Frequently Asked Questions

1. What is the Montana Community Foundation?

2. What is an endowment?

3. What is the minimum balance to begin an endowment fund?

4. How will our endowment be managed?

5. How is the Montana Community Foundation compensated for its services?

6. How are distributions made?

7. When are distributions made?

8. How does a planned gift work?

9. How do we know how our endowment is performing?

10. Are your endowments “qualified” so we can use the Montana Charitable Giving Tax Credit?

11. Who owns the endowment?

12. What other services can we expect from you?

1. What is the Montana Community Foundation?

The Montana Community Foundation is a public charity recognized by the Internal Revenue Service under Section 501(c)(3).  We began in 1988 with a gift of $16,000.  Soon after that we merged with the
Community Development Corporation (CDC) in Billings, which after three years of operations, decided to expand its work state-wide. We now manage over $60 million in assets that benefit a wide variety of non-profits and scholarship programs throughout Montana.  We currently manage over 500 funds.  Of these, nearly half are for non-profit organizations.  Most of the rest are donor advised, donor designated, or scholarship funds.  Establishing an endowment with us is easy.  It requires executing a Gift Agreement, which we provide, and making the initial contribution.
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2. What is an endowment?

Montana law defines an endowment (MCA 15-30-165(2)) as “a permanent, irrevocable fund that is held by a Montana incorporated or established organization that:
(i) is a tax-exempt organization under 26 U.S.C. 501(c)(3); or
(ii) is a bank or trust company, as defined in Title 32, chapter 1, part 1, that is holding the fund on behalf of a tax-exempt organization.  Most simply, an endowment is a fund whose contributions are not expendable; only the earnings on those contributions are available to support tax exempt organizations or charitable purposes.
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3. What is the minimum balance to begin an endowment fund?

Donor advised and donor designated funds require a minimum of $25,000 to open.   Scholarship and agency funds require a minimum of $100,000 to open.  (Once the endowment is open, gifts of any size are accepted.  Planned gifts must be a minimum of $5,000.)  Depending on the scope of work desired by the donor, higher or lowers minimums may apply.
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4. How will our endowment be managed?

The endowments are actively managed in compliance with our investment policy, which reflects compliance with Montana law, our view of the financial market place, and our responsibility to protect and grow principal and to provide for annual distributions.  In the simplest terms, our investment goals are:

• Inflation plus 5.5%
• Exceed the policy index on a risk adjusted basis
• Perform well against our peer group

The balance of all endowment funds are invested in a pool, which is now of sufficient size that it can be managed actively.  By that we mean the investment pool is managed by institutional funds managers selected by the Foundation in a competitive proposal process.  They work only with clients that have substantial financial assets, usually a minimum $5 million, to invest.  They manage funds for many nonprofits, pension funds, and government entities.  Our oversight of managers is rigorous.  We employ the services of an independent third-party consultant that has access to daily information about these firms regarding such matters as changes in investments, investment strategies, and management; we also conduct a detailed quarterly analysis of performance of each manager against our benchmarks and against our peers.  We know how much of their performance is attributable to market conditions and how much is the wisdom of the manager.  We know return versus risk of each manager compared to their benchmark index.  We know about the quality of their investments and how they perform in good and bad markets (capture ratio).  With this information, we monitor performance against the requirements and goals of our investment policy.  When managers do not comply with our policy, our relationship is terminated and new managers are hired.

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5. How is the Montana Community Foundation compensated for its services?

The Montana Community Foundation pays fees for professional investment management and portfolio oversight.   We also charge a fee for the services we provide.  The combined fees are charged to the endowment funds each month as a percentage of the average daily monthly balance.  Fees vary from 1% to 2.5% according to the fund type, size of the endowment, and services provided.  Please ask us for a current fee schedule. 
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6. How are distributions made?

Distributions are calculated as a percentage of the fund’s balance.  Currently, our policy to distribute 5.5% of the fund’s average daily balance over the prior ten quarters as calculated each December 31.  From that number, we subtract fees.  For most funds the net distribution is 4%.

Using a percentage of the fund’s balance results in the distribution of appreciated value as needed.  If investment earnings overall are less than 5.5% we use appreciated value as part of your distribution.  If overall earnings are more than 5.5% the value of your fund increases, resulting in larger distributions (5.5% of a larger number) and an increase in appreciated value which is available for future distribution, if necessary.

You can reinvest earnings until your fund’s balance reaches $100,000.  At that time we will require that you begin to make distributions.
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7. When are distributions made?

Distributions to nonprofit organizations are made once a year in February. Distributions from donor advised and scholarship funds can be requested throughout the year
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8. How does a planned gift work?

We pride ourselves on our planned giving services, but we are not attorneys or accountants.  The Montana Community Foundation was one of the key players in the passage of the Montana Tax Credit for Planned Gifts and we continue to actively encourage and defend public policies that reward donors for investing in Montana’s future.  We can discuss all nine planned gifts allowed under Montana law and point out benefits and deficiencies in each based on the donor’s financial goals and charitable intentions.  Since the passage of the Montana Tax Credit, planned giving has become very popular.  We find that over 90% of planned gifts are made in the form of charitable or deferred gift annuities.  These are very easy to establish and can be handled completely by the Foundation.  Other forms of planned giving should be done in consultation with legal and/or financial professionals.

Our consulting services are free.  If a donor makes a charitable gift annuity donation, we charge a modest set-up fee that covers the cost of preparing the contracts and working with the donor to determine the best fit between the donation and other financial goals.  During the life of the gift annuity we charge a fee equal to that charged to our agency funds to cover the cost of investment, tax reporting, and making annuity payments.  These fees are taken from the account; there is no liability to the donor.  At maturity, the remaining value of the planned gift is paid to the beneficiary’s endowment.

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9. How do we know how our endowment is performing?

We send semi-annual financial statements to fund representatives as of December 31 and June 30.  The December statement is accompanied by a distribution check if you are a non-profit organization or unless you are reinvesting.  Annually, in the second half of February we send an investment summary that shows how your endowment’s performance compares to the policy index.
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10. Are your endowments “qualified” so we can use the Montana Charitable Tax Credit?

Yes.  We qualify under Montana law (MCA 15-30-165 (2)(a)) and as well meet the qualifications of the Montana State Auditor’s office accept charitable gift annuities.  (MCA 33-20-701).
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11. Who owns the endowment?

The funds managed for all beneficiaries of the Montana Community Foundation (except those held as trusts) are assets of the Montana Community Foundation.  The contract signed by the donor and the Montana Community Foundation when the endowment is created stipulates that the earnings must be paid to the beneficiaries specified by the donor.   
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12. What other services can we expect from you?

A donor creating an endowment at the Montana Community Foundation can expect us to carry out their charitable wishes in perpetuity.  The Gift Agreement establishing the endowment clearly states the purpose of the fund.  But, beyond that, we try to learn as much as possible about the donor’s charitable goals, motivations for creating the endowment, favorite organizations or types of services.  This information is recorded in our permanent records, so that we can be sure of honoring the donor’s wishes long after s/he may be around to execute them in the event of changing circumstances. 

We process all requests for distributions in accordance with the donors’ instructions.  In some cases, we solicit proposals for the donors’ consideration and make awards on their behalf.  We have permanent records of distributions made.

We maintain the anonymity of donors if they wish. 

Nonprofit organizations can expect us to acknowledge third-party donations, notify the organizations of the gifts, and maintain permanent records of contributions. 

We look forward to assisting board members and staff of nonprofit organizations in accepting planned gifts.

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