Archive for January, 2014

A couple of weeks ago, I blogged about the largest charitable gifts made or pledged during 2013.  Topping the list was a pledge made to the Silicon Valley Community Foundation of 18 million shares of Facebook stock by young Mark Zuckerberg and his wife Priscilla Chan.   This pledge was worth just shy of $1 billion and was in addition to a similar pledge they made the year before worth about a half billion dollars.  This topic sparked a discussion with a client of mine who has been involved with some pretty substantial charitable giving of his own over the years including the funding of a couple of family foundations.  His reaction was one of incredulity – “How could he have given that much money to a community foundation?”  To be frank, I had a similar reaction because, as much as I love the concept of community foundations (CF’s), the sheer size of the gift would make me worry whether the foundation has the chops to actually administer it.  It certainly is a whopper particularly when coupled with the prior year pledge.  I am sure that the leaders of the Silicon Valley Community Foundation are very pleased – given any yardstick, their year-to-year growth from contributions/pledges is quite substantial!

However, gifts of this size, particularly when fully funded, will absolutely strain the current resources of any CF and should spark questions – does the CF have the ability to attract and retain top notch personnel to administer the gifts?  Is its board savvy enough to oversee the investment process and manager selection of world class investment advisors?  Is the current technology utilized by the CF to internally account for the assets and the gifts adequate or can it be upgraded quickly?  When an organization like the Silicon Valley Community Foundation effectively doubles in size over a two year period because of such gifts, the answer about long term adaptation is probably positive.  Perhaps more important is where the organization is right now and where it will be in the short term – are its current leaders dynamic enough to guide it through such explosive growth?  Is its current middle management up to the task of implementing adequate systems and controls and managing the required increased staff for day-to-day operations?  Will they be able to make the transition from a substantially smaller operation to a substantially larger one smoothly and seamlessly?  I would assume (and hope) that Zuckerberg asked these questions and more and received satisfactory answers before making his commitment.

So we get back to our current musings – why did Zuckerberg choose an existing CF for his substantial contribution rather than forming his own private foundation (PF)?  Maybe the answer can be found in the Warren Buffett mold.  As is pretty common knowledge, Buffett has pledged to give away 85% of his holdings in Berkshire Hathaway to five foundations, the largest percentage going to the Bill and Melinda Gates Foundation.  In Buffett’s mind, why should you build your own infrastructure when another exists that can do the job perfectly well?  Buffett went the private route; Zuckerberg went the public route.  Conventional wisdom may argue against this choice but, assuming that the goals of the Silicon Valley Community Foundation are aligned with his personal goals, Zuckerberg’s choice may be entirely appropriate.

Bottom line, it’s all about implementation – which vehicle or strategy is going to meet your philanthropic, financial and tax goals most efficiently and effectively – and in many cases, the conventional wisdom may not be right for you.

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We, Americans, have an obsession with lists, ranking everything from the best colleges (US News, among others) to the wealthiest individuals in the U.S. and the world (Forbes) to David Letterman’s daily “top 10” lists.  (I once even saw a ranking of the Top 10 of Letterman’s Top 10 lists!)   Some rankings are obviously helpful, some are meaningless and some are just plain entertaining.   As my favorite comedian Jerry Seinfeld said to the mythical Izzy Mandelbaum about his “World’s Greatest Dad” t-shirt (compared to Morty Seinfeld’s “#1 Dad” shirt):  “Well, I don’t know how official any of these rankings really are.” [i]

T-shirt contests notwithstanding, quantifiable lists do provide hard data that is useful to some and fluff to others.  For example, The Chronicle of Philanthropy recently ran an article about the 15 Biggest Charitable Gifts of 2013.  (15 instead of 10 because of ties – all at the “bottom end” of the contribution range.)  Anyway, I would rate this particular list somewhere between “mildly entertaining” and “somewhat interesting.”  Entertaining because it includes everyone from little pisher Mark Zuckerberg to grouchy old David Koch; interesting for the simple fact that every single gift was in excess of $100 million and the overall total was $3.4 billion.  This is serious money.  True, most of it was in the form of pledges rather than outright gifts but still……


(Click to enlarge)

What I found the most interesting, however, was the Zuckerberg gift, for several reasons:

  1. First, the “little pisher” remark – Zuckerberg and his wife Priscilla Chan were the youngest donors on the list (he is 29; she is 28).  This gift sets a record for the under-30 set.
  2. The Zuckerbergs chose to make their gift to the Silicon Valley Community Foundation, a local community foundation of the type about which I blogged last week.
  3. The planned use of the funds was not made immediately public.  Did they give to the Community Foundation for the foundation to direct the ultimate giving, or did they set up their own charitable fund inside the foundation or some combination thereof?  Time will tell.
  4. Most amazing is that this 2013 gift was not the first large gift Mark and Priscilla have made to this particular foundation. In December 2012 they donated their first tranche of 18 million shares of Facebook (worth around $500 million at that time) and in December 2013 they donated a second tranche of 18 million shares (worth around $992 million).  All of this from Facebook shares (Facebook!).  True confession:  Although I am an active user of the “social media network”, I still haven’t the foggiest idea of what Facebook really is!

Given the size and significance of the gifts, perhaps the Zuckerberg donations will help to put community foundations on the philanthropic map.  As noted last week, community foundations are in many ways philanthropy’s best kept secret.  It will be interesting to see.

A couple of other takeaways from the article:

  • This list was a list of the largest single gifts; it was not a list of the most generous donors. That compilation will be released in February. My guess – lots of overlap.
  • Overall, 2013 was apparently a good year for philanthropy.  Gifts of $1 million or more totaled nearly $9.6 billion in 2013 compared to $6.1 billion in 2012, a huge increase.  But this increase is a bit deceiving.  Despite last year’s economic gains, the wealthiest still did not give quite as much as they did before the recession.  But at least we are moving in the right direction.

[i] “Seinfeld,” Episode 151, March 13, 1997

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A well-kept secret in the philanthropic world is the community foundation.  According to the Foundation Center, community foundations account for only 1% of the total number of foundations in existence in this country, but fully 9% of both the total assets and total giving.  So, what in the world are they?

Basically, a community foundation is a permanent charitable benefit organization supported by local donors and governed by a board of private citizens who purportedly speak for the needs and well-being of the community.  As public charities, these foundations are organized to channel gifts from donors to a variety of charitable organizations in a local community.  Within the framework of the community foundation, individuals, families, businesses and organizations can create permanent charitable funds to help their region meet the needs of changing times.

Take the Long Island Community Foundation (LICF) as an example.  LICF offers four different kinds of funds in which to invest:

  • Unrestricted/Community Response Fund – in a nutshell, the donor is giving money to the LICF to disburse to grantees as it sees fits.
  • Field of Interest Funds – The donor indicates his/her area of concern when establishing the fund, giving LICF the authority to make appropriate grants.  Essentially, they are like the unrestricted fund but with the limited scope determined by the donor.
  • Donor Advised Funds (DAF) ah, yes, one of my favorite types of giving vehicles!  While a DAF in the LICF is technically a legally unrestricted fund (as are all DAF’s) the donor recommends the organizations to receive grants.  Presumably, these grantees will be concentrated in the local Long Island area.
  • Designated Funds – these funds are established by donors to benefit specific nonprofit organizations.  The advantage to using a designated fund rather than making direct gifts to specific charities is long term – if the charity goes out of business or changes it mission, the board of the community foundation can use its variance power to redirect grants to more suitable grantees.

LICF is a division of the New York Community Trust, as is the Westchester Community Foundation.  The NYCT is rated with four stars by Charity Navigator and scores quite well in all of the relevant financial metrics.  (It goes  without saying that the choice of any charity should be done carefully and objectively.  Charity Navigator, The Better Business Bureau, and Guidestar are web-based tools to help with those determinations.)

The other three types of funds make intuitive sense for a community foundation, but why would one choose to set up a DAF at a community foundation as opposed to other options such as commercial or specialized nonprofit providers?  I think it ultimately comes down to two things – the donor’s ultimate objective for the DAF and the ongoing cost to run it.  For the broadest possible reach, one may wish to stick with a commercial provider such as Fidelity or Schwab.  For giving with a decidedly religious bent, the Catholic Communal Fund of the Archdiocese of New York or the Jewish Communal Fund (among others, of course) may make more sense.  For local giving in the region, however, a community foundation sponsored DAF may be just the ticket.

Provider Annual Administrative Fees   (exclusive of investment management fees) Sample Annual Fee on $50,000   average market value
Fidelity Charitable (Commercial) Greater of $100 or .6% on the first $500K $300.00
Schwab Charitable (Commercial) Greater of $100 or .6% on the first $500K $300.00
Catholic Communal Fund of the Archdiocese of New York Inc.   (nonprofit) .75% of total funds computed monthly $375.00
Jewish Communal Fund (nonprofit) Greater of $150 or .75% on the first $5MM $375.00
New York Community Trust (nonprofit) Greater of $100 or .5% of average market value or 2.5% of grants paid $250.00


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