Setting Up a Fund to Help People Meet the Costs of Fighting a Disease

Summary:

Gifts to individuals generate no tax deduction. There are other complications. Working with a community foundation can help.

Answer:

Mary Ellen Smith wrote to NONPROFIT on January 15, 1999 on the
subject "want to start cancer help nonprofit":

Please can someone help me. I am wanting to start a non profit
organization, in memory of my sister, to help cancer patients with
travel funds and hotel blls while going far from home to
seek treatment.

I am an intelligent person, and not afraid of research and hard work, but I just need some kind of jumping off point. I want to keep this simple(as much as possible) and free from the bureaucracy that we ran up against while she was working so hard to fight her cancer. Any help would be appreciated.

Putnam Barber sent this reply:
The first problem you will need to work through is that gifts to
individuals are generally not tax-deductible. In particular, it is
not possible to pass funds through a 501(c)(3) organization which
are designated for a specific person and take a legal tax deduction
on the amount. (This issue comes up when families want to support
the missionary activities of their relatives or to help with college
costs. Such gifts may not be taxable for the recipient, but they
generate no deduction for the donor.)

Obviously, there are foundations that make grants to individuals
(think of Fulbright Fellowships and McArthur Grants!), and many
501(c)(3)s give scholarships, stipends, and other charitable support
to people. There are just some extra hoops that must be navigated.
A subject you will have to research.

The second issue is that there are inescapable overhead costs in
running a foundation. Unless you know for sure and certain that you
are going to have a substantial fund right from the start, you
almost certainly want to find a fiscal sponsor who can provide you
with some administrative and support services as part of the
operations of a larger organization. Otherwise you will eat up all
the funds you have in administrative (and fund raising?) costs.
Very discouraging for you. Very unwelcome for donors.

You may also want to consider designing your program to be under
such an umbrella indefinitely. If you can find a community
foundation or some other group with a commitment to such causes, you
should talk with them about setting up an advised fund. You and
your sponsoring organization work out an agreement on how the
recipients will be chosen (that's what the 'advised' means) --
presumably by a volunteer committee following a procedure that has
been carefully checked for legality and fairness. The foundation
holds and distributes the money, taking a small percentage fee for
management services. You concentrate on raising additional funds,
advocating for the cause, and other activities which directly
benefit the community.

There is a good deal of discussion at a slightly more general level
in the Nonprofit FAQ at http://www.nonprofits.org/ Look in the
keyword table for "Start Up". A little more about fiscal
sponsorship, and other pointers to good advice, is in the item
"Where to Start."

Theophilus Sai wrote to the NONPROFIT discussion group (see http://www.rain.org/mailman/listinfo/nonprofit) on July 22,2005, to ask:
I need some guidance. A group of alumni from my high school contributed money to help one of the alumni while he was seriously ill. He ended up dying before the money could be used for his care. The group now wants to create a common fund in their late friend's name with the money. They plan to regularly contribute to this fund which will be used to help other alumni or their families in the future in case of illness or accidents.

What will the best approach be? I don't think they want to start a nonprofit organization but if that is a plausible option, they are open to it. Is there a way of just having an account to which any member can contribute (there is no formal alumni organization)? Will contributions be tax-deductible?

Michael L. Wyland, of Sumption & Wyland in Sioux Falls, SD (see http://www.sumptionandwyland.com) replied:
One option is to set up a fund with your local community foundation. They
can advise you on structure, handle the gift acceptance/administration
issues and investment decisions, and provide the tax-deductible status that
will encourage more (especially large) donors to give.

The "common fund group" will still need to organize, meet on a periodic
basis to set policy for the fund, evaluate support requests and determine
recipients, and review the community foundation's work.

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Posted 1/16/99; 7/24/05 -- PB