Article, Charitable Captial, Sky magazine, March 1994

N A N C E f CHARITABLE CAPITAL Determining the most advantageous avenues for the donation of your money. Americans are a generous lot. The American Association of Fundraising Counsel tells us that in 1992 (the last year for which figures are available), we donated some $124.3 billion to charity. Our largess benefited causes ranging from religion, education, and health (the three categories receiving the most money) to neutering our pets. While most of us simply write a check to a favorite charity, a significant number of us donate through a community or charity-related foundation. As little as $5,000 can establish a fund in one of these entities. Once the fund is established, the foundation, not the donor, deals with applicable government regulations. The donor gains immediate tax advantages and has a say in directing where the money ultimately goes. Foundation professionals will quickly point out that giving comes from what they refer to as "charitable intent," not from tax considerations. But tax considerations do guide donors in when and how to give. "And," adds Tern7 Simmons, a past president of the National Committee on Planned Giving and vice president and general counsel of the Baptist Foundation of Texas, "they help a person give more than they would give otherwise." The concept is becoming a growth industry. In 1992, the country's 400 community foundations alone received $750 million in new gifts and reached $9 billion in assets. By the end of 1993, they gained an additional $1 billion in assets. Their names describe their mission: The New York BY HANNE K. KLEIN 10 SKY March 1994 How to look like a Million and work like a Fortune 500 ? while saving up to 70% versus conventional office space. Your office of tomorrow requires no permanent payroll. No capital invest-ment. No office equipment to buy. No long-term lease. 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The Buckley School specializes in teaching executives and professionals communications skills. We'll teacn you how to speak to the public, how to sell yourself and your products, now to organize your thoughts, how to motivate and persuade others. Each three-day seminar is taught by Mr. I 1 You'll meet and lean1 from Reid Buckley, the distinguished master of the an of communication. Buckley and his dis-tinguished staff to a class of just twelve participants. Give yourself the skills you need to go to the top. Fill out the coupon at right or call for FREE information. crn /STATE/ZIP THE BUCKLEY SCHOOL OF PUBLIC SPEAKING E 0 . Box 874, Camden, SC 29020 (803) 425-4681 Community Trust, Chicago Community Trust, and the Columbus Foundation are examples of community foundations. Charity foundations go by names such as Catholic Charities, the American Cancer Society Pooled Income Fund, Miami- Dade Community College Foundation Inc., etc. The primary difference among them is their focus. Community foundations look at the needs in their geographic communities; charity-related foundations concentrate on specific causes. One's own attorney and advisor always should be brought into the process. Working together with a foundation's experts, the two teams can determine the most advantageous vehicle for all concerned. The donor then makes the final decision based on personal goals and means. While each foundation has its own rules, regulations, and quirks, typical choices include the following. Philanthropic Fund A i so called Advise and Consent Fund, this popular option allows one to set up a fund for a relatively small amount of money. Most foundations will establish a Philanthropic Fund with an initial $5,000 gift. (Fidelity Investments' Charitable Gift Fund, a private-sector fund that works in the same way, requires an initial $10,000; some foundations may accept less.) Many foundations allow both principal and income to be spent; some, such as the Chicago Community Trust, spend only the income. Donors - and their friends and relations - can continue to add to it. The tax deduction comes in the year the donor writes the check, but gifts can NOT ALL LOGO WATWFES ARE CREATED EQUAL! At INFINITY, we believe in quality and dependability. Our watdtes are attractiv ly designed and sturdily built to complement your pretious logo. After all, a logo is the SYMBOL of your company. And together, they advertise and promote your company for you 24 hours a day tvei yday nonstop! 2 micron 18K gold plated solid brass watch case body Slim design and water resistance structured High quality water resistant genuine leather straps Precision battery powered watch movement Handsomely crofted hour, minute and second hands Exceptional detail and stunning color on your logo 5-Year Limited factory warranty Assembled ia the U.S.A. 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Ellen Ann Lacev, executive director of the Foundation of the Jewish Federation of Greater Dallas, explains the significance of the word "recommend" and how it.works in her foundation. "Clearly, recipient organizations must be IRS tax exempt," she says. "The Federation must retain final authority for all grants since the IRS does not permit a donor to control the assets once donated. So grants are made from the fund to charities upon a donor's recommendation to the Distribution Subcommittee, but they're the group who makes the final determination. And, the grant must be for a charitable purpose from which the donor receives no personal financial benefit." However, suggestions that fall within those guidelines are taken seriously. Designated Fund T h i s works similarly to the Philanthropic Fund, except that it supports a predetermined interest. A modest donation can start one, and donors have a say in the disbursement of funds. Another advantage to donors comes from the expertise of the foundation's staff. They will research and propose potential projects that fit the fund's framework. The Goldyne Hevman Educational Fund, a designated fund established by an entire family within the Chicago Community Trust, shows how this works. Aware of Ms. Heyman's strong interest in education, her three children, their spouses, and her six grandchildren AFS Puts A Silver Lining In Home Building Opportunity Brighten your future with a home framed in steel! Our unique pre-engineered steel framing system offers the features today's value-conscious consumers demand: ? Environmentally Preferred Building Material with Consistantly good Quality and Durability ? Super Energy Efficiency for much Lower Utilities ? Simple, Quick and Economical Construction ? Superior Strength for Extra Protection against Fire, Wind, Termites and even Earthquakes ? Savings on Maintenance and Insurance Premiums ? 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Saunders, Admissions Director, for more information. j a p - N Rabun Gap, Georgia 30568 (706) 746-7467 ? (800) 543-7467 Fax: (706) 746-2594 "LET'S YOU & ME CARRY ON!" WITH THE World Famous i s + = i i i i = r CARRY-ON PIGGYBACK Presenting the first suitcase with room for luggage... Samsonite "CARRY-ON" PIGGYBACK with Wheels. Available in blk., jade, navy or burgundy. $129. 99 ? Limited quantities ? Phone Orders Shipped PROMPTLY Corporate Accounts Welcome Call for price auotes on All Major Brands 01 Luggage 223-0698 793 Lexington Ave. Out of NY: (Between 61st & 62nd Sts ) 1 (800) 822-0404 New York, NY 10021 FAX: (212) 759-5238 ? ALL MAJOR CREDIT CARDS ACCEPTED established the fund two years ago to honor her 80th birthday. The family expects the fund to support programs that encourage disadvantaged Chicago youngsters to stay in school. "Our fund is comparatively small, so we're looking for groups that need in the thousands, not the hundreds of thousands," says Jay Heyman, one of Goldyne's sons. "[The Chicago Community Trust] has a staff specialist whose expertise is education, and she must know of hundreds of these." Their first gift, a $1,500 grant, funded supplies for a private, after-school Young Writers program in Chicago's Cabrini Green housing project. Charitable- Remainder Trust T h is is for people who intend to leave money to a charity when they die, but find it financially advantageous to set up the trust while still alive. Often donors set up charitable-remainder trusts with appreciated stock or property to escape the capital-gains tax due once the stock or property is sold. That advantage comes because the foundation, not the donor, actually sells the asset. Its value to the donor is the original purchase price; the charity receives whatever it sells for. While setting up the trust, the donor also designates who receives the trust's generated income. Many people use the income for their own or their family members' living expenses, knowing that at the end of the trust period, they will leave a substantial gift to a foundation's endowment. It's win-win-win. They have generously endowed their community, provided for their own needs, and maximized their gift because of the avoided capital-gains tax. For example, the New York Community Trust is now reaping substantial benefits from such a trust set up by Wheaton Bradish Kunhardt. This lifelong bachelor and chairman of Carpenter Steel Co. wanted to take care of both his community and his 16 nieces and nephews. In 1933, he established a charitable-remainder trust. It paid each niece and nephew a lifetime income, with their portions coming to the New York Community Trust on their death. Since 1949, when the first shares came in, the Kunhardt fund has supported causes in New York City ranging from refugee resettlement to housing for the homeless. As of September 1993, the trust's value totaled $12.5 million. Donors who want heirs to inherit capital as well as receive income have an additional option. They can buy a life-insurance policy equal to the gift. If someone other than the donor actually owns the policy, ownership is outside of the estate and heirs pay no inheritance taxes. The guidance of your own advisors becomes particularly important when establishing a charitable-remainder trust. They will use terms like pooled-income fund, unitrust, and charitable-annuity trust. Each offers advantages and disadvantages. Each computes rates of return differently. Your own expert will guide you through their different nuances based on your circumstances and goals. Charitable-Lead Trust T h is is the mirror image of the charitable-remainder gift, and it works for people with a lot of money to give. The donor "lends" several hundred thousand, or several million, dollars to the foundation. Only the income becomes the charitable donation. At the end of the trust period, the principal reverts to the donor or to anyone the donor designates. "Typically," says Simmons of the National Committee on Planned Giving, "these trusts are set up with tax-exempt c c When Jim Alton was Marketing Manager lie discovered a way to put his company's name all over town for iust a few dollars, Jim bought 40 polo shirts embroidered with his company's logo for the annual sales meeting. Because each shirt had the company logo and the salesperson's name, he advertised the company and the people. The reason this was such a successful marketing tool is simple: people prefer to deal with people. 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I-(800)-606-1383 Personalized Corporate Apparel W?hS en mordearinrg ptle asMe refeor tvo theis, c oJde:i 3m4A0,3n0 1 1 (and congratulations on your promotion!) securities because even though the money goes to charity, since it is a grantor trust, the income is taxed to the grantor. So if you set it up with tax-exempt securities, you don't have to worry about that. "The way that people are most familiar with charity-lead trusts," he continues, "is that when the term of years expires, the property goes to children or grandchildren. And in that case, it reduces or eliminates the tax cost of transferring assets from one generation to another. It's called a lead trust because the charity is in the lead position. It gets paid first, which is the reverse of the remainder trust." Foundations provide an additional service. They can evaluate recipients and guide donors. Says James I. Luck, president of the Columbus (Ohio) Foundation, one of the YOU WANT TO KNOW America's sound charitable Institutions welcome your questions. A good starting place to guide your inquiry is the Council of Better Business Bureaus' Philanthropic Advisory Service. THEIR PUBLISHED STANDARDS SUGGEST THAT CHARITABLE ORGANIZATIONS: ? Offer annual financial reports and full financial statements; ? Spend at least 50 percent of money raised on programs and activities directly related to the organization's purposes with total fundraising costs not to exceed 35 percent of funds raised (or 50 percent on fundraising and administration combined); ? Be able to substantiate the accuracy of information in solicitations; ? Have sufficient internal financial controls and controls over contributions; ? Have an active, independent governing body. THE PHILANTHROPIC ADVISORY SERVICE ALSO OFFERS A LIST OF TIPS FOR ANYONE ABOUT TO CONTRIBUTE TO A CHARITABLE ORGANIZATION. THEY INCLUDE: ? Ask questions. Charities with nothing to hide will welcome your interest. ? Be leery of pressure to make an immediate donation. ? Give with a check, not cash, and make the check out to the charity, not the solicitor. ? Keep records of all donations so that you can document your deductions for the IRS. ? Verify your recipient. Don't be fooled by names that sound impressive or similar to a well-known organization. ? Be sure that mail appeals clearly identify the charity and its programs and are not just an emotional pitch with no substance. ? You need not pay for unordered merchandise, nor must you return it. ? When asked to buy a product or tickets, be sure to ascertain what the product is worth and how much the charity receives. The IRS accepts only the amount over the fair market value as your charitable deduction. For information or helpful brochures about wise charitable giving or on specific charitable organizations, contact the Council of Better Business Bureaus, Inc., 4200 Wilson Boulevard, Arlington, Virginia 22203. Options for charitable giving are also outlined in Coopers & Lybrand's new book, Charitable Giving in the 1990s, available by writing to Kay Gentile, Coopers & Lybrand, 1800 M Street, N.W., Washington, D.C. 20036. - H.K.K. country's ten largest, "We have a staff of 25 people who perform all kinds of services, know about the needs of the community, and review what agencies are doing. We do a full-blown review of those projects where we're spending money. When we approve a grant, we may go to a donor that has an interest in a certain kind of problem and say, 'Gee, we'd like to use some of your funds,' and they might say, 'Well, that would be great.' " Committees composed of board members and professionals in the field usually set a foundation's asset-investment policy. They tend to be on the conservative side. Ruben Orduna, director of community foundation services for the Council on Foundations, cites a recent study his organization conducted. "The average for all participating foundations surveyed was about 40 percent in equities, 46 percent in fixed-income products, 13 percent in cash, and one percent in 'other' ... It's pretty well balanced in general." He adds, "You're not going to get aggressive plans or philosophies. The intent is to create charitable capital for the community. So you're going to have balanced portfolios to avoid extremely high peaks and low points." Management fees also tend to be low. "The community foundations want to make sure that they're competitive," says Orduna. "Otherwise, they wouldn't be able to attract donors; it would mean too few dollars going out to the community. The intent is to keep those fees as low as possible so that you generate maximum resources for long-term charitable capital." Simmons encourages donor investigation on these and other questions. "Ask every question you can think of," he says. "Before you go, ask someone experienced in giving to think of some questions you may not think of. Every worthwhile charity will bear scrutiny and will be able to respond positively to any questions you can ask them." Luck, of the Columbus Foundation, sums up the foundation appeal to many donors. "It's an alternative which allows people to be involved with their charitable giving without having to deal with a lot of regulations in the process. For people who are leaving an estate and are interested in the future of their community, the community foundation has the ability to focus funds where they're most needed in the future. "And it's a way to pay forward. You can't pay back the people who made your community possible, but you can pay forward to the next generation, and the foundation makes that possible." Hanne K. 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