Archive for the ‘Philanthropy’ Category

Robertson Foundation v. Princeton University

Wednesday, February 18th, 2009

A recently settled case between the Robertson Foundation and Princeton University forced the Robertson Foundation to cover $40 million in legal fees.  What, Whom and Why?

What?  In the early sixties, Charles and Marie Robertson established the Robertson Foundation with $35 million.  This charity was actually set-up as a public charity and not a private foundation, because it was organized as a supporting organization with Princeton University being the supported organization.  According to the IRS, this a Type I supporting organization, meaning the funding family does not have power over the board of the foundation.  If the foundation had been created as a Type III supporting organization, there would have been strict rules governing how and where the money could be allocated, but in this case it was not.

Whom?  Princeton University believed that the Robertson Foundation funding family’s intent was to simply offer guidance, and that they did not intend to be able to give black/white instructions, especially considering the structure (Type I) of the foundation.  The Robertson family believed that the university misused the family’s big gift, without regard to their original intent.

Why?  The Robertson family believed their family’s past generations had a clear purpose for their generous gift, and that it was being mishandled, given the direction of the distributions.  And in America, if you’re angry – you sue.

Bottom line:  This case demonstrates that guidelines need to be clearly laid out in the documents regarding the intent of the donors.  Both donors and charities need to approach restricted gifts as though they were entering a bona fide business transaction, with rights and remedies for each party in an anticipated dispute clearly stated.

Always Asking, Never Assuming™

Christopher Holtby

Posted in Philanthropy | No Comments »

Private Foundation – benefits and risks

Thursday, February 12th, 2009

What are the benefits of a private foundation?  Tax, legacy, control and giving.  

Tax: The contributors to a private foundation can receive a tax deduction for up to 30% of AGI for cash contributions and up to 20% of AGI for stocks, bonds, etc.  Those tax deduction numbers are higher for public charities.  Make sure your CPA and your estate and investment advisors know what you are doing, as there are several ways to enhance the contributions.  The risks occur when the left hand isn’t talking with the right hand, much like our government currently. 

Legacy:  Do the contributors have any shared values with children or grandchildren?  Even if they do, would they want them involved in the distribution and management decisions of the private foundation?  A private foundation can just be for the contributor and not for the extended family (contrary to popular industry assumptions).  On the other hand, the contributors can involve their children etc. in the management and distribution decisions, as a way of passing valuable lessons in budgeting and investing.  The risks occur when the client’s expectations are not fully discussed, and the practitioner imposes the generally accepted processes of why a private foundation is created in the first place. 

Control:  The contributors maintain control over how and to whom the charitable distributions occur, as well as what type of assets are contributed.  Along with that control comes risks such as: self-dealing, salaries to private foundation members, excess business holdings, miscalculating excise taxes, etc.   

Giving:  The contributors have great control over the granting decisions.  They can provide medical emergency, hardship, and distress grants directly to individuals, scholarships, low-interest loans and other types of charitably motivated grants.  The risks occur when these unique grants do not follow the letter of the law exactly.   

Bottom line:  WIth flexibility comes risk.  Knowing the risks is the first step toward avoiding them.

Always Asking, Never Assuming™

Christopher Holtby

Posted in Philanthropy | No Comments »

Gift Planning – rethinking the assumptions of wealth transfer

Friday, October 31st, 2008

In light of the current devaluation of people’s assets, the wealth transfer planning that went into gifting should be reconsidered.   There was an interesting article/news piece on this topic.  Below are the highlights:

a) Charitable gifts are made to assist organizations-of-choice, and possibly for tax benefits.  Clients should discuss with their advisors whether their assets are adequate to fund all of their liabilities, including charitable donations (don’t forget about the Power of Attorney to make gifts).

b) If the heirs or beneficiaries of the client have or could have severely impacted financial situations, should gifts be accelerated (intra-family loans, etc.)?  This makes the charitable organization the odd man out, unfortunately.

c) A lot of gift planning has gifting limited to an annual exclusion number or is indexed.  Depending on the client’s wealth situation, should this be changed? 

d) Parents try to allocate assets in “fair” manner.  In light of our recession and future effects, how should this be addressed in the gifting plans? 

Bottom line – a will is not just a document you blow the dust off of at one’s passing.  We know that after life changing events, the assumptions, including gifting, should be re-examined.  I believe we all agree that we are going through a life changing event. 

 

Always Asking, Never Assuming™

Christopher Holtby

Posted in Estate Planning, Philanthropy | No Comments »

Charity mission drift

Wednesday, September 17th, 2008

When a family crosses the threshold to where their wealth can influence society, Mom and Dad need to ask themselves, “What is the purpose of this influence?”.  This influence can be local, regional, national or international (Bill & Melinda Gates level).   Sounds obvious?  You would think so.   Henry Ford II, the grandson of Henry Ford, resigned from the Ford Foundation in protest.  He was disgusted with the foundation’s activities, which he felt were anticapitalist and were an anathema to the free-market policies of his grandfather.   So what do you do?

As I have previously written, you can create a private foundation, or you can get experience by giving money through a donor-advised fund involving the whole family.   Following the walk before you run philosophy, this allows the family to get used to working together before being entrenched in a legal entity.  

If a family creates a private foundation, a breakdown in the communication between the foundation and the governing board of the charity are to be expected.  Historically, you would have the family oversee the activities of the charity (but not if it is the Red Cross-type size).  This could mean establishing the parameters for restricting funding and how the donor and the charity would work together.   This type of collaboration between the donor and the charity regarding its charitable activities, has the chance to set the tone of how the charity should behave once the donor dies. 

It is good to use a sniper approach to charitable-giving versus a shotgun approach. 

Christopher Holtby

Posted in Legacy Planning, Philanthropy | No Comments »

Efficient Philanthropy

Friday, July 25th, 2008

Walk before you run.  Giving away money is easy.  Giving away money successfully is hard. 

Most wealthy families don’t have a simple explanation of why and where they give to charity.  How purposeful and successful is your family’s charitable giving?

Charitable giving works in 3 ways: 1) give outright, 2) give to a donor-advised fund, or 3) give to your own private foundation.   Each have their own tax, flexibility and control issues. 

It has been my experience that beginning with giving outright is best.  Write a list of specific charities or charitable issues that are important to you, plus the overall charity allocation.  If someone calls about starving kids in Somalia, and that is not on the list, you say: no, that is not our charitable focus (some of my clients follow an “oh is that dreadful” charity allocation).   At the end of the year, you can look back and feel that your organized and structured approach was successful.   Once the family is organized about how to give, they can get more creative with a donor-advised fund or a private foundation.   More on that later.

Walk before you run.

Christopher Holtby

 

Posted in Legacy Planning, Philanthropy | No Comments »