public charity or foundation. Federal and provincial tax credits Applied to any donation of cash or publicly-traded securities Securities have additional benefit of being free of capital gains tax if donated to any charity

15. 15 Starting A Foundation Advice for Advisors Know the donor’s wishes – Level of engagement? Family role? Familiarize yourself with the mission/goals of the foundation – Proactive or reactive? Broad or deep? Innovation or implementation? Understand the strategy – Perpetuity or spend-down – Risk appetite – Succession Who is the client? – Donor? Family? Board? What are the investment preferences and parameters? – Long term versus near term maximization? – Is socially responsible investing important?

16. 16 Conclusion The field is developing quickly in Canada – New sources of information being released, although few comprehensive guides – PFC web site has collected many stories and examples of practice. – PFC newsletter provides monthly review of new ideas and practices in philanthropy. – PFC has developed and published a guide to Starting a Foundation

17. 17 Resources Starting A Foundation 2 nd edition, Philanthropic Foundations Canada, 2008, www.pfc.ca www.pfc.ca Registering a charity for Income tax purposes (T4063) and Application to register a Charity under the Income Tax Act (T2050), Canada Revenue Agency www.cra-arc.gc.ca/charitieswww.cra-arc.gc.ca/charities Foundation Management in Canada: an Introduction for Trustees, 3rd edition, HSBC Asset Management, 2002 Establishing a Private Foundation, Imagine Canada, 2002, www.imaginecanada.ca