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Archive for September, 2013

Those who follow this blog know that I am a huge fan of the donor advised fund (DAF).  It is an extremely helpful tool for donors at practically any income level to assist with both the timing of donations and the management of charitable funds.  I don’t normally make blanket recommendations, but I think that anyone who invests in a taxable brokerage account and plans to donate more than a nominal amount to charity now or in the future should consider establishing and maintaining a DAF.  It is as basic a tool to the investor/donor as a hammer is to a carpenter.  Here’s why…

First off, the charitable contribution of appreciated long term securities yields an income tax deduction equal to the fair market value of the securities on the date of donation.  The problem is, donating securities directly to charitable organizations, particularly smaller ones like churches and synagogues, is often cumbersome and puts an added burden on to the charity to dispose of the security once received.  A better bet would be to establish a DAF in tandem with your taxable brokerage account and time your contributions to the DAF to maximize your tax advantages.  Commercial vendors such as Schwab and Fidelity make this process very easy – a couple of clicks at the keyboard and your appreciated security is automatically transferred from your taxable brokerage account to your DAF.  The contribution to the DAF qualifies as a charitable gift, and the ultimate distribution to your charity or charities of choice can be made at your leisure.

Think about the advantages – in February, a run-up in the market prompts you or your advisor to contemplate a rebalance of your portfolio.  You normally make your charitable contributions in December. Why not kill two birds with one stone?  You can accomplish some or all of the rebalancing in February by moving a portion of the long-term appreciated securities to your DAF (as opposed to selling them and incurring tax on the gain) and then in December, fund your gifts to your favorite charities using the DAF.   You might argue that this strategy rebalances your account by diminishing it, but you can always replenish the brokerage account with fresh cash – cash that might ultimately have been used to fund your annual charitable contributions.

So here’s the takeaway:

  • Consider establishing a DAF in tandem with your taxable brokerage account (IRA’s and other qualified plans don’t work for this strategy).  Think of it as a permanent charitable/tax planning tool at your disposal at any time.
  • When rebalancing your brokerage account, shift some of the appreciated securities to the DAF.  Doing so provides you with a “1-2 punch” – a current year charitable contribution at fair market value and avoidance of capital gains tax and the new Federal tax on net investment income.  Consider adding new cash to the brokerage account to replace the FMV shifted to the DAF.
  • Do NOT fund the DAF with short term appreciated securities because the contribution will be limited to basis and certainly don’t use depreciated securities!  If it fits with your investment plans, it is better to sell the depreciated securities, realize the loss to reduce your taxable income, and then use the resulting cash proceeds to fund your contribution.

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David Geffen has had a storybook career.  With his wit, energy and drive he has built businesses and amassed enormous wealth while touching us with great entertainment, music and movies.  He started his rise to the top in the mail room. Today at age 70, his net-worth is reported to be over $6 billion. david-geffen

With great wealth comes great responsibility and David recognizes that.  Already, he has contributed hundreds of millions of dollars including $300 million to UCLA Medical School and his donations are just starting.  Arranging to give away huge wealth is not simple or easy especially when the amounts are so large that they can, by themselves, make mammoth changes and provide countless lasting benefits.

Geffen’s views differ from Warren Buffett’s in some respects and agree in others.  He doesn’t believe in making the Giving Pledge; rather expecting to have his actions show what is in his heart.  Like Buffett he wants to give his money away while he is able to see its results.  He does believe in visibility, feeling it will set an example to others or for those he could serve as inspiration for.

It is clear that Geffen is spending a lot of time trying to develop a cohesive plan of how his great wealth will be used and the good it can confer.

David, good luck with your efforts and God bless you!

Some people are fortunate enough to accumulate huge wealth, more so than could ever be expected to be passed on to their future generations.  This wealth, while enviable, carries with it an overbearing responsibility to try to create as much benefit as possible.

This blog (and two previous blogs) that discussed how John D. Rockefeller and Warren Buffett handled – or are trying to handle – charitable giving illustrate the issues.  You don’t have to be as wealthy as them.  The point is that the process should start and the arrangements should be put in place in the event that untimely circumstances thwart the realization of any thoughts, dreams, ideas or manifestation of Thanksgiving.

This blog has been guest written by Edward Mendlowitz, Partner at WS+B and author of his own blog at www.partners-network.com

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Engaged donors are often asked to sit on advisory councils or boards of directors for the charities they support.  Such an appointment or election is considered a great honor but, of course, comes with great responsibility.  It is incumbent on potential board members to understand their roles and responsibilities before accepting such an assignment.

First, make sure you understand if you are being asked to sit on an advisory board, which is more akin to a committee and has no legal standing on its own or if you are being asked to sit on the legal board itself, the overall governing body of the organization.  While advisory board or council membership requires that you participate in a legal, ethical and responsible way, it does not confer on you the same level of responsibility that board membership does.   Today’s discussion focuses on the actual board that runs the organization.

I have found from personal observation and experience that the level of sophistication embodied in not-for-profit boards ranges from professional and seasoned to shockingly unsophisticated and naïve.  In some cases, board members come in with all their personal and professional qualifications at the fore to help advance the cause of the organization, coupled with a willingness to learn that which they do not know.  In other cases, these otherwise intelligent, rational, successful and well-meaning individuals check their brains at the door and let their emotions run amok.  (Ancillary example:  United States Congress, www.house.gov).  Unfortunately, presidents and executive directors have to work with both types of individuals and, if they are successful, will develop the latter into the former.  Actually, they had better; the board serves a vital and legal role in guiding and overseeing the organization it serves and ignorant or incompetent board members will weigh it down.  It is, by no means, an overstatement to say that the board can truly make or break the organization.

Let’s get down and dirty and crass – some boards are what we call “money” boards – the only way one gets appointed to such a board is by being a significant and consistent donor to the cause, on the theory that such donor will be able to attract other such donors.  To varying degrees, many large, national, wealthy, entrenched charities fall into this category.  Other boards are what we call “working” boards – members are appointed based on the expectation that their skills and talents will be put directly to work serving the organization.  Dollars may be secondary on such boards, but the expectation of financial contribution is and should always be there.  Even if you support its cause wholeheartedly, if you are asked to serve on an organization’s board, it is imperative that you determine which type of board it has so that you can be reasonably sure that your experience as a board member will be a positive one.  Diff’rent strokes for diff’rent folks – some people want to roll up their sleeves and get their hands dirty with the work while others prefer to don their finest attire and attend gala fundraisers – only you know for sure which camp you fall into.

Generally speaking, most boards fall somewhere in the middle but, in any event, ALL boards have legal and fiduciary responsibilities for the organizations they serve and such responsibility flows directly downhill to each and every board member.   (Hint: does the organization that is asking you to serve as a board member have a reasonable level of directors and officers liability insurance (“D&O”)?  It should, and you should also consider augmenting such insurance with personal coverage as well.   See the recent WS+B blog post “Not-for-Profit Board Member Liability.”)

BoardSource, a not-for-profit organization itself, works with nonprofit boards providing training and publications to enhance the effectiveness of the boards and the organizations they serve.  They published a terrific little book written by Richard T. Ingram entitled Ten Basic Responsibilities of Nonprofit Boards.  It is a great starting point for individuals considering board service and for boards providing training for their members or reassessing their own approach to their responsibilities.  It is not just about giving money or attending meetings.  Woody Allen once said that “80% of success is showing up;” while that may be the case, the remaining 20% is far more important.  According to Ingram, the ten basic responsibilities of nonprofit boards encompass best practices and constitute a rudimentary job description.  If you are or will be a board member, learn these basic rules, take them seriously and live them.  You will be acting in the most responsible manner possible:

  1. Determine mission and purpose
  2. Select the chief executive
  3. Support and evaluate the chief executive
  4. Ensure effective planning
  5. Monitor and strengthen programs and services
  6. Ensure adequate financial resources
  7. Protect assets and provide financial oversight
  8. Build a competent board
  9. Ensure legal and ethical integrity
  10. Enhance the organization’s public standing

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