It’s no secret that 2020 was incredibly challenging. The cumulative impact of COVID-19, high unemployment, social turmoil, wildfires and other natural disasters have dramatically increased need everywhere. In response, funders are giving more. The Chronicle of Philanthropy reported that charitable giving in the first half of 2020 increased by almost 7.5 percent over the first half of 2019. We at Foundation Source surveyed our own private foundation clients and found that almost 42% of respondents had increased the dollar amount of their giving.
Funders are also looking for ways to stretch their philanthropic dollars, and to expedite assistance to people in need. To accomplish both goals, they are increasingly making grants directly to individuals. Although private foundations typically grant to charities and other nonprofit organizations, it’s a little-known fact that they can also give directly to individuals and families in need. Foundations do not need to set up a separate nonprofit to make these grants, and they don’t need to seek prior approval from the IRS. Given these advantages as well as the exigencies of 2020 and 2021, private foundations are increasingly employing these grants to individuals.
Foundation Source recently reviewed the grantmaking activity of its 1,700 private foundation clients and discovered a year-over-year increase of nearly 500% in emergency and hardship grants to individuals. From January-September 2019, Foundation Source clients made 158 of these grants to individuals; during the same span of 2020, they made 945. According to the company, although the volume of grants to individuals is low in comparison to their clients’ total grantmaking (25,083 YTD 2020), the tremendous year-over-year spike in 2020 demonstrates that funders are increasingly leveraging the unique capabilities of their private foundations to meet growing need.
As long as certain procedures are followed, and the foundation’s bylaws permit them, the IRS permits private foundations to make hardship and emergency grants to individuals without seeking prior approval. These grants include:
Emergency Assistance grants provide financial aid for individuals and households that have experienced some kind of life-altering emergency, tragedy or natural disaster that has rendered them unable to meet their basic needs. Recipients do not have to demonstrate financial need.
Hardship Assistance grants are designed to ameliorate the transitory hardship caused by job loss, family illness or other temporary displacement. To be eligible for assistance, applicants must demonstrate financial need.
Medical Emergency/Distress Relief is typically given to those in need due to the physical and mental trauma inflicted by a life-threatening illness. Potentially eligible applicants include persons in need of short-term counseling because of the stress resulting from a medical emergency or extreme illness. Because of the urgency of the situation, as with emergency assistance grants, the applicant is not required to provide the foundation with financial background.
These grants comply with IRS regulations, provided that:
The intended beneficiaries are drawn from a broad charitable class (i.e., one that is sufficiently large or open-ended)The grants are awarded on an objective and nondiscriminatory basisThe foundation with basic record-keeping requirements showing how and why a particular household or individual was selected for assistance.
Jeffrey D. Haskell, J.D., LL.M. is the chief legal officer for Foundation Source. Foundation Source’s Robyn Hullihan, senior philanthropic director, and Peter Handler, philanthropic director, contributed to this article.
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