Managing Foundations and Charitable Trusts E-Book

Roger D. Silk

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Bloomberg Professional
• Sprache: Englisch

Seitenzahl: 482

Veröffentlichungsjahr: 2011

Beschreibung

The insider's guide to charitable organizations for donors and their advisors Do you know when to use a private foundation, a donor-advised fund, or a charitable remainder trust or other charitable vehicle? Do you know the different tax benefits, limitations, and control rules for each alternative? Do you have an appropriate investment policy for your endowed charities? Do you have a rubric for avoiding fraud? Do you know what to look for to make sure that your charitable donations don't do the opposite of what you intend? In Managing Foundations and Charitable Trusts, Roger D. Silk and James W. Lintott provide a comprehensive guide for charitable donors and their advisers. Additional topics include: * Foundation Governance * When to seek additional professional help * When and how to turn a CRT interest into cash * Key tax issues * Creating a legacy * Why tax planning is so difficult, and how to approach it Straightforward and authoritative, Managing Foundations and Charitable Trusts is a handy, easy-to-read guide that all donors and their advisors will want to keep on hand.

Leseprobe

Contents

Cover

Endorsement

Series

Title Page

Copyright

Dedication

Preface

What’s New

Acknowledgements

Chapter 1: The Basics of Charitable Giving

Direct Gifts

Supporting Organizations

Donor-Advised Funds

Private Foundations

Conclusion

Chapter 2: Tax Incentives and Limitations

Four Powerful Tax Incentives

Details on Tax Deduction Limits

Finding the Best Giving Strategy

The $1.6 Trillion Loss

Estate Taxes

Conclusion

Chapter 3: Charitable Planning and Taxes

Giving Approach

Tax Planning Complexity

Guidelines for Analytical Expenditure: Or Is Analysis Worth It?

What to Do When Tax Rates Are Uncertain

Timing of Gain Realization

Charitable Remainder Trusts and Deferral

Conclusion

Chapter 4: Planning with Charitable Lead Trusts and Charitable Remainder Trusts

Charitable Lead Trusts

Charitable Remainder Trusts

Flexibility and Irrevocability

Chapter 5: Foundations and Children

Affluenza

Bringing Families Closer

Transmitting Values

Providing Valuable Skills

Conclusion

Chapter 6: Benefits of Giving 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 7: 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 8: The Road to Hell:1 Beware of Unintended Consequences

Food Aid

Private Charity and Unintended Consequences

Fungible Money and Inadvertent Funding of Terrorism

How to Give Restricted Grants

Poverty—Again

Chapter 9: Developing an Appropriate Foundation Investment Policy

What to Include in an Investment Policy

Conclusion

Chapter 10: Developing and Implementing a Foundation Asset Allocation Policy

Differences between Corporation and Foundation Investment Plans

The Seven Deadly Sins of Foundation Asset Allocation Policy

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 11: Main Themes in Legal Compliance

Some Compliance Errors May Seem Funny, but They're Not

A Fail-Safe System

Required Activities

Prohibited Activities

Conclusion

Chapter 12: Fraud, Inflation, and Market Risk

Stanford Case

Enron

Baptist Foundation of Arizona Case

The Bre-X Fraud

Allied Capital

Fraudulent or Not? You Decide

What Is XYZ?

How Will Social Security End?

Promised Benefits

Real Terms

Inflation: A Brief History

Inflation Indexing

Foundations and Endowments Are Highly Exposed to Inflation

Avoiding Fraud

Chapter 13: Other Planned Giving Vehicles

Charitable Gift Annuity

Gift Annuities versus Regular Annuities

Partial Exclusion of Annuity Payments from Income Tax

Bargain Sale

Charitable Gift Annuity versus CRT

Remainder Gifts with Retained Life Estate

Pooled Income Funds

Chapter 14: Donor-Advised Funds

History

Guidelines—Highlights

Fees and Costs

Chapter 15: Building Assets with Charitable Planning

Professionally Managed, Turnkey Private Foundations

Foundation Manager's Role

Conclusion

Chapter 16: How to Select a Foundation Manager

Choosing a Full-Service Manager

Conclusion

Chapter 17: 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

Chapter 18: When the Shoe No Longer Fits

Private Foundations

Charitable Remainder Trusts

Getting Rid of Other Charitable Vehicles

Conclusion

Selected Resources

About the Authors

Index

Additional Praise forManaging Foundations and Charitable Trusts

“This is an outstanding book. I have been practicing law for 50 years, and have been involved with foundations and other tax-exempt organizations throughout the entire time, and I have never seen a publication that is as well written and covers this area as completely and succinctly.”

Thomas L. Norris, Jr., Of Counsel, Poyner Spruill LLP

“After nearly four decades of counseling wealthy families with respect to their tax planning, I have finally found the perfect tool for my clients in the implementation and maintenance of their charitable giving.… This well written book has all the key characteristics that I have been seeking for my clients; it is comprehensive, easy to read, and skillfully addresses all of the questions that philanthropically inclined individuals and families routinely ask of their advisors.”

Robert D. Borteck, Partner, Borteck, Sanders and Torzewski, LLP

“This is the best resource I have yet seen on [private foundations]. It is sufficiently detailed to be useful to attorneys, accountants, and others who seek to advise clients regarding private foundations, yet it is still quite readable and should be very helpful to the interested layperson.”

Eric N. Holk, Law Office of Eric Holk

“The book includes a clearly written overview, simple and succinct explanations about donations, differing methods of giving to charities, and forceful descriptions of the difficulties in giving money away.… Technical issues and philosophical discussions are helpful.”

Eileen Sharkey, President, Sharkey, Howes & Javer

“I have been an estate planning attorney for over twenty five years. I wish that I had this book to refer to earlier on in my career. I find that it was well written for the experienced practitioner as well as those lacking experience in this field and wanting a resource to help them.”

Gregory C. Hamilton, Esq., Hamilton & Associates, PLLC

“This book has merit to those who are already operating a private foundation and those who are considering the establishment of a private foundation.… I will keep this book for reference to be available when clients consult me on the issue of a private foundation.”

John W. Cooper, Of Counsel, Lindabury, McCormick, Estabrook & Cooper, P.C.

“This will be a great resource for anyone involved with charities including foundations, whether they serve on the board, work as an officer or staff or are a professional guiding a charity.”

Jean Carter, Partner, Hunton & Williams LLP

“This book is a must have resource for all professionals who practice in the area of charitable giving, including private foundations. It is thorough for the professional but it is also written in an understandable and readable style for the layperson. I plan to give a copy to every client for whom we create a private foundation or charitable trust.”

David J. Harowitz, David J. Harowitz, P.C.

“This is a terrific book. It is more than a textbook, it is a guidebook for those interested and involved in charitable planning. It has a wealth of information and educational stories. I will be happy to recommend it to all of my charitable planning professionals and high net worth clients.”

Jim Van Houten, CLU, ChFC, MSFS, CFP, Stonegate Financial Group, LLC

“Managing Foundations and Charitable Trusts by Silk and Lintott is an excellent source for the seasoned professional or those new to this field. The book concisely sets forth the various charitable tools available to the practitioner/advisor and administrator alike. This resource clearly explains the charitable mindset, the techniques to reach a particular client’s goals and the possible pitfalls of one method over another.”

Brian Kirby, Partner, Bangs, McCullen, Butler, Foye and Simmons, LLP

“I [found] this text [to be] a very good balance between the technical and informative such that that it would be useful for the practitioner community, as well as individuals considering the concept of a foundation. For the donor it summarizes in a readable and understandable fashion the technical aspects of operating a foundation, as well as the social good that a family foundation can provide to the community at large. It was an enjoyable read.”

Kimon P. Karas, Principal, McCarthy, Lebit, Crystal & Liffman Co., L.P.A.

“The combination of stated principles and story-based support is effective, avoiding the sluggishness of too much detail. It enables an energetic reading pace and a sense of productivity on the part of the reader.”

Dennis Branconier, Senior Vice President, M Advisory Group

“Silk and Lintott have done it again!”

Marc Lane, President, Marc J. Lane Wealth Group

“Great work on how foundations can influence family development and functionality.”

Peter Brown, Partner, Lathrop & Gage LLP

“Every person who wants to become an intentional philanthropist should read it. It is not only very readable, but it is comprehensive and full of generalized advice.… I want to have copies available to give to seriously motivated clients.”

Chris Johnson, Of Counsel, Buchanan & Stouffer, P.C.

“Bravo to the authors of an intelligent yet fast-reading primer on charitable giving.”

Roy A. Krall, Partner, Weston Hurd LLP

Since 1996, Bloomberg Press has published books for financial professionals on investing, economics, and policy affecting investors. Titles are written by leading practitioners and authorities, and have been translated into more than 20 languages.

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Copyright © 2011 by Roger D. Silk and James W. Lintott. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

This book is a revised edition of Creating a Private Foundation: The Essential Guide for Donors and Their Advisers published by Bloomberg Press in 2003.

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Library of Congress Cataloging-in-Publication Data:

Silk, Roger D.

Managing foundations and charitable trusts: essential knowledge, tools, and techniques for donors and advisors / Roger D. Silk and James W. Lintott.

p.cm. – (Bloomberg financial series)

Includes index.

ISBN 978-1-118-03826-0 (hardback); ISBN 978-1-118-09349-8 (ebk);

ISBN 978-1-118-09350-4 (ebk); ISBN 978-1-118-09351-1 (ebk)

1.Nonprofit organizations–Management.2.Charitable uses, trusts, and foundations–

Management.I.Lintott, James W.II.Title.

HD62.6.S5575 2011

658.′048–dc22 2011006384

To Janie Block, z’l, Susan Pohl, and Susan Maher.

Preface

When we wrote Creating a Private Foundation in 2002, the world had just finished one of the most ebullient decades in history. The long decade from 1989 to 2000 was one of almost unbroken good news for many of the peoples of the world. Following the fall of the Berlin Wall in November of 1989, the 60-plus-year night of Communism was lifted from most of Eastern Europe. And farther east, China, thanks to the introduction of market reforms, was in the early stages of one of the most remarkable flowerings of wealth in history.

In the West, the peace dividend, along with the significant roll-back of government intervention during the Reagan/Thatcher years, was a significant factor in helping the economies of the West grow steadily with few significant hiccups from the early 1980s all the way through the year 2000.

Then, we hit a rough patch. As we all know, the dot-com bubble burst in 2000, causing grievous losses to tech investors around the world. Many have still not recovered. Many may never recover. In 2001, Islamic terrorists murdered thousands of people in New York and Washington, plunging the United States and much of the world into a series of wars that still continue.

It is perhaps not surprising then that charitable giving (in the United States, for which data is available) declined in real terms in each of the years 2001, 2002 and 2003, before recovering in 2004, and reaching an all time high in 2005.1 Our view is that 2005’s giving, which was significantly higher than 2004’s, was driven at the margin by the immense charitable response of Americans to Hurricane Katrina.

In the eight years since we wrote Creating a Private Foundation, much has changed in the world of philanthropy. Many of those changes have been driven by a decade of the worst financial performance since the Great Depression.

You are already familiar with the dismal statistics. As we write, the major market averages are well below the levels they reached in 2000, over 10 years ago. Many of the risks in the financial system have proven to be much greater and much more widespread than was previously understood by most people.

And the years 2008 and 2009 saw the U.S. stock market lose about two-thirds of its value from peak to trough with similar losses around most of the world, real estate markets around the world seize up, the banking business come to the brink, the failure of the two of the three big U.S. automakers, and the near-failure of many of the largest companies in the United States and around the world.

So things must be pretty bad for charitable giving, right?

Well, no.

In fact, as of the end of 2009 (the most recent year for which data are available at this writing), total charitable giving in the United States, adjusted for inflation, was nearly 10 percent higher than it had been in the peak year of 2000. In other words, while the Dow Jones Averages declined by more than 20 percent in real, inflation-adjusted terms, charitable giving in the United States increased 10 percent in real, inflation-adjusted terms.

The bottom line? Despite a very difficult decade for many people, including people with wealth invested in the stock market, charitable giving is alive and well and even thriving.

What’s New

The changes in philanthropy over the past decade have mostly been difficult. As Warren Buffett has observed in connection with the stock market, “You only find out who’s been swimming naked when the tide goes out.” During the past 10 years, the tide went out.

And it revealed plenty of ugly. Some of the ugliness was very widely reported, such as the Madoff scandal (see new Chapter 12). But other equally serious economic and philanthropic, if not moral, problems got less showy press.

We are speaking particularly of the emerging understanding of the law of unintended consequences to the field of philanthropy. Perhaps by chance, and perhaps by the operation of what we might call the “Pride goeth before a fall” principle, both of the first two charities we mentioned in our introduction to the first edition—the Bill and Melinda Gates Foundation and the Susan G. Komen Foundation—have stumbled badly over the equal-opportunity scourge of unintended consequences. (See new Chapter 8.)

These revelations, along with more mundane changes in the economic and regulatory environment, have added new challenges and new opportunities for philanthropists.

Among the more important changes are the increased prominence of donor-advised funds (see new Chapter 14), the blossoming of a market for Charitable Remainder Trust income interests (see new Chapter 18) and the seemingly inevitable growth and elaboration of tax rules relating to charitable organizations.

As noted, another major feature of the past decade has, alas, been the loss of billions of dollars of charitable funds to fraud. As foundation managers face the future, they add fraud-avoidance to the list of must-do items. Similarly, with the yawning U.S. fiscal deficits and stated Federal Reserve policy of inflation, foundation managers must make themselves aware of the potential for devastating price inflation, and take appropriate steps. (See new Chapter 12.)

Perhaps not surprisingly given the economic turbulence of the last decade, the formation of new foundations has slowed. New foundations have, of course, been forming, and continue to be formed. But relatively more attention has been given and needs to be given to the effective management of those foundations and charitable trusts after they have been formed.

To best serve the needs of readers, both those contemplating creating a new foundation and those who already have a foundation, a charitable remainder trust, a donor-advised fund account, or other charitable entity, we have elected to keep most of the material that comprised Creating a Private Foundation and incorporate it in the present volume. Thus, although it has a new title, technically this book is a highly revised and expanded edition of Creating a Private Foundation.

1 Charitable giving statistics in this chapter are from the Giving USA Foundation 2010 Giving USA report.

Acknowledgements

We thank Laura Walsh, our Wiley editor, as well has the many members of her very capable team, including Judy Howarth, Adrianna Johnson, and Vincent Nordhaus.

We also thank a great number of clients and advisors with whom we have worked over the years, and from whom we have learned a great deal. For privacy reasons, we cannot name many of them, but you know who you are and we thank you.

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, in alphabetical order, are Jeff Albrecht, Bob Alexander, Grace Allison, Garry Armstrong, Brian Barker, Richard Berner, Andy Bewley, Bill Billimoria, Rob Borteck, Dennis Branconier, Peter Brown, Brodie Burwell, John Cady, Tim Carroll, Jean Carter, Geoff Close, Harry Colmery, John Cooper, Guy Cumbie, Trigg Davis, Frances Gaver, Cynthia Dupont, Ruth Easterling, Dick Greene, Greg Hamilton, David Harowitz, Leigh Harter, Steve Hartnett, Todd Healy, Vaughn Henry, Rich Hoholik, Eric Holk, Paul Hood, Rick Huff, Mark Jaeger, Jared Jameson, Mark Jarasek, Chris Johnson, Kimon Karas, Ira Karlstein, Douglas Kerr, Brian Kirby, Mark Kornblau, Roy Krall, Sal LaMendola, Michael Lampert, Marc Lane, Dick Lang, Richard Lehrman, Bill Linkous, Jonathan Lurie, Ronald Lyster, Dennis Mainerd, Norman Manley, Earl Mar, Bruce McClanahan, Jerry McCoy, Dipakkumar Mehta, Michael Millman, Derek Misquitta, Helen Modly, Read Moore, Jim Nepple, Terry Norris, Tom Norris, Tom Olofsson, Georgianna Parisi, Bob Petix, Ron Philgreen, Dean Phillips, Jeff Pickard, Tim Savage, Jack Sawyer, Jim Schmidt, John Scully, Eileen Sharkey, Tom Sigmund, Karen Sinchak, Fredric Sjoholm, Carolyn Smith, Vern Sumnicht, Robert Sweeney, Don Twietmeyer, Chris Valentine, Jim Van Houten, Raymond Vay, Henry Veit, Bob Wacker, Don Weigandt, John Weil, Jeffry Weiler, Mark Weinberg, and Jason White. If we have omitted anyone, please accept our apology.

Any opinions expressed may or may not be the opinions of any one or more of the people who gave us input. No opinion, in one way or another, should be attributed to any of them, unless directly cited or quoted in the text. Any errors are ours.

Chapter 1

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.

Charitable vehicles are legal structures that make effective charity possible. For people who are new to the world of philanthropy—and some who aren't so new—the range of charitable instruments can seem overwhelming. The first step in understanding them is to review all of the options with their advantages and disadvantages. In this chapter, we will look at four approaches to philanthropy: direct gifts, supporting organizations, donor-advised funds, and private foundations. We examine two other popular vehicles, charitable lead trusts and charitable remainder trusts, in greater detail in Chapter 4. Our aim is to provide a working overview of the available options so that donors and their advisers will be able to make choices appropriate for their specific situations.