Tag Archives: Charitable Giving

Philanthropic Analysis Paralysis

Face it, many of us “wonks” (which I lovingly use) in the philanthropic sector have become enamored with being able to measure things. We also like to complain a lot when we can’t measure something.

Lately, all of the talk has been on the various ways to measure an organizational outcome. Under Ken Berger’s leadership, Charity Navigator has set a new course and begun studying ways to incorporate measurement of outcomes into their charity rating system. I applaud Ken and Charity Navigator and believe that for too long, we have not been focusing donor attention on the entire picture. It is inherently good to ask the question, “How effective have you been at actually achieving the thing we’ve been giving you money for?”. To be able to create mechanisms that address that question could potentially have a huge impact and be a game changing moment for the nonprofit sector.

In my work as an investment adviser, I choose investments to put money into. For the most part, I frankly don’t care how much a company spent on advertising expenses or other overhead costs, I care about their earnings. I care about their dividend. I care whether the company is growing or contracting. I care how much market share they have relative to their competitors. These and other things tell me how healthy a company is. While it is useful to compare the overhead of Home Depot to Lowes, it is pointless in my opinion to compare it to Johnson & Johnson if you are interested in the metrics of the home improvement business. They do completely different things. Measuring the right things is something that we’ve done a poor job at and it seems like good people are committed to making real improvements to how we track effectiveness. This is long overdue. Have we missed something along the way though?

When I first started becoming interested in philanthropy as part of my business, I wanted to help charities tell the planned giving story. When I went to become a Certified Financial Planner™ Professional, I saw the tax wizardry of Charitable Remainder Trusts and was amazed when I saw that one could potentially leave more money to heirs through the use of these and other kinds of charitable vehicles. I thought, “Wow, why doesn’t everyone know about this?” I felt that many more people would give to charity if they knew what kind of tax benefit they could get and that if heirs actually wound up receiving more in the process, well that would certainly be a win for everyone but the government. Over time, I learned that while many people do give for tax reasons, more give because they are inspired to do so for one reason or another. They give from their heart. They give to give something back or to make a difference.

While the measurement issue is a critical one, let’s not lose sight of the fact that we also need to be focused on showing people the way into philanthropy. We need to be creating opportunities to make new philanthropists by showing the world that we all make a difference and have the ability to do so. I discovered philanthropy. A business coach asked me to write my own eulogy. After a few minutes of sitting there, staring at him, and thinking about the question, I answered. I said, “I guess I would want people to say I made a difference…” The rest is history.

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Is Obama’s Estate Tax Plan The Nail In The Nonprofit Coffin?

We folks who deal with high net worth clients have wondered for years what will happen with estate taxes when the current plan sunsets in 2011. Let me make a guarantee here (which is something I don’t often do). I guarantee that estate taxes will be addressed before 2010 which is when they are set to return to zero and return to 2001 levels when 2011 begins. Already, congress is abuzz with talk about what to do about it. Frankly the estate tax has been the running joke in the planning community for years when congress said that the estate tax would disappear in 2010. People said that they would start to write special instructions for “pulling my plug”, but only if it were advantageous from an estate tax planning perspective. All kidding aside, regarldless of what gets decided, I guarantee that there will be implications. As The NY Times reported in 2005, the last time there was talk about eliminating the estate tax, charities remained shockingly silent for fear that any attempts to block the measure would be donor suicide. I mean really, would you give to a charity that intentionally lobied for higher estate taxes? Are you crazy? Make no mistake, this time, I guarantee there will be legislation being passed and it will have a major impact on both the wealty, and nonprofits.

While many in the nonprofit community have been quite vocal against Obama’s plan to lower the charitable tax deduction, if history is any guide, I don’t think they will be speaking up now. Perhaps they should. I believe that the changes to the estate tax will have a much bigger impact on charities than the income tax deduction. Charities felt that they had nothing to lose by speaking up on the proposed change to the deduction because the change would be bad for BOTH the wealthy, AND the charities. By lowering the deduction, the wealthy would be losing a tax incentive to give to charity (perceived as bad for the wealthy), and the charities would be hurt by that. Nobody had a problem speaking up to say this was a bad idea. The estate tax is a completely different animal and I would argue, will hurt charities much more than the income tax deduction. Have you heard anyone talking about this? Nope. This will be a silent walk to the grave for the nonprofits. Here’s how it will happen.

Year/ Exclusion Amount /Max Top tax rate:
2001 $675,000 55%
2002 $1 million 50%
2003 $1 million 49%
2004 $1.5 million 48%
2005 $1.5 million 47%
2006 $2 million 46%
2007 $2 million 45%
2008 $2 million 45%
2009 $3.5 million 45%
2010 repealed 0%
2011 $1 million 55%

In the above chart, notice that the estate tax exemption amounts have been going up since 2001. From 2001 until 2008, the exemption amounts didn’t go up that much; essentially from $1-2 million. The period from 2001 to 2002, up until recently, was the worst period of time for the markets since the great depression. While the exemption amounts did go up slightly from $675,000 to $1 million dollars, that was not a big increase in real dollars for the wealthy. From 2003 up until 2008, the stock market experienced a bull market while the exemption amounts only increased from $1 million to $2 million. This year however, the exemption amounts went to $3.5 million. That means that a husband and wife can leave $7 million dollars free from federal estate taxes. Compare that to only $2 Million total in 2002 ($1 million for each individual), and that’s a lot of extra millions. Let’s add somthing else here. Portfolios are down much more than the last recession. This means that exemption amounts are much higher, and people have less money. Well that’s great for the wealthy right? How about for the nonprofits? They are still talking about how the drop in the income tax chariable deduction is going to impact them. Folks, wake up, you have a new problem. It’s called the estate tax. While nonprofits have had lots of other things to deal with lately, I fear that what’s being discussed with the estate tax is going to be yet another blow to their ability to continue to operate as they had been.

Before the wealthy shoot me here, let me point out that there’s a fine balancing act that needs to take place here. Nonprofits play an essential role in society and they perform many responsibilities for society that the government isn’t good at and has no place in. If charities are not fundamentally strong, society is worse off and someone else needs to pick up the slack. If the government needs to do more, guess what, that means we all will wind up paying higher taxes anyway. It’s in our nation’s interest to make sure they remain financially healthy.

At present, the latest word on the street is that the Democrats support leaving the estate tax at the current level of $3.5 million. The exemption amount has never been this high before and only time will tell how much of an impact that will have on charities and donations. In my business, avoiding paying estate taxes is one of the primary functions that a wealth manager helps clients peform. While emotion has been the primary driver of charitable contributions, not taxes, I fear there’s a perfect storm that is lining up. For many in the wealth managent community, charity is only a means of avoiding taxes for their clients. Unless an adviser can use charity as a way to save taxes for their clients, they generally don’t bring it up. Doing so means less under management for the adviser and that translates directly to less fees. I assure you, right now, many advisers are just struggling to keep their doors open and discussing charity with their client is the last thing on their mind. The big question is, how many potential donors were lost by dropping investment portfolio values, raising the estate credit amounts from $2 million to $3.5 million, and cutting the charitable income tax deduction?

Just to be clear, I would be in favor of  freezing the estate exemption limits. I feel people pay enough in taxes and they shouldn’t have to pay again when they die. Make no mistake though, this will be another blow for charities. Don’t drop the charitable tax deduction, raise it, by a lot. I’d also be in favor of paying higher income taxes to pay for things like universal health care, education, and alternative energy. I realize you can’t have your cake and eat it too, I just worry that the cake recipe is looking like pie and we’re all going to get some in the face if we don’t think these things through more clearly.

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The Good Apples- Rise of the New York Philanthropic Advisor Network

What’s the definition of philanthropist? What are the biggest problems facing philanthropy today? How can we philanthropic advisors do a better job serving our clients who are interested in making a difference? What problems are high net worth clients having in discussing philanthropy with their advisors? What words of wisdom and advice do people like Bill Gates, Sr. have for us to make philanthropy easier to carry out? These questions and others are among the ones that we will be asking at the New York Philanthropic Advisor Network.

What originally began in Seattle as the Seattle Philanthropic Advisor Network (SPAN), an idea by Randy Ottinger of LMR advisors, is quickly springing up in other cities around the US. The idea? Have the biggest names in philanthropy talk to advisors who represent the gatekeepers of client wealth and teach them to be better philanthropic advisors. The idea took root in Seattle attracting such speakers as; Bill Gates Sr (watch the talk here)., Paul and Debbie Brainerd, Bill Neukom, Julia Boltz, and veteran philanthropic experts, Phil Cubeta and Tracy Gary. Now the idea has come to the Big Apple.

We are looking for potential speakers for our lunch discussion. Email me rkrasney@rjkwealth.com if you would like to find out more about the group or have ideas for potential speakers.

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Arthur Brooks “Who Really Cares: The Surprising Truth about Compassionate Conservatism”

Talking politics and religion can be a lethal mix so I’ll tread carefully here. When I make conclusions about things (especially when it comes to religion and politics), I try and be particularly careful to point out when i’m injecting opinion versus stating facts on things. Arthur Brooks’s book, “Who Really Cares: The Surprising Truth about Compassionate Conservatism” is a book that states the FACTS about who gives and who doesn’t in America. The findings detailed in the book were quite surprising to me, and to Arthur Brooks himself, as he states in the book. This book was the focus of an ABC News 20/20 report entitled “Cheap in America” Who Gives and Who Dosen’t” 

A common perception is that liberals and Democrats are more “socially concerned” than conservative Republicans, and one might make the natural leap that because of this, they are more likely to be charitable. According to the research that Arthur Brooks conduced though, it’s exactly the opposite. How could that be? That’s impossible!

Brooks himself thought there might be an error in the numbers so he rechecked them. There was no denying the facts. Conservative Republicans, (who some argue would fire their grandmother to improve profitability) are statistically more charitable (more than 30% more charitable) compared to their “socially concerned” liberal democratic friends. Don’t shoot the messenger if you don’t like this, read the book and see the statistics for yourself. Just the facts here…

So how could this be you are asking yourself? Well the findings point right to the heart of the perceptions that “secular liberal democrats are more socially concerned than religious conservative republicans”. It turns out that the secular liberals (the Democrats) belive that it’s the job of the government to take care of the poor (no surprise here yet) and are more in favor of “income redistribution”, taxing and redistributing resources from those who have money to those who are poor. Socially leaning political views have actually taken the place of their charitable contributions. Brooks’s research shows that regardless of which political party was actually in office or how effective politicians were in their policies toward the poor, that the religious conservative Republicans consistently gave more than their secular liberal Democrat counterparts.

Brooks is careful to point out that there are many examples of charitable liberal democrats and non-charitable conservative republicans, however the research clearly demonstrated wide and across the board differences in giving patterns along political party lines. That’s not the only thing. Brooks points out that among the both the Republican and Democratic parties, people who are religious tend to give much larger amounts to charity, giving significantly larger amounts to  both religious and non-religious organizations compared to people who were secular non-religious. Among all religious people, Republican conservatives still give a statistically significant greater proportion than Democratic liberals.

Brooks notes that “secular liberals” and “religious conseratives” are increasingly voting along political party lines, with religious conservatives tending to align with the Republican Party and secular liberals favoring the Democratic Party. The smaller groups that cross party lines, the “religious liberals” and “secular conservatives” both represent a shrinking percentage of of their respective political parties’ makeup. If this trend continues, these groups may find that their views are at odds with those of greater majority of their political party.

What’s clear are the numbers. Arthur Brooks says that these findings should be a wake up call to to the Democratic party and to secular liberals. The nunbers show that the charitable giving trends diving political parties are increasing. The message:  All are apparently not equal when it comes to being giving.

Regardless of whether you agree or disagree with the findings, “Who Really Cares” is an entertaining read that will be sure to hold your attention and may change your perceptions.

Click here for video clip from “Cheap in America”

Next time…How giving makes you happy…

Who Really Cares

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