Variance Power

When someone establishes a fund at Madison Community Foundation, they’re doing more than making a gift. They’re putting their trust in our organization to carry out their wishes – not just today, but for years or even generations to come.

Variance power, which is a unique feature of a community foundation, is one of the tools we can use to do that, even as the community and the nonprofits that serve it change. Every fund we steward reflects the values, priorities and charitable goals of the person or organization that created it. Our responsibility is to understand that intent, preserve it and make sure it continues to have the greatest possible impact over time.

That’s one of the things that sets a community foundation apart.

Keeping Your Charitable Vision Alive

Funds at MCF are governed by a fund agreement between the donor and the foundation. That agreement outlines the purpose of the fund and how grants will be made. For some funds, that means supporting a specific nonprofit organization. Others focus on a particular cause, such as the environment or the arts. Donor advised funds allow individuals and families to recommend grants to the charitable organizations they care about most.

No matter the type of fund, our role is the same: to steward it in a way that reflects the donor’s original charitable intent.

But communities change. Organizations merge. Programs evolve. Occasionally, a nonprofit closes its doors altogether. That’s where the unique strengths of a community foundation come into play.

Honoring Donor Intent Through Variance Power

Community foundations have what’s known as variance power, a legal authority that allows our Board of Governors to modify a fund’s restrictions if the original purpose becomes impossible to fulfill or no longer serves the community’s charitable needs. The term may sound technical, but the purpose is remarkably simple: to protect donor intent.

Variance power does not mean that MCF can simply disregard a fund agreement. In fact, it’s just the opposite. It gives us the ability to continue carrying out those wishes when circumstances change.

One Question to Guide the Conversation

Whenever our Board considers using variance power, the discussion begins with one question: What was the donor hoping to accomplish? The answer  guides every decision.

The most common situation in which we might need to use variance power is when a nonprofit organization goes out of existence. Sometimes the organization is acquired or merged with another nonprofit and its programs are carried on by the surviving entity. In that case the decision may be straightforward: Redirecting the endowment fund to the successor nonprofit makes sense. Our fund agreements also give the liquidating entity the ability to give advice on which nonprofit should receive the fund’s future distributions, although the final decision always rests with the MCF Board.

A Real-World Example

One of the best examples of MCF using its variance power to continue to serve donor intent came when Madison Repertory Theatre closed its doors. MCF held two significant endowment funds created through the Great Performance campaign to support the Rep’s work. When the organization dissolved, there was no successor nonprofit to receive the annual distributions.

Rather than simply redirecting the funds to another organization, MCF’s Board looked carefully at the intent behind the gifts. Donors had supported the Rep because they believed in bringing professional theater performances to our community. To honor that intent, the Board exercised its variance power to establish the Great Performance Fund for Theater, a field of interest fund that continues to support professional theater productions at Overture Center. Today, the fund distributes approximately $125,000 each year to local theater organizations, ensuring those original charitable goals continue to benefit the community.

Stewardship That Lasts

This long-term stewardship is one of the defining characteristics of a community foundation. Commercial donor-advised fund providers can offer investment and grantmaking platforms, but they lack the local knowledge, community leadership and dedication to ensuring charitable funds continue serving the purposes donors intended – even decades into the future.

A Promise to Future Generations

Most funds will never require variance power. The organizations they support will continue their work for decades, and distributions will follow the original fund agreement exactly as intended. But when change does happen, donors can have confidence knowing their charitable legacy won’t simply come to an end. Instead, Madison Community Foundation has both the responsibility and the ability to ensure their generosity continues making the kind of difference they envisioned.