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Posts Tagged ‘accountant’

This week’s guest blogger is Al LaRosa, CPA, a trust and estate specialist in the New York Office of WithumSmith+Brown.

A common and effective technique for transferring wealth to the younger generation is the use of Family Limited Partnerships (“FLP”) or Limited Liability Companies (“LLC”). These entities are a great way to consolidate and manage family assets. They provide for a more orderly transition and, as an added benefit, enable the grantor to benefit from valuation discounts when determining the fair market value of the assets being transferred for estate and gift tax purposes.  As you can imagine, discounting taxable value is not something the IRS is particularly keen on and has resulted in litigation over the years as well as legislative and administrative proposals to limit or eliminate it.  Valuation discounts are threatened again (read on….) so, now may be the time to consider using this technique if it makes sense for your overall estate plan.Alfred LaRosa

How it Works: When assets are transferred, the taxable value is the “fair market value,” a somewhat nebulous amount defined by law as the price at which the property would change hands between a willing buyer and willing seller, neither being under any compulsion to buy or to sell and both reasonably knowledgeable of the facts.  Sometimes, that value is obvious – if you give away marketable securities with no strings attached, the gift tax value would be the exchange value of the securities on the date of transfer.  Other times, like with FLPs and LLCs, the valuation is a bit murky.  A whole industry exists to determine, as objectively as possible (without an actual sale), what that value is.  There is, let’s say, some wiggle room.

Ownership of an interest in an entity such as an LLC or a FLP that holds assets will generally result in a lower valuation for transfer tax purposes than the outright ownership of those same assets outside the entity.  Lower valuations result because minority interest and lack of marketability discounts are allowed when valuing these transfers.  Here’s the wiggle room – if you give an interest in a properly structured LLC or FLP to your child, you will continue to control the entity and s/he will be along for the ride.  If s/he can’t control the internal investments or sell the LLC or FLP units, are they really worth as much?  And how much will this save the family?

Turns out, it can be plenty.  For example, an effective valuation discount of 35% would allow a senior family member to transfer a 30% interest in a $25,000,000 controlled entity to younger family members at a reduced gift tax value of $4,875,000, rather than $7,500,000.  If available, the value of the transfer will be sheltered from any gift or estate taxes to the extent of the taxpayer’s remaining lifetime gift/estate tax exemption.

As noted, there have been numerous proposals and continued discussions to eliminate or reduce the benefits associated with valuation discounts for FLPs and LLCs.  Recently, these talks have become quite concerning.  At a recent American Bar Association’s Tax Section meeting, Cathy Hughes, from the Department of Treasury’s Office of Tax Policy, hinted that proposed regulations might be released real soon (possibly in September 2015) that would limit the availability of valuation discounts for FLPs, LLCs and other family entities.

Given the increased likelihood that the window of opportunity to utilize valuation discounts may be coming to a close, it may be prudent for those individuals who intend on utilizing valuation discounts to transfer assets take action now (prior to the release of any future regulation that restricts their benefits).

Remember, obtaining a professional valuation appraisal is critical to substantiate these discounts that are being used to adjust the value of the transfers.

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So far, this blogger has covered a variety of “level 101” charitable tools & techniques.  Today, we begin to take it up a notch to the “201” level – though, we’re not quite graduate students, we are upperclassmen, at least as far as split interest trusts go!  This week we will discuss a key limitation of the charitable remainder trust (CRT)

First, a quick review:  You want to give a sizeable donation to your favorite charity but, truth be told, you do not feel comfortable parting with the assets today because you need the income for living expenses.  In the right interest rate environment, the CRT can be a perfect tool.  The CRT is a tax exempt trust in which the donor or other noncharitable beneficiary retains the income interest from the trust for a period of years or for the life or lives of one or more individuals.  The donor transfers cash or other property into the trust and in return, receives periodic payments over the term of the trust.  For income tax purposes, in the first year, the donor can deduct the actuarial present value of the remainder interest as a current charitable contribution.   Upon termination, any assets remaining in the trust pass to one or more charities.   Its best use is for a donor who wants to make a large charitable gift but hold onto that annual income; it can also be used to monetize and diversify an asset or asset pool at little or no tax cost to the donor.

Generally speaking, however, it does not make sense to fund a CRT in a low interest rate environment.  Because there are a number of fences built around CRT’s designed to ensure that they do what they are supposed to do – get money to charity in a tax-efficient (but not too efficient) manner,  a transfer made to a CRT in a low rate environment may not even work!  Here’s why:

By law, the annual payout percentage from a CRT cannot be less than 5% nor greater than 50% of its  market value[1].  In addition, based on the published §7520 interest rate[2] in effect at the time of the transfer, the projected charitable remainder interest going to charity must equal or exceed 10% of the initial fair value of the trust.  In completely plain English, this means that you can’t use a CRT to avoid tax completely nor can you use it to cut out the charity completely.  Combining the two limitations means that the lower the published government rate, the more difficult it will be to meet the 10% rule.[3]  In addition, there is yet another stress test to be met – there has to be a less than 5% probability that the assets will run out before the trust terminates, either at term or at the death of the grantor(s).  Again, the lower that published government rate, the harder it is to meet this requirement; the only way around this is to let the grantor(s) season a bit (i.e. get older) before funding the trust or reduce the term over which the annuity will be paid.  The result?  All math, all painful, all the time.

Let’s compare a charitable remainder annuity trust (CRAT) set up in today’s low rate environment versus the higher rate environment of, say, 2008.  Except for the actual published government rates, we will hold all other assumptions between the two years equal.

Our hypothetical grantors are both 65 years old and wish to monetize their $1,000,000 portfolio using a CRAT, with the remainder interest earmarked for their favorite charity.  Per the trust agreement, they will take back the minimum allowable annual payout of 5% of the initial fair market value of the trust, or $50,000[4].  They structure the trust to run until the death of the second grantor.  The results are summarized in the following table:

Capture1

(Click to enlarge)

As you can see, from an income tax perspective, the CRAT is far less attractive today as the calculated charitable contribution is worth only 64% of what it would have been in the interest rate environment of 2008.  Of equal or even greater concern is the fact that contribution itself may be disallowed for tax purposes because there is a more than 5% chance that the trust will run out of money before its time.  Clearly this is a bad deal in today’s low interest rate environment.

As a planning tool the CRT may be on hiatus (or at least in hiding) for a bit because of today’s low interest rate environment, but, as we all know and expect, what is low now will eventually rise.  When that happens, all hail the triumphant return of the CRT!

[1] In the case of a charitable remainder annuity trust (CRAT), this would be the initial fair market value; in the case of a charitable remainder unitrust (CRUT) it would be the fair market value on the annual revaluation date for the trust.

[2] Let’s call it the “published government rate.”

[3] The §7520 rate for February 2015 is 2.0%.  When funding a CRAT, you are permitted to use the best (highest) rate in effect during the current month or the immediately preceding two months.  In our example, the January 2015 §7520 rate (2.2%) is best.

[4] Because this is an annuity trust rather than a unitrust, the annual payment is set in stone and does not change over time.

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I love this time of year. The final tax silly season is over, Thanksgiving (greatest holiday EVER!) is in a couple of weeks, the weather is generally…volatile….Christmas decorations are appearing, and for those who partake, football season is in full swing – it’s just perfect! But amidst all the turkey-stuffing and stocking-stuffers I want to remind you to not forget about the most fun and profitable activity of all – year-end tax planning!

So, ok, a call to your CPA and crunching a few numbers may not rank up there with holiday cards and eggnog, but it can make a big difference to your tax bill in any given year. Think of it as a holiday bonus to yourself.

And, in fact, it is not all that difficult. Tax planning is not rocket science. (The first time I ever uttered those words was about 20 years ago at a seminar I was conducting for employees of a defense contractor on Long Island. As the words came out of my mouth I realized that pretty much everyone in the room was, indeed, a rocket scientist!) Anyway, tax planning essentially involves reducing, eliminating, or deferring tax or taxable income. That’s it. All the rest is commentary. Go and learn.

So in the spirit of pumpkin pie and cranberries, here are a few items to consider at this time of year with your CPA and investment advisor:

  • Prepare a baseline projection of your 2014 and 2015 tax liabilities. This projection will enable you to test the effectiveness of various tax planning strategies. It is impossible to plan on the back of an envelope.
  • Determine if you have the ability to defer or accelerate ordinary income from one year to the next. Examples: bonuses, client fees, IRA/Keogh distributions. Test and evaluate the impact.
  • Review your portfolio and prune for tax purposes. Try to match capital gains and losses to lower the tax bite as much as you can. Remember, however, that investment considerations ALWAYS trump tax considerations, so do this carefully involving your advisors in the decision.
  • Manage your deductions. Keep in mind that, except for charitable contributions, prepayment of most expenses has significant implications for the alternative minimum tax (AMT). Most commonly deferred or accelerated deductions include:
    • Charitable contributions
    • State and local income taxes
    • Real property taxes
    • Some interest expense
    • Miscellaneous itemized deductions
  • Make sure that you have funded all retirement plans and IRA’s to which you are entitled.
  • Fund the educational savings plan of your choice for yourself and/or your beneficiary. These “529 plans” enable you to accumulate savings free of federal income tax if the eventual proceeds are used to pay for qualified post-secondary education expenses. Compare the plans at http://www.savingforcollege.com/.
  • Review your family’s gifting program. Up to $14,000 in gift-tax-free, present value gifts ($28,000 if married and gift splitting) can be made to as many donees as you would like. (Note: lots of kids and grandkids = lots of annual exclusion gifts). A special opportunity exists to accelerate up to five years’ worth of annual exclusions for a beneficiary by front-end loading a 529 plan. So, grandparents (hint, hint) under the right circumstances you can invest up to $140,000 in a 529 plan for your darling grandbaby free of any gift tax. This is a huge planning opportunity that your kids will thank you for. (Remind them to pay it forward when they get to be grandparents themselves!)
  • Finally, my favorite (and, frankly, the whole point of this blog) – CHARITABLE GIVING! In the past we have discussed a number of serious planning opportunities that can take you from casual donor to serious philanthropist and if you have been in planning mode over the past year, now may be the time to pull the trigger on some or all of these plans. However, if you have not been involved in any serious philanthropic/income/transfer tax planning over the past year, then I don’t recommend stepping on the gas just yet. Consider, instead, funding your current charitable commitments as simply as possible and get the planning going for next year.

Here is a short, simple “to-do” list for your 2014 yearend charitable giving:

  • Cash gifts are the simplest and can be accomplished by check or credit card, as long as you make them by year end. Be sure to get a receipt from the charity for any gifts of $250 or more. Cancelled checks are insufficient proof in the case of an IRS audit.
  • Contribution of appreciated long term securities to charity is only marginally more complicated than cash, but generally vastly superior for tax purposes. The built-in capital gain is never taxed to you and your deduction is the fair market value of the security.
  • The flip side is using depreciated securities for charity – don’t do it! Instead, sell the securities, recognize the loss, and contribute the cash to charity.
  • There are several limitations to charitable deductions based on income. The basic overall limitation is 50% of adjusted gross income (AGI). If you exceed the limitation(s), you get a five year carryover of the excess. There are a number of caveats to this and I urge you to talk to your CPA first if you are that seriously philanthropic.
  • Donor advised funds (DAF) are a godsend at this time of year. Let’s say for tax purposes you want to generate a $100,000 charitable contribution. You are obviously generous, but you do not yet know which charities you want to benefit. Setting up a DAF gives you the ability to fund the account and claim the deduction in the current year and distribute the gifts to the ultimate charities in future years. I love these funds; see these prior posts for more details:
  • Finally, here’s a fun family outing – clean out your closets and visit a local thrift store sponsored by a 501(c)(3) charity with your “still-in-good-shape-but-not-quite-your-style-anymore” clothing, furniture, and household appliances. The fair market value of these items (generally the thrift store price they will be sold for) is deductible. If any single item or group of similar items is valued at $500 or more, additional disclosures will be required on your tax return. And if the claimed value is $5,000 or more, a qualified appraisal will be required to substantiate the deduction. Your deduction will most likely pass muster at audit time if you are reasonable, maintain impeccable records, and adequately disclose the required information.

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Engaging in estate planning can be troublesome. It forces you to face your mortality. Those who are superstitious ascribe all kinds of evil consequences to the contemplation of death while the rest of us are just plain uncomfortable with the finality of it all.  But engage in such planning we must if we want to ensure that our estates – our legacies, really – efficiently pass to heirs and other beneficiaries in the manner and amounts we intend.

So, how to handle charitable giving?  Is it better to make such gifts now or at death?  Charitable bequests are often included in wills to fulfill existing pledges or to round out a lifetime of giving to favorite causes.  This approach is especially advantageous when there are no other “noncharitable” heirs involved, or when the estate owner wants to limit the amounts ultimately passing to these heirs.  Also, a testamentary transfer may be the only practical way to accomplish giving an entire estate over to charity, particularly if depleting the estate during lifetime effectively impoverishes the estate owner.

But what if there is a choice?  What if, during your lifetime, you can give away something, even a significant something, and not dangerously deplete the estate in so doing?  Are you better off giving at death or during life?

Obviously, there are pros and cons to each, and everyone’s situation is different.  But a general rule to follow is that lifetime charitable gifts are better than the exact same gifts made at death, both for tax and non-tax purposes.

  • Charitable gifts made during your lifetime are deductible for Federal income tax purposes.[1] This is the big one. Any gifts you make during your lifetime will save you income tax dollars at the federal level and possibly at the state and local level as well. There are lots of caveats to this, so speak to your tax advisor to get a sense of what the actual benefit may be for you. But as a rough example, consider that a New York City resident taxpayer in the top income tax bracket (and not subject to the alternative minimum tax) would save approximately 43 cents on the dollar in income taxes on a lifetime charitable gift. Not bad — a $50,000 charitable donation would effectively cost only $28,500.
  • But charitable bequests reduce your taxable estate, don’t they? Isn’t that effectively an estate tax deduction offering roughly the same benefit? Yes, such bequests do reduce your taxable estate. Continuing the example from the first bullet point, our hypothetical rich NYC taxpayer would save, at the top rate for estate taxes, approximately 57 cents on the dollar. But this savings is very deceiving – had he given away the same money during lifetime his estate would be that much less, and he will have effectively accomplished the same thing – and gotten current income tax deductions during lifetime to boot!
  • Charitable gifts made during your lifetime enable you to enjoy seeing the fruits of your giving. It can be as small as knowing that the shelves are stocked in the food pantry that you support or as large as seeing your name on a building on the campus of your alma mater – face it, many of us crave the “warm fuzzies” we feel when we support a cause, particularly when we see results or achieve personal recognition for our efforts. Certainly this is a non-tax benefit of lifetime charity, a guilty pleasure if you will, but one you can enjoy without having to admit it!
  • Lifetime giving patterns are a good indicator of your charitable intent and can be instructive for those who survive you. This is most important if you create a private foundation or some other charitable vehicle that will outlive you. Your surviving board members, often family, can view your lifetime actions as a roadmap of your values. Such a roadmap may help them continue your legacy in a way that, presumably, reflects your charitable intent.

Again, these are general rules which should be discussed and quantified with your tax advisor before implementation.  But the fact is, in most cases, charitable gifts made during lifetime yield better tax results and often more personal satisfaction for the donor.

[1] Subject to income and other limitations, including the type of contribution and the type of charity.

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Charitable Nation has, from time to time, showcased various wealthy individuals who are to be admired for their generosity and systematic approach to philanthropy.  (See, especially, Peter Lewis, David Geffen, Warren Buffett, John D. RockefellerChuck Feeney and Lady Gaga)  It can be both interesting and instructive to learn a bit about what makes these folks tick.

Now, the predictable response from the cynics among us is “Yeah, but did you know what a [nasty person] s/he was?”  I can’t and won’t argue that – building and maintaining a fortune is not easy and those who do so tend to have somewhat aggressive personalities.  And, in truth, the philanthropic impulses of some of the “1%” may be suspect, but I prefer to focus on the potential for good that results therefrom and give credit where credit is due.  The philanthropy of the 1% has made a big difference in this world by being impactful and long-lasting.  We can criticize the timing and/or amount of funding or the seemingly parochial views of some of the donors, but we must accept the fact that marketplace of philanthropic impulses is alive and well and made more vibrant by such generosity.

Several weeks ago, I received an e-mail from a reader directing me to a very interesting website, “The Generous Billionaires Club.” In this one website we can find information about the “Forbes Billionaires List,” “The Giving Pledge,” “Who’s Not Giving An Inheritance,” “Who’s Been Generous” and “Who’s Been Very Generous.”  (Almost makes me want to break out in song: “he’s making a list, checking it twice, gonna find out who’s naughty and nice…”)

Some interesting factoids:

  • According to the Forbes Billionaires List, 16 of the top 25 billionaires in the world are Americans but NONE of the 26 new tech billionaires are American.
  • The silver spoons in the mouths of the progeny of guys like Bill Gates, Warren Buffett, Michael Bloomberg and T. Boone Pickens may be a bit tarnished – in their parents’ estate plans, inheritances are minimized and philanthropy is maximized.  But, it’s not all bad – as Buffett has famously stated, he will give his children “enough money so they would feel they can do anything but not so much that they could do nothing.” In other words, the concept of “no” inheritance is relative.
  • Of the top 10 folks who have given away at least $1B of their net worth over time, 2 of them (James Stower and Herbert Sandler) are no longer billionaires.  Not mentioned in these statistics is Chuck Feeney, the co-founder of Duty Free Shops, who is definitely a former billionaire and whose private foundation, the Atlantic Philanthropies will have funneled $9B into charitable works by the time of it self-liquidation in 2016.

Whether you are a casual observer or an unabashed philanthropy geek, you can obviously have a lot of fun with these facts and stats.  In any case, I hope the information contained therein is instructive and inspirational for us all, regardless of the number of zeros that follow the value of our charitable giving

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I am a proud alumnus of Binghamton University, one of four major university centers in the 64 campus State University of New York (SUNY) system.  Binghamton is a young school, founded in 1946 as Triple Cities College, an extension of Syracuse University.  It became part of the SUNY system in 1950 and grew dramatically during the Rockefeller years, attaining its current status as a doctoral granting university center in 1965.  The 1970’s were tough for the University as New York State faced hard economic times and funding suffered accordingly.  Interestingly, the University never wavered – it continued to burnish its reputation as a very selective, high quality, world-class center of learning.  Over time, the financial hard times eased, but the evolution of Binghamton from a “state school” to a “state supported school” continued.  (What’s the difference, you may ask, between a “state” and a “state supported” school?  Essentially, “state supported” means less and less money each year from State sources.)  Regardless, Binghamton is today both the shining star of the SUNY system and an up-and-coming player in the international major leagues of colleges and universities.  Most important, it is a relative bargain, making high quality higher education available to a diverse population of students from all economic backgrounds.  binghamton-university-bearcats-logo

Sounds like a great success story, doesn’t it?  The problem is, because Binghamton is both young and part of a state system, its culture of philanthropy has not yet fully developed.  This issue is front and center on the agendas of both the boards of the Alumni Association and the Binghamton University Foundation – how to build and permanently sustain a culture of philanthropy within the University and alumni communities.  The question is obviously multi-faceted and complex.  Today, I wanted to spend a little time on one seemingly small but very profound step that the University itself has taken to help build that culture right at the true grass roots of the cause, the campus community and the student body.  The Student Philanthropy Committee was established earlier this year as a joint effort between the University and the student body.  The Committee functions under the auspices of the Binghamton Fund, the University’s annual giving program, and its director, Caitlyn Carlson.  Its mission is simple – to build a culture of philanthropy among students by cultivating awareness and engagement.  I recently caught up with committee co-chairs Andrew Loso, Class of 2015 and Dillon Schade, Class of 2016, to talk about what they were trying to accomplish.  It essentially boils down to the two parts of the Committee’s mission, awareness and engagement.

  • Awareness: According to Andrew and Dillon, the students today are more aware of the need for philanthropic support beyond tuition and fees than the members of my generation ever were. The committee has received little negative pushback from students, which is surprising when one considers that many, if not most of them come from modest financial backgrounds where cash is generally in short supply. The committee has gotten the word out en masse through events such as “Tag Day,” where physical assets made possible by donations were tagged throughout campus; manning a table at Spring Fling, a major, campus-wide social event; and giving a speech at the Senior Brunch. And, of course, there is nothing like the personal touch, where members of the committee use their personal connections to get the word out. The message is clear – “Join together – help ME do it!”
  • Engagement: One very simple yet concrete metric that the Committee had to work with was the Senior Challenge. Many schools have this – they encourage graduating seniors to make a modest donation equal in dollar value to their graduation year, i.e. $20.14. Simple, catchy and cheap, right? Unfortunately in fiscal year 2013 only 74 seniors (2.5%) participated. To Andrew and Dillon, this was simply unacceptable. Their goal for this year was to double participation to 150 students, which was still modest, but a step in the right direction. At 177 participants, the goal has been met and exceeded. Next year, they want to double again to 10%. Long term, they want to get to 30%, which experience at other schools has shown is about the upper limit for such a fundraiser.

Charities and nonprofits spend a lot of time and money to stay front and center in the minds of their current, former, and future donors.  It is not easy.  It is not a given.  Even if you assume that people want to give to certain causes, the fact is they have to know about the need and they have to be given an easy and nonthreatening way to contribute whatever combination of time, treasure and talent they can.  Binghamton University or [insert the name of your alma mater] cannot assume that current students see and appreciate the benefit of the education they are receiving.  They cannot assume as a given that alumni will automatically agree that paying it forward is the right thing to do.  Information, communication, and appreciation go a long way to making it all possible.  The students involved in the Student Philanthropy Committee are learning this first hand and at an early age and, in so doing, are helping the University in a small way now that will hopefully blossom over the years as giving becomes a habit – a habit begun in the undergraduate years of the college experience.

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Since the start of this blog, we have focused on the Philanthropic Continuum, that progression from “casual donor,” the person who gives when asked but without much thought, to the “serious or serial philanthropist,” where truly significant gifts and amounts are involved.  The more serious your philanthropy, the more important it is for you to treat it in the same manner that you would treat a business or investment portfolio.  Certainly, there are few Bill Gates out there whose annual giving might exceed the gross national product of a small country, but there are certainly enough philanthropists and protophilanthropists who have either adopted or should adopt a businesslike approach to their giving.  This is important whether you have a private foundation or donor advised fund or just your personal checkbook and it’s not an unreasonable approach; in fact such an approach is already in most responsible people’s DNA.  Heck, I recently spent a half hour researching the purchase of a meat thermometer and stainless steel meat skewers (its barbeque season…), the grand total of which did not top $20, including shipping, so why wouldn’t I approach my charitable giving in the same way – systematically, methodically, and rationally?

Fact:  Giving to charity is really not “giving” at all, it is “investing.”  If you don’t view it this way, then as a donor you are throwing your money away.  One’s charitable giving should be deeply connected to one’s valCaptureues and world view.  The donor should be engaged with the cause and feel a sense of ongoing connection to it.  If s/he achieves that, then the very act of giving to, no, investing in the cause brings the connection to the next level.  Tossing money down a black hole never yields results, but investing in well-conceived and competently executed solutions can be quite rewarding.

Fact:  Investing without a plan is, at best, inefficient.  Without systematic measurement toward a goal, you will never know if you have achieved anything at all. The most effective financial investors are those who are strategic in their approach to investments.  They first define their goals and then fashion a plan to meet them.  Continual measurement of progress toward the goal is implicit in the plan.  Some investors do this on their own while others hire advisors to help them.  Nonstrategic investors, on the other hand, buy a little of this stock and a little of that annuity and maybe chase some yield at their local savings bank, but in the end, the bulk of their growth can be measured more in terms of their additions to principal rather than by any real market rate of return. The same can be said for charitable giving.  Nonstrategic giving will most likely result in giving smaller amounts to a greater number of charities, many of which may not even make it to your values/world view radar screen.  Developing a philanthropic investment or business plan can help prevent that from happening.

Fact:  The business owner without a plan in place to grow his/her business is taken seriously by no one, least of all investors.  Investors will run screaming from an entrepreneur who says “invest in my idea and we will see what happens.”  Again, why would you treat your philanthropy any differently?  Don’t you want to see results?  Don’t you want to be engaged?  Wouldn’t you rather strategically connect with your cause as a player than participate passively as a bystander?

So the message is clear – make a plan!  Begin with your personal passion and identify charities that are worthy of it.  Determine how much you want to give, no, invest and over what period of time.  Consider the tax ramifications pertinent to your situation (and discussed throughout in www.charitable-nation.com) and adjust accordingly.  Develop personal relationships with the charities you support.  Learn more about the cause and become an unpaid ambassador or advocate, helping to raise awareness and ultimately more money.  Volunteer.  Find ways to use your professional skills and personal connections to help make a difference.  (Time, treasure and talent) Stay on top of the charities you support, and don’t be afraid to offer advice or criticism if and when needed but, of course, be realistic in your expectations –the size and reach of the organization and the relative size of your contributions will likely play a role in how effective you can be in an informal advisory role.  To formalize that role and perhaps increase your influence, consider taking a position on the organization’s advisory board or board of directors.

Unlike financial investing or for-profit business ownership, philanthropic investing will not result in a personal, positive rate of return.  It will, however, produce a discernible social return on investment that will be meaningful to you, but only if you take the time to define and measure it.

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