If a donor expresses an interest in funding certain types of charities, the grants committee may identify and recommend specific charities to support. The foundation then makes grants to appropriate charitable projects. Designated funds direct money to a particular charity. Such funds are appropriate for small charities that may not be in a position to manage a sizeable endowment, or for donors who have doubts about the continuing vitality of the chosen charity. The donor can prevent the charity from spending the endowment principal, and if the charity should go out of existence, the income can be redirected in accordance with the donor's instructions.
Unrestricted funds allow the foundation to make grants for any community purpose or issue.
Establishing a fund at a community foundation is relatively simple. For income tax purposes, the deduction for donating to a community foundation is the same as for other public charities. Amounts donated in excess of these limits may be carried forward and deducted during the next 5 years. There is no limitation on the amount that may be deducted for estate tax purposes. Unlike a donation to a private foundation, establishing a fund at a community foundation will allow a deduction for the fair market value of the assets.