Table of Contents

Praise

Title Page

Copyright Page

Dedication

Acknowledgements

Introduction

Chapter One - Philanthropy 101: The Basics of Charitable Giving

Direct Gifts

Supporting Organizations

Donor-Advised Funds

Private Foundations

Conclusion

Chapter Two - Powers of Deduction: Tax Advantages of Private Foundations

Four Powerful Tax Incentives

Details on Tax Deduction Limits

Finding the Best Giving Strategy

The $1.6 Trillion Loss

Estate Taxes

Conclusion

Chapter Three - Advanced Planning: Combining Foundations with Charitable Lead ...

Charitable Lead Trusts

Charitable Remainder Trusts

Chapter Four - A Family Enterprise: Foundations and Children

Bringing Families Closer

Transmitting Values

Providing Valuable Skills

Conclusion

Chapter Five - Carpe Diem: Set Up a Foundation While You’re Still Alive

Personal Satisfaction

Create a Legacy

The Problem with Waiting

From the Grave: Control—But Not Too Much

What About Too Little Direction?

Who Gets Control?

Conclusion

Chapter Six - Effective Foundations: The Business of Philanthropy

The Mission Revisited

Getting Started

Know Your Charities

Governing for Effectiveness

Approaches to Grant Making

You Get What You Negotiate

Stand on the Shoulders of Others

Outside Experts Can Make the Difference

Types of Support: Periodic versus Endowment, General versus Program

Is Measurement Worthwhile?

Establishing Measures

Provide Feedback

Give Wisdom in Addition to Wealth

Give Strategically

Exercise of Leverage

Make Foreign Donations Deductible

Use Public Relations Effectively

Create Financial Leverage Through Tax-Exempt Financing

Let Your Foundation Do the “Dirty” Work

Conclusion

Chapter Seven - The Endowment: Developing an Appropriate Foundation Investment Policy

What to Include in an Investment Policy

Conclusion

Chapter Eight - Developing and Implementing a Foundation Asset Allocation Policy

Differences between Corporation and Foundation Investment Plans

The Seven Deadly Sins of Foundation Asset Allocation

Developing a Good Asset Allocation Policy

Should an Asset Allocation Policy Change over Time?

Capturing the Rebalancing Bonus

Active Management versus Indexing

Who Is Responsible for the Asset Allocation Policy?

Conclusion

Chapter Nine - Compliance: The Legal Do’s and Don’ts

Some Compliance Errors May Seem Funny, But They’re Not

A Fail-Safe System

Required Activities

Prohibited Activities

Conclusion

Chapter Ten - Other Planned Giving Vehicles

Charitable Gift Annuity

Gift Annuities versus Regular Annuities

Partial Exclusion of Annuity Payments from Income Tax

Bargain Sale

“Allocation of Basis” Rules

Charitable Gift Annuity versus CRT

Remainder Gifts with Retained Life Estate

Pooled Income Funds

Chapter Eleven - For Advisers: Building Client Assets with Private Foundations

Immediate Increase in Total Client (Personal and Foundation) Assets

Increased Total Client Assets in the Long Run

Diversifying Highly Appreciated Stock Without Capital Gains Taxes

Holding Taxable-Income-Producing Assets in Tax-Exempt Foundation

Cement Client Relationships

Keep Retirement Plan Assets Intact for Charity upon Death of the Client

Opportunity to Create Goodwill in the Community

Creating the Foundation

Operating the Foundation Each Year

Full Service Management Makes a Private Foundation Feasible for Many Donors

Chapter Twelve - How to Select a Foundation Manager

Choosing a Full-Service Manager

Conclusion

Chapter Thirteen - What Can You Donate to Charity?

Publicly Traded Securities

Nonpublicly Traded Business Interests

Tangible Personal Property

Intangible Personal Property

Qualified Retirement Plans

Real Estate

Conclusion

Conclusion

Resources

Index

A Message from Sterling Foundation Management

About the Authors

About Bloomberg

Praise for

Creating a Private Foundation

The Essential Guide for Donors and Their Advisers

by Roger D. Silk and James W. Lintott
with Christine M. Silk and Andrew R. Stephens

“Philanthropy is a vital activity, and there’s never enough money to do all the good that needs to be done. In Creating a Private Foundation, Roger Silk and Jim Lintott clearly explain a number of different giving strategies—both tax and philanthropic—to help donors make their limited resources go farther. I highly recommend it.”

ACE GREENBERG
Former Chairman, Bear Stearns

“If you are a donor to charity or if you advise donors, you must have this book. You’ll learn more than most experts know, and you’ll be empowered to have far more impact than you’d ever have thought possible.”

MARK VICTOR HANSEN
Cocreator, #1 New York Times best-selling series Chicken Soup for
the Soul®
Coauthor, The One Minute Millionaire

“This book is a great guide for those interested ... in charitable foundations. Every donor should study it.”

VERNON L. SMITH 2002 Nobel Prize Winner in Economics

“This guide provides just the right information to help you create and effectively manage your foundation—and does so in an interesting and very readable way. The authors have clearly been listening to their clients and do an excellent job of anticipating the questions you will have about your foundation. They share their breadth of experience and have organized the information to be most helpful. You will refer to this book over and over again as an important resource for your philanthropic giving.”

CHARLIE HAINES, CFP
President, Charlie D. Haines, LLC

“The primer on effective philanthropy. I found it well written and extremely relevant. I wish I had the book years ago.”

WARREN LAMMERT
Founder, Granite Point Capital

“An excellent source for getting all your questions answered on a topic that can be rather overwhelming and complex. Very easy to read and understand.”

BILL BILLIMORIA
Billimoria Wealth Management, Inc.

“As an attorney who frequently advises clients on charitable giving, I find the book both useful and informative. It is an excellent introduction to the laws and economics of private foundations. It belongs on any adviser’s bookshelf of basic reference materials.”

ROBERT G. PETIX, JR.
Arnall Golden and Gregory, Atlanta

“Roger Silk and his team at Sterling Foundation Management have managed to write a book that offers an incisive look at the entire planning process involving private foundations. From the genesis of philanthropic thinking (giving the example of Plato, no less) to the mind-numbing compliance rules unique to private foundations, Roger manages to bring it all together in a fascinating book written in plain English.”

JEFFREY PERELMAN
Director, Exempt Organizations, Anchin Block and Anchin

“Amazing in its clarity and comprehensive coverage of a very complex topic. I shared this book with my client. He told me that it answered all of his questions, and we are proceeding with the establishment of his private foundation. I believe that Creating a Private Foundation is a must for any financial professional.”

PHILIP A. BEWLEY
Oaktree Securities

“This comprehensive and compelling guide effectively describes why and how a grants-making foundation can be an extremely helpful vehicle for donors who want to make a unique and lasting difference.”

GORDON GUND
Chairman, The Foundation Fighting Blindness

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Wall Street Secrets for Tax-Efficient Investing:
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Family Wealth—Keeping It in the Family:
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THIS BOOK IS AVAILABLE for bulk purchase at special discounts. Special editions or chapter reprints can also be customized to specifications. For information, please e-mail Bloomberg Press, press@bloomberg.com, Attention: Director of Special Markets or phone 212-617-7966.

© 2003 by Sterling Foundation Management, LLC. All rights reserved. Protected under the Berne Convention. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher except in the case of brief quotations embodied in critical articles and reviews. For information, please write: Permissions Department, Bloomberg Press, 731 Lexington Avenue, New York, NY 10022 U.S.A. or send an e-mail to press@bloomberg.com.

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Library of Congress Cataloging-in-Publication Data

Includes index.

ISBN 1-57660-136-6 (alk. paper)

1. Nonprofit organizations. 2. Charitable uses, trusts, and foundations. I. Silk, Roger D.

HG62.6.C73 2003

361.7’632’0681--dc21 2003006198

To Katie, Jade, Aaron, Marcus, and Julia

Acknowledgments

A GREAT NUMBER OF PEOPLE contributed to this book, not all of whom we can name here. If you were involved and are not mentioned here, please accept our apologies.

Jared Kieling, our editor at Bloomberg, helped enormously all the way from his acquisition of the work through to its completion. His thoughtful comments, tough questions, and gentle guidance have contributed greatly to the book you now hold. We also benefited from the excellent editing work of Jolie Soloman. Jim’s wife, May, also offered valuable help both technically and stylistically.

More generally, we owe a large “thank-you” to all of the professionals who helped, in one way or another, develop the ideas and information in this book. Among these are Andy Bewley, Helen Modly, Read Moore, Jonathan Lurie, Dick Lang, Jeff Pickard, Bob Petix, Chris Valentine, Bob Wacker, Don Weigandt, Brian Barker, F. Bill Billimoria, Brodie Burwell, John Cady, Geoff Close, Harry Colmery, Guy Cumbie, Cynthia Dupont, Ruth Easterling, Rich Hoholik, Rick A. Huff, Mark Jaeger, Jared Jameson, Mark Jarasek, Mark Kornblau, Richard A. Lehrman, Dennis Mainerd, Earl Mar, Bruce McClanahan, Dipakkumar Mehta, Derek Misquitta, Terry Norris, Dean Phillips, Tim Savage, John T. Scully, Karen K. Sinchak, Robert R. Sweeney, Raymond Vay, and John Weil.

Introduction

IMAGINE SAVING THE LIVES of countless poor children around the world by vaccinating them against preventable diseases that now kill millions every year. That’s the goal of the Bill and Melinda Gates Foundation. Imagine eliminating breast cancer, as the Susan G. Komen Foundation is seeking to do. Or imagine, if you can, the creation of a working robot arm one thousand times smaller than the width of a human hair, a project that the Foresight Institute is funding. Each of these private foundations, and the people behind them, are following in the footsteps of the great philanthropists of the Gilded Age—Rockefeller and Carnegie.

These projects, which are currently in motion, together will require about $1 billion a year to fund. Who knows what else might be possible if more money were available? An elevator to the stars? Elimination of hunger and poverty? The cure of all disease? The good news is that, in coming years there can and should be more funding than ever available from charitable donors.

But bad charitable planning, or no charitable planning, could cost donors and their cherished causes over $1.5 trillion over the next thirty years. This is a staggering sum. According to Commerce Department statistics, it is more than enough to pay for all the food, or all the housing, consumed in the United States in a year.

That additional $1.5 trillion, properly deployed, could achieve wonders that are hard to imagine. Spread evenly over thirty years, it would provide an additional $50 billion a year, more than the federal government budgets in a year for science, technology, space, the arts, natural resources, and the environment combined. It is about twenty-five times as much as the great outpouring of charitable support in the aftermath of September 11, 2001. With this book, we hope to help donors and their advisers capture part of that $1.5 trillion and use it effectively to make the world a better place.

Americans are the most charitable people in the world. Some 150 years ago Alexis de Tocqueville marveled at Americans’ propensity for charity, admiring the American spirit of neighbor helping neighbor. Andrew Carnegie, an immigrant boy who built a fortune in steel, set the tone by giving away his entire fortune, which at its height was estimated to be approximately 5 percent of his adopted country’s gross national product. Such a sum today would be close to $250 billion. By comparison, Bill Gates’s foundation has more than $20 billion and spends about $1 billion a year on its charitable activities.

Large donations certainly make a huge impact, but it is the steady stream of small donations from lower-income donors that keeps many small charities afloat. Last year alone, Americans from all economic backgrounds gave a combined $100 billion to charities and other humanitarian causes.

In the last decade, there has been tremendous growth in the use of sophisticated tools for charitable giving, and this growth will continue. These tools include private foundations, donor-advised funds, supporting organizations, charitable remainder trusts, and charitable lead trusts. Yet there has been a lack of in-depth, accessible information on these advanced philanthropic tools.

This book reviews the most important tools, techniques, and philosophies available for philanthropy and explains why the private foundation, in our view, is often the best choice for charitable giving. We will talk about why people give, and we’ll describe the most important techniques for maximizing the effectiveness of a private foundation’s giving. We also examine how various philanthropists past and present have viewed their activities, and we provide detailed analyses of various tax and financial issues.

Winston Churchill observed that “We make a living by what we get, but we make a life by what we give.” Readers who are interested in “making a life” by giving, especially those with more than $5 million of liquid net worth, and the professionals who advise them, will be particularly interested in knowing when and how to use private foundations.

Many people who accumulate significant wealth are interested in accumulating more, or in effectively building their assets available for philanthropy. There is also a strong trend in the investment business toward building assets under management. As it happens, the appropriate use of private foundations can be an extremely powerful tool for helping both donors and their advisers achieve these asset-building goals. In fact, the $1.5 trillion mentioned above all represents additional assets. This makes it good business for investment professionals, as well as their clients, to be knowledgeable about private foundations.

The first five chapters introduce you to the key issues you need to know about—or may have come to this book to learn about—and will give you the big picture on how foundations work and what is involved for you, for your finances and taxes, for your heirs, and for the organizations and causes you care about.

The remaining chapters walk you through the practicalities as well as the implications of founding, funding, organizing, and operating an effective foundation, including decision tools, a chapter for professional advisers, a chapter to assist donors in locating and selecting professional foundation management help, and a Resources section.

Chapter One

Philanthropy 101: The Basics of Charitable Giving

YOU NEED NO special knowledge to write a check to charity.

But if you are a serious philanthropist, someone who wants to have an impact, to take advantage of tax breaks, and to exercise control, you need to know how the system works. Specifically, you need to know about the ways in which you can give to charity.

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!