Posts Tagged ‘community’

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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The Giving USA Foundation, whose stated mission is “advancing the research, education, and public understanding of philanthropy,” just published the 2014 version of its study Giving USA; The Annual Report on Philanthropy. Depending on your point of view, the glass is either half empty or half full.glass_half_full_empty_1600_clr_5473

Here are some interesting factoids gleaned from the report:

  • Total charitable giving during 2013 in the United States is estimated to be up by 4.4% year over year to $335.17 billion. That’s the good news. The bad news is, although giving is up 12.9% since the Great Recession ended in 2009, it will take another year or two at current, inflation-adjusted rates to reach the pre-recession high of $349.5 billion attained in 2007.
  • Year over year, individual giving increased 4.2%, foundation giving increased 5.7%, and gifts by bequest increased 8.7%. The soul sector showing a decrease was corporate giving, down 1.9%. Conclusions drawn: individuals are becoming more confident about giving to the causes they care about as their financial situations continue to improve. The mirror image applies to corporate giving – its decline was largely influenced by slow growth in corporate pre-tax profits.
  • Winning sectors in the charitable world include education, public-society benefit, arts, environment/animal, and health organizations, all up on average from 6% to 8.9%.
  • Losing sectors include religious organizations, due to declining affiliation and service attendance and international affairs, due to fewer disaster-relief contributions compared with prior years.   (Note that this classification excludes religious-oriented charitable organizations that are characterized within other subsectors.)
  • Finally, my favorite statistic and one of the more vexing ones: Giving USA notes that “over the last couple of decades, total charitable giving comprised about 2% of GDP. However, in the last decade, total charitable giving accounted for 3.5% of the overall growth in GDP.” Slice and dice the numbers anyway you want, 2% of GDP over the long term is pretty modest. Granted, according to the World Giving Index, the US was considered the most generous nation in 2013 (up from fifth place in 2012), but still……one would expect more, especially in a society that is supposedly so influenced by the major religious traditions, all of which emphasize the core value of charitable giving.

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I recently read the book With Charity for All – Why Charities Are Failing and a Better Way to Give With-Charity-for-Allwritten by former NPR CEO Ken Stern.  It is an interesting read, at once depressing yet oddly optimistic about what “could be” in the philanthropic world.  To those who are not philanthropy geeks, much of what Stern flags as issues may come as a surprise – a fair number of so-called “charities” act far more like profit making businesses than not-for-profits and if examined closely, may not pass for charities by anyone’s objective measure.  For example, he cites the nation’s many large, well-endowed not-for-profit hospital systems which, in terms of services provided for the poor, are virtually indistinguishable from their for-profit brethren.  For details and statistics supporting this conclusion, I suggest you read the book, but in summary, his points are clear:  “The issues….have substantial economic consequences.  Hospitals are the single largest component of the charitable sector and the value of tax incentives is enormous…..While estimates vary, the value of local, state, and federal tax incentives to nonprofit hospitals almost certainly exceeds $20 billion a year……Since charitable hospitals return only a fraction of that in charitable care, it raises the possibility that the public would be far better served by removing or reducing the subsidy and using the savings to buy better health care from the best and most efficient providers.  And it raises the question:  when a charity stops being charitable, does anyone notice?”

At the other end of the spectrum, Stern is also critical of charities which, unlike health care delivery systems, do not perform critical social functions.  He cites the various college football “bowl” games that have proliferated around the country stating:  “It is no doubt puzzling to most Americans that this string of open-air parties, football games and corporate promotion events have the same charitable designation as Habitat for Humanity, Teach for America, of the local food bank.”   It was not only puzzling for me, but a complete surprise!

This is just a small taste.  As I said, the book is frequently depressing, especially for optimists like me who believe that well run charities can truly change the world.  But it is also well written, easy to read, extremely thought provoking and well worth a few hours of your time.  While there are certainly things we as a society can do to better police abuses in the charitable world, there are also many things we can all immediately do to have an impact, and Stern gets prescriptive about this in the final chapter of the book:

  • Resist the old ways.  Think of charitable giving more in terms of investing for social impact.  Ignore overhead and administrative ratios or at least put them in proper perspective.  Focus on the end customer of the charity and whether s/he is being served by that charity.  Base charitable giving not on personal connections and relationships but on objective evidence of effectiveness (admittedly, hard to find).
  • Look for indicia of quality.  Identify top performing organizations not just by looking for four star ratings on Charity Navigator, but by finding those that are crystal clear about their goals and transparent about their research results on their websites.  Look for growth.  Look for charities that worry less about overhead and more about results.
  • Do the work.  “Average Americans spend more time watching television in a single day that they do on their charitable contributions in an entire year.  Like financial investing, social investing takes work: researching charities, reviewing websites and published reports, and sharing information among friends, peers, and other like-minded givers.”
  • Follow the leaders.  Signalers in the financial marketplace exist; they exist in the philanthropic marketplace as well.  People swear by the Oracle of Omaha (Warren Buffett) as the messiah of investing, so why not Bill and Melinda Gates as the bellwethers of philanthropy? Or organizations like GiveWell (a research organization), New Profit (venture philanthropy), and the Robin Hood Foundation, all of which are committed to careful research and analysis.
  • Pool donations.  This is an interesting concept – the idea of a philanthropic “mutual fund.” Pool the funds and let the professionals do the heavy lifting.  While options for this retail approach are extremely limited right now, it may be an idea whose time has come.

For those who are serious about philanthropy, it is advisable to think of the private foundation or donor advised fund not as a charitable pocketbook but as an investment portfolio that needs to be tended on a regular basis.  We chastise politicians who think that the solution to most problems is to throw money at them, yet many of us approach our own philanthropy in just that manner.  Perhaps the family foundation of the future will build its own infrastructure for more effective assessment and monitoring of the charitable projects in which they invest.  Perhaps the philanthropist of the future will become more coldly calculating in his/her approach, looking for solutions instead of stopgap measures.  And why not?  We do it in business all the time, relying on creative destruction to take us to the next economic level.  Perhaps what the charitable world needs right about now is its own little bit of creative destruction.

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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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The private foundation (PF) is an oversold commodity in this country.  There are far too many of them with critical mass too small to meaningfully engage in the highest and best use of a PF, namely, the business of philanthropy.  In my humble opinion, the business of philanthropy requires real money and because of this, foundations with less than a couple of million dollars in their coffers have limited usefulness.  Of course, it depends upon how we define the “business of philanthropy” but with PF’s required to pay out only 5% of assets in any given year, small PF’s that are not self-liquidating are truly constrained from acting as anything other than a charitable pocketbook.

Nevertheless, many successful people dream about establishing their own PF.  Some have true aspirations in the business of philanthropy while others are enamored with the idea of their family name adorning such a charitable vehicle.  The majority, however, probably have little idea about what it all means and how far they want to take it.  Might a different format for charitable giving make more sense?  Looking at it a different way, if you were starting a business, wouldn’t you first develop a business plan?  If you want to enter the business of philanthropy, shouldn’t the same assumption hold?

grassroots-coverIn his excellent little book, Grassroots Philanthropy, author Bill Somerville makes a number of common sense suggestions for funders to follow when undertaking and administering philanthropic endeavors.  If nothing else, the book makes you think about what it really means to be in the business of philanthropy and if it is something you should consider.  Somerville is the founder and president of Philanthropic Ventures Foundation, a public grantmaking foundation in the San Francisco Bay Area.  He feels that much of the field of philanthropy is unfortunately moribund, mired in paperwork, and far too risk-averse.  According to Somerville, most funders get into the business with little or no experience and few best practices at their fingertips – so they end up having to learn it all on the job and often fall into the bad habits of existing philanthropies.  Somerville feels we should strip away unnecessary paperwork and procedures and focus on five basic principles:

  1. Locating outstanding people doing important work.
  2. Moving quickly (and shedding paper).
  3. Embracing risk.
  4. Focusing on ideas instead of problems.
  5. Taking initiative.

Sounds like a variation of the plain, old blueprint for entrepreneurial success, doesn’t it?  And, if it were actually so easy, wouldn’t everyone do it?

In addition to all of this, Somerville feels that the average foundation executive should get out of his/her comfortable office (read:  comfort zone) and into the field far more often than s/he does.  (He suggests getting out and about a minimum of 30% of the time.) In this way the executive can see firsthand the good works that are being done (or not) by the organizations funded, and not merely rely on the mound of paperwork that accompanies grant solicitations and follow-up reports.  Somerville relayed a story about the time when his organization wanted to fund some programs benefiting the homeless in San Francisco.  Somerville arranged to spend a night on the streets with the folks running the programs so that he could actually meet the clients of the programs.  This event affected him deeply, putting a human face on the problem of homelessness that informs his approach to this issue to this very day.  Not many funders would go this far, but perhaps they should.

So, the lesson for those who want to move “from success to significance” by starting their own private foundations and engaging in the business of philanthropy is also simple to state but hard to implement – Are you truly willing to get your hands dirty within your chosen area of philanthropy?  Are you willing to act like the social entrepreneur you need to be if you want to make a difference in the world?  (Think Bill and Melinda Gates, but perhaps with a few less zeros at the end of your foundation’s value.) You have to get to know the true movers and shakers in the not-for-profit world who are doing the actual business of (fill-in the blank:  housing the homeless, feeding the hungry, rescuing dogs and cats, underwriting aspiring artists, etc.…).  You need to see what is actually going on out there and develop reasonable metrics tempered by the human element that is implicit in philanthropy.  You need to eschew paperwork and PowerPoint presentations for touting potential and measuring success and go out there and see for yourself.  You need to realize that the reward for good philanthropic work lies not in the celebratory black tie dinners but in seeing the results of on-the-ground agencies achieving success in their areas of expertise.

If such a scenario excites you, and you have the funds to make such a worthy investment, then you may be ready for that private foundation – and an “Act II” that will truly bring you from success to significance.

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