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Giving Patterns of the Not So Rich But Very Famous

Posted in Uncategorized, tagged , , , , , , , , , , , on April 18, 2013 | Leave a Comment »

Phew!  Once again, we made it (barely) through tax season or, as we prefer to call it in the profession, the “silly” season.  Of course, the silly season in taxation is the polar opposite of the silly season in various sports and journalism, where it is perhaps more appropriately defined as the off-season when real news and action is light.  By contrast in tax, the silly season is that surrealistic time right before April 15th when down is up, white is black, good is bad…well, you get the drift.  It is truly the bizarro world.

 

Tina? Sarah? Only her hairdresser knows for sure…

So, now it is the so-called “off-season” for us.  And what do tax accountants do in their off season?  They become tax yentas, catching up on some light reading, like President Barack Obama’s and Vice President Joe Biden’s tax returns.  That’s right; there is a website that is specifically devoted to providing this unvarnished data for our reading pleasure.  For historical flavor, they also throw in the various tax returns of former Presidents Bush, Clinton, Bush, Reagan, Carter, Ford, Nixon and Franklin Roosevelt.  Not to mention presidential/vice presidential wannabes like Romney, Ryan, Gingrich, Santorum (who?), McCain, and Palin (or is it Fey?).  The stated purpose of the Tax History Project is “to provide scholars, policymakers, students, the media, and citizens with information about the history of American taxation.”  Uh-huh.  Personally, I think it just puts private information about public figures into the hands of those least able to interpret it.

 

Nevertheless, the takeaway…..

michelle-obama-2-600

Our President and First Lady appear to be fairly generous donors, giving away $150,034 to charity last year.  This represents just shy of 25% of their adjusted gross income ($608,611), a healthy measure by anyone’s standards.  Their contributions were generally in the $1,000 to $5,000 range.   The big one was to the Fisher House Foundation ($103,871), an organization that provides temporary housing to military families who travel to be with loved ones who are receiving medical care at major military and VA medical centers.  The first couple does not appear to have done anything fancy in 2012 with their charitable giving – it was all in cash, nothing in appreciated securities, and no fancy techniques were employed (CRT’s, CLT’s, private foundations, etc.).

 

pol_0121_joebidendance_480x360The Vice President and Jill Biden appear to be more like the rest of America (Joe and Jill Sixpack, if you will) – their charitable contributions ($7,190) represented less than 2% of their adjusted gross income ($385,072). More sketchy on the face of it was the fact that a significant portion of their contributions were noncash donations of “clothing, books, kitchenware, glassware, furniture, exercise equipment, bicycles, toys, and pottery.”  Clean out your house, take a $2,000 deduction.  (But who am I to throw stones?  I gave away a car last year. )

 

According to The Charities Aid Foundation World Giving Index 2012, the United States ranks # 5 in the world in terms of overall giving  and # 3 over a 5 year period. Not bad, but for a competitive people, not particularly good either. (“WE ARE NUMBER 3, HEY! WE ARE NUMBER 3!”- It just doesn’t roll off your tongue too well.)  The more important factoid, I think, is that the percentage of our disposable income donated to philanthropic causes has hovered for decades around 2% (Giving US Foundation, 2011 Report).  The Biden’s are almost at that pitiful level while the Obama’s blew it away.   Finally, preliminary (and ridiculously late) 2010 statistics from the IRS show that people in the Obama/Biden’s income category of $250K + gave away an average of $19,651.  So, it’s “Hail to the Chief” and “Boo to the Veep!”

 

Where does this leave us?  Poking fun at politicians and celebrities is fine, but at the end of the day, charitable giving is and should not be just a “feel good” exercise.  Being judgmental about it, I think giving levels in this country should be dramatically increased, especially as government spending in the social sector is curtailed.  That said, I also believe that it is up to each and every one of us to do our part in a way and to the extent we feel most comfortable, and that our giving, regardless of the amount, should always be done thoughtfully and systematically.  Many religions teach about tithing as an aspirational goal – giving away a minimum of 10% of your income.  10% is a lot – but what about setting a goal that is reasonable for you and then making it happen?  It could be 4%, 6%, or even 10% or more, but if you systematically make it happen each and every year, your philanthropy will become more manageable, budgetable, impactful, and ultimately more meaningful for you.

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Does the Deduction for Charitable Contributions Really Matter?

Posted in Uncategorized, tagged , , , , , , on March 6, 2013 | 4 Comments »

Many charities and big donors feel that we dodged the philanthropic bullet in January when the American Taxpayer Relief Act of 2012 was signed into law by President Obama.  True, for wealthy individuals, the bad news was that the top tax rate increased from 35% to 39.6%, the annoyingly-named and applied “Pease” and “PEP” limitations were restored to their full strength, and all of these changes were introduced concurrently with the Obamacare provisions taxing compensation income by an additional .9% and investment income at an additional 3.8%.  BUT, HALLELUJAH, THE CHARITABLE DEDUCTION WAS PRESERVED!

 

Important, yes, particularly with tax increases a reality, but more importantly from a psychological standpoint than a purely rational/financial one.  The question is, do the tax incentives really matter?

 

The single most interesting behavioral thing I have learned about taxes over the course of my career is that, no matter how large or small our marginal tax rate, as long it is positive, taxpayers will look for ways to avoid paying it.  It is simple human nature.  So take with a grain of salt any talk about tax collections increasing when rates decrease – the fact is, the American Taxpayer (taxpayersaurus Americanus)   will go to enormous lengths to avoid paying tax — any tax — whenever and wherever possible.  Think about those sales tax holidays we occasionally enjoy in some of the high tax states around the country.  States will temporarily cancel their sales tax for a short period of time in order to encourage retail sales.  The results are often incredible.  You would think they were literally giving things away at the mall the way the consumers flock in to save, what, 8%?  It’s not the amount, it’s the principle of the thing, man!  Ok, it actually IS the amount, but no amount is too small.

 

Understanding this basic premise about taxpayersaurus Americanus explains much about why our tax system is so opaque and inefficient.  Everyone wants to beat it and Congress delights in putting in “incentives” to stir the pot – and to make us THINK we are beating it.  Take our current (permanent) tax policy debate.  Many folks worry that a cap may be imposed on itemized deductions, including charitable contributions, limiting their deductibility to a maximum of 28%.  Psychologically, this is troubling.   But from a purely economic point of view it is nowhere near as bad as it seems for most taxpayers, even high income ones.  Why?  Well, for one thing, before anyone even tries to limit the deduction, the alternative minimum tax (AMT) will most likely kick in and do its damage, particularly for taxpayers in high tax states like New York, New Jersey, and Connecticut.[i]    The AMT can impact taxpayers with income from the high five to the low seven figure range, a large group of people indeed.  And what is the top marginal rate for the AMT for these folks?  Interestingly, 28%!  So effectively, the charitable contribution for these folks is already capped at the magic 28%.  It is a very effective use of smoke and mirrors and one that would not change even if itemized deductions are limited.

 

The math works perversely in other ways as well, even when the taxpayer is deep into the 39.6% bracket and has broken through the shackles of the AMT.  In such a case, the so-called Pease limitation (extensively derided in a previous blog) can cut down the value of the charitable deduction to almost nothing.  Pease reduces total itemized deductions by 3% of excess adjusted gross income (AGI), i.e., AGI in excess of a magic number ($250,000 for singles and $300,000 for married couples filing jointly), but only to the extent of 80% of total deductions.  So using just percentages, let’s take this example to the extreme — our taxpayer’s itemized deductions consist solely of charitable contributions and are fully reduced by 80%.  Effectively, what this means is that only 20% of his contributions will be deductible at a rate of 39.6%.  Bottom line?  The true tax savings is only 7.9% (20% x 39.6%), a far cry from 28%.   More smoke, more mirrors.

 

Even so, I do not endorse limiting the charitable deduction.  Its existence sends a message that we, as a society, value charity and players in the “marketplace of philanthropic impulses” and its psychology is very powerful indeed.   But, I also believe that the true financial and incentivizing value of the deduction is overstated.  Psychologically, donors appreciate a deal, especially when the tax break lowers the overall cost of their contribution.  But true philanthropists will continue to give regardless of tax breaks.  For them, the reality is stronger than the psychology.  Giving is the right thing to do and consistent with their goal to move from success to significance.

 

[i] This has to do with the calculus of AMT – certain expenses including  but not limited to state and local income, property and sales taxes may be deductible for regular tax purposes but not for AMT.  So taxpayers in high state and local tax jurisdictions whose deductions will be significantly impacted by AMT will be subject to the AMT more often than taxpayers from low tax jurisdictions.

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A Planning Plum for that Pesky IRA You Don’t Need Anyway – Part 1

Posted in Uncategorized, tagged , , , , , on January 25, 2013 | Leave a Comment »

Ok, so this is really late to be writing about this planning tidbit, but the fact is, the current use of this particular technique is very limited – certainly limited enough that I wouldn’t get too excited about it.  Later in the year, though, it may be a different story and I may get excited then.  But until then, I would be remiss if I did not point it out to you so here it is:

 

Until January 31st, taxpayers aged 70 ½ and older can direct up to $100,000 from their traditional or Roth IRA to a public charity (no private foundations or donor advised funds, please) and elect to include the transaction as if it occurred in 2012.  The distribution from the IRA will NOT be included in income nor will the contribution to charity be deductible.  For 2012, this is helpful mostly for:

  • Those who may have forgotten to take their required minimum distribution (RMD) in 2012 and want to correct the error.  Even though it will not be included in income, any such charitable transfer will count toward the 2012 RMD.
  • Those who bumped up against the income limitations for charitable contributions in 2012 and still want to give more.  Good for you – you are an inspiration to us all.
  • Those who have an IRA that they are looking to clean out during lifetime (for any number of reasons).

 

Other than that, it really seems to be a last minute planning tool in search of an audience.  Pretty amazing if you ask me, but then again, if the government can print money to try to solve monetary problems, why can’t it rearrange time and space as it sees fit?  The bottom line:  2012?  Not so good.  2013?  Has potential.  Stay tuned for the next edition of “Charitable Nation.”

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We Can All Learn Some Humility from this Humble Philanthropist

Posted in Uncategorized, tagged , , , , , on August 9, 2012 | Leave a Comment »

Technical difficulties with Tuesday’s blog post put a bit of a damper on its publication.  (Thank you, Sarah Cirelli of WS+B for finally getting it out!)  Even so, I had a blast writing “Name That Philanthropist” and hope you enjoyed testing your knowledge of these generous folks, both past and present.  To me, the super philanthropic community is a community of heroes and, commercial viability aside, it truly is worthy of its own series of Topps trading cards.  Individual inspiration for significant giving is, of course, personal to the donor, as is the donor’s response to the kudos of others.  Some prefer accolades to anonymity.  Some revel at the thought of their name on the side of the building, others recoil.  So be it.  In my mind, whatever inspires a person to give is generally a good thing.  Trying to understand the motivation is best left to professional fundraisers.

Now, for the riddle wrapped in the enigma – Charles Feeney, one of our showcased philanthropists earlier this week, is the decidedly downscale (former) billionaire next store.  Once mistakenly listed as the 23rd richest American (Forbes 400, 1988), Chuck had, by that time, given away virtually everything to his private foundation, the Atlantic Philanthropies.  An article in today’s New York Times discusses Feeney’s approach to philanthropy and to life in general.  He grew up in a working class family in Elizabeth, NJ, served in the Air Force and attended Cornell University on the G.I. Bill.  He made his billions as the founder of the airport-based chain “Duty Free Shops” selling cigarettes and liquor to travelers “duty free.”  He kept his philanthropic impulses fairly secret until 1997.  In the last 10 years, he made a conscious decision to go a little bit more public in the hopes of inspiring some of his fellow one-percenters to share more of their fortunes.  Most surprising to me, given Chuck’s general low key approach to life, is the fact that a biography had been written about him in 2007.  The Billionaire Who Wasn’t is now on my required reading list.

According to the NYT article, Chuck lives in a building on a side street in Midtown Manhattan, buys his clothes off the rack (“I’m a shabby dresser”) and watches a television set “with the obvious girth of a model bought 20 years ago.”  (Boy do I feel guilty coveting that latest flat screen…..) He has made “decent, though not extravagant, provisions for his four daughters and one son.”  All of his children, apparently, worked through college as waiters, maids and cashiers.  Talk about real family values!! 

The Atlantic Philanthropies was founded in 1982 in Bermuda (for privacy purposes, of course) and is currently in the process of self liquidation.  It has set the end of 2016 as its deadline for grantmaking.  To date, it has have invested more than $6 billion around the world and has about $1.5 billion to go.  Its causes are sweeping and profound and range from education to health to other social issues.  More information can be found on its website.

Observation:  In this world of conspicuous consumption, reality television, corrupt bankers and politicians, and general disregard for society “except as it impacts me,” Chuck Feeney is an unlikely inspiration and refreshing presence.  I guess you can call him the “anti-Trump.”  I look forward to reading The Billionaire Who Wasn’t and learning more about this remarkable man.

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Name That Philanthropist!

Posted in Uncategorized, tagged , , , , , , , on August 7, 2012 | 1 Comment »

My partner, Ed Mendlowitz, recently printed up a set of Topps trading cards called (are you ready?)  ”Great Accountants in History.”  His deck included such luminaries as Luca de Pacioli, the father of double entry bookkeeping (circa 1494), Charles Waldo Haskins, the first CPA leader in the US (Accounting Hall of Fame – I’m not kidding),  Ithamar, son of Aaron, the first “auditor” in the bible, and, of course, the inimitable Edward Mendlowitz himself, author of Power Bites and notorious blogger at  http://partners-network.com .  My beef with all of this is that my pack did not come with a stick of stale chewing gum.  Am I stuck in a 1960′s time warp, or isn’t the stick of stale gum a required element of trading cards?

Anyway, I think it is safe to say that the baseball card industry probably has nothing to worry about in terms of competition from this series.  I don’t even think that the “Heroes of the Torah” trading card collection will be at risk.  But it got me to thinking – why not release a series called……”Great Philanthropists, Then and Now”?  Hmm…. It may or may not have legs.  Before we invest our hard earned paper route money into that little venture, let’s do a little low cost market testing and see how many of you can actually—— 

Name that Philanthropist!

     
A.  This handsome fellow is said to have revolutionized the petroleum industry and defined the structure of modern philanthropy.  At one time considered the most hated man in America (go figure), he founded the University of Chicago and also a university that bears his name.   B.  Most of his fortune was earned in the steel industry and most of his charities contain his name.  How do you get to ________ Hall?  Practice, practice, practice! C.  I wonder if this photo was processed with the film pioneered by this guy – I bet it was!  He established a school of music that bears his name, as well as schools of dentistry and medicine at the University of Rochester, among others. 
D.  A metals magnate, this gentleman founded (with his mother and several others) Swarthmore College and later, the “school of finance and economy” that bears his name at the University of Pennsylvania.      E.  You probably recognize this guy, but whom does he represent?  He was a patron of the arts, a founding board member of the American Museum of Natural History, and a devout Episcopalian.   F.  Think “Revenge of the Nerds.”  This guy is currently one of the world’s wealthiest individuals and has pledged the bulk of his wealth to his foundation.  In addition, he established the “Giving Pledge” to encourage his fellow billionaires to do likewise.
 
G.  The “Oracle of Omaha,” this kindly looking grandfather famously said “…a very rich person should leave his kids enough to do anything but not enough to do nothing.”  He has pledged 99% of his wealth to charity, mainly through the foundation that Philanthropist “F” has established.  H.  A partner of Philanthropist “B,” he underwrote a number of charities that bear his name including the nonprofit ______ Houses in NYC which builds affordable housing.  His family fortune lives on through Bessemer Trust.   I.  The mysterious and publicity shy co-founder of DFS (Duty Free Shops, this gentleman flies coach, owns neither a home nor a car, and wears a $15 watch.  He founded the Atlantic Philanthropies which will self liquidate by 2017 – funneling approximately $9 billion to charitable works!
 
J.  The founder of CNN and TBS, he gave $1 billion to support UN causes by creating eht United Nations Foundation.  He is a signatory of the Giving Pledge.   K. “Revenge of the Nerds, Part II”  An internet entrepreneur, he is currently considered to be among the 100 wealthiest and most influential people in the world.   In 2010, he arranged to donate $100 million to the Newark Public Schools.  This little pisher is also a signatory to the Giving Pledge.   L.  A rather quiet and conservative singer-songwriter-performer (NOT!), this young lady recently founded the “Born This Way” Foundation to focus on youth empowerment and issues like self-confidence, well being, anti-bullying, mentoring and career development.  
M.  Canadian-American actor, producer, and activist who suffers from early-onset Parkinson’s disease.  He started a foundation that bears his name.  The foundation was created to help eradicate Parkinson’s disease.   N.  A true “rags to riches’ story, this guy was the “worldwide head of production” of Pepsi and keeper of the secret formula from the 1940′s to the 1960′s.  He started the foundation that bears his name to help those who were less fortunate than himself.   O.  A man with a very unfortunate first name (in that it was also used as the name of a product that was one of the biggest failures in his company’s history), he also established a foundation in 1936 which has gone on to become one of the most influential nonprofits in the world.  
     
P.  Named in 2006 on Forbes’ list of the 15 Richest Fictional Characters, he was portrayed by actor Jim Backus in the ridiculous TV sitcom “Gilligan’s Island.”  Being one of the 15 richest fictional characters, he had to be philanthropic, right????    

 

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Tools & Techniques 101 – What Kind of Donor Are You?

Posted in Uncategorized, tagged , , , , , , , , on July 31, 2012 | Leave a Comment »

If you have been a faithful reader of this blog, you know that I have been all over the place discussing the “why” of philanthropy: “why” you might do it, “why” certain famous individuals have become philanthropists, and “why” your family might consider taking the plunge.  (If you don’t remember, check out the archives at www.charitable-nation.com.)  Now, I want to spend a little time discussing the tools and techniques of charitable planning.  We can assume that you have sifted or are sifting through the “why” and you now want to understand a little bit of the “how.”  However, if you have not yet done this soul searching, I urge you to seriously consider the “why” of philanthropy before the “how”.  The use of charitable tools without charitable intent is meaningless.

The first question you have to ask yourself is this: what kind of charitable donor am I?  There is a broad spectrum of donors ranging from those who donate a few bucks only when the mood strikes them or when their friends “guilt” them into a donation all the way up to the serious philanthropist who invests major dollars in charitable causes expecting to see real results.  Understanding the type of donor you truly are or hope to be as well as understanding your underlying motivating passions will go a long way toward making your plan a reality.  With this knowledge in hand, the tools and techniques of charitable planning fall into place much more simply. 

Many of us fall most appropriately in the mid-point, the “proto-philanthropist” category, where we may want to give more than we have in the past, but we want to make sure that we give it efficiently and make a difference without necessarily involving a family foundation or a trust or other complex legal mechanism.  Moving from casual or checkbook philanthropy to the “proto” philanthropist level generally involves making a commitment or commitments – you make a multi-year pledge to your alma mater’s capital campaign, you consider making a planned gift to the American Red Cross in the form of a charitable gift annuity, you name the local hospital as a beneficiary of your estate, or you fund a donor-advised fund at your local community foundation.  Financial and tax planning are very important at this level.  There may be significant estate and/or income tax implications to these gifts and your advisors should be involved. 

Philanthropy becomes truly significant when it consumes the bulk of your estate and/or has more than 5 or 6 or 7 zeros appended to the value of the gift(s).  Among other things, serious philanthropists may consider the use of lifetime or testamentary charitable remainder trusts (CRT’s), charitable lead trusts (CLT), and private foundations.  Each of these tools has its own pros and cons which we will explore in future posts. 

For those who choose to engage in serious philanthropy — especially during their lifetimes — philanthropy becomes its own business.  This business may calculate a social profit/loss statement rather that a financial one, but it is a business nonetheless.  Approaching philanthropy in this way truly can help the serious philanthropist make the leap – from success to significance. 

More to come……….

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Seven Myths About the Great Philanthropists

Posted in Uncategorized, tagged , , , , , , on July 18, 2012 | Leave a Comment »

The early part of the 20th century is considered by many to be the golden age of philanthropy.  And because so many of the industrialists and financier of that era were, shall we say, complicated individuals, the rise of philanthropy itself was actually a controversial development.  A recent article in Philanthropy Magazine explored and tried to debunk what it referred to as the “Seven Myths About the Great Philanthropists.”  The article is pretty interesting (if a bit too long to read on an iPhone screen).  So, let me summarize.

Myth # 1 – The great philanthropists were robber barons. 

Fact:  They were merely very aggressive businessmen who pushed the envelope of technological process.  Because of that, they may have been a bit, ahem, ruthless in their dealings with both friend and foe but, according to the author, to classify them as robber barons is demeaning.  “Whatever else may be said of them – and there is much to be said – they created real and enduring wealth.  Moreover, the wealth they created benefited all Americans.”  By definition, robber barons get rich by extorting payments that yield no value, leaving everyone else a little poorer.

Myth # 2 – The great philanthropists were free market purists.  

Fact:  Although they perhaps liked to think of themselves that way, most of them were not above seeking and demanding government help and protection.  Example – James Wharton, who endowed the business school that bears his name at the University of Pennsylvania, stipulated in his deed of gift  that the “right and duty of national self-protection must be firmly asserted and demonstrated” and that “forfeiture shall occur upon the failure or unwillingness” of the school to teach a protectionist curriculum.  I don’t think Mr. Wharton would have been a fan of NAFTA. 

Myth # 3 – The great philanthropists were simplistic businessmen, not serious thinkers.

Fact:  Talk about painting with an overly broad brush!  The author gives a number of examples to prove otherwise.  My two cents – You can’t amass a fortune, particularly from nothing, if you aren’t endowed with serious gray matter. Enough said.

Myth # 4 – The great philanthropists used charity to control the working class.

Fact:  This is a bit of a communist argument gone awry.  “….to borrow the language of the Marxists, the great philanthropists did hope to find a bourgeois solution to the proletarian problem.  Some of them were quite explicit about their desire to use philanthropy to undercut communist influences in the labor movement.  But at a more profound level, the great philanthropists hoped to use their resources to turn the working class into the middle class….. the Marxists were wrong to see philanthropy as an instrument of exploitation.  It was an invitation to opportunity — placing, as Carnegie famously put it, within its reach the ladders upon which the aspiring could rise.”  And how is this bad? 

Myth # 5 – The great philanthropists turned to charity out of vanity.

Fact:   The author’s argument is a bit weak here.  His examples lead one to believe that vanity often was a motivator.  My argument is “so what?”  Focus on the good that charity accomplishes.  If a donor’s ego is stroked a bit in the process we shouldn’t complain.

Myth # 6 – The great philanthropists turned to charity out of guilt.

Fact:  Really?  Guilt about what?  No one in the Gilded Age ever felt the need to apologize for the accumulation of wealth.  And many of the great philanthropists did not turn to philanthropy in retirement; it was a lifelong habit started with a few of the first pennies ever earned.  So, where’s the guilt??

Myth # 7 – The greatest achievement of the great philanthropists was to establish perpetual foundations with professional staffs.

Fact:  “Surely it cannot be an accident that the Rockefeller Foundation achieved so much during its namesake’s lifetime [more than it did after his death].  Leadership, it seems, accounts for much of the difference…….Did Rockefeller and Carnegie change the course of American philanthropy by creating their foundations?  Undeniably yes.  Their efforts helped launch the field of professional philanthropy.  Is it the case….that their foundations have distributed their wealth with ‘greater intelligence and vision that the donors themselves could hope to possess?’  That is much less clear.  The great philanthropists, it turns out, were truly great at philanthropy.”

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Tax Exempt Propaganda Mills Are Just Getting Started

Posted in Uncategorized, tagged , , , , , on July 16, 2012 | Leave a Comment »

There has been a lot of coverage lately in the press about the potential impact on public opinion by certain “501(c)(4)” entities and so-called “super-PAC’s” (political action committees).  If you don’t believe me, check out the recent front page New York Times article  ”Tax Exempt Groups Shield Political Gifts of Businesses.”   Now, I know, your eyes have already started to glaze over; so have mine, but stay with me on this – it is an important topic, especially now.  Here are the takeaways:

  • During the election season which, like tax season and rush hour in the NY metro area, seems to have no real beginning or end, these two types of entities will be trying their darndest to get us to think the way that they do – and vote accordingly.  While both types of entity are tax exempt, contributions to neither are deductible for income tax purposes.   Make no mistake – these organizations are in no way, shape or form to be considered “charitable organizations.”
  • As I tell my students, beware those who quote Internal Revenue Code sections by number.  They either do not know what they are talking about (bad enough) or they know what they are talking about but they don’t want you to know (even worse!)  So, let me define – a “501(c)(4)” entity is a “civic league or organization not organized for profit but operated exclusively for the promotion of social welfare…..”  So let’s call them social welfare organizations.  Now, to me, the classic definition of a social welfare organization has always been my local civic association working to make life better in my community by advocating for road resurfacing, enforcement of zoning laws, and planting flowers in the common areas of the community.  Back when I was involved in the Civic, we always took pains to make sure that we did not side with or support any political party or politician in any way.  Today, however, the “social welfare” envelope is being pushed really hard both on the national and local levels.  While these organizations are actually prohibited by regulation from devoting themselves primarily to political activity, they can spend the bulk of their money on “issue” advertisements that purport to be educational and not political in nature.  And, of course, the IRS does not yet have a clear test for determining what constitutes excessive political activity by a social welfare group.  The result is a lovely shade of grey.  Consider an organization like the American Action Network which explicitly describes itself on its website as: “…. a 501(c)(4) ‘action tank’ that will create, encourage and promote center-right policies ……. primary goal is to put our center-right ideas into action by engaging the hearts and minds of the American people and spurring them into active participation in our democracy…..”  On the other side of the aisle, consider Priorities USA:  “….a 501(c)(4) organization dedicated to mobilizing Americans to preserve, protect and promote the middle class ……..We oppose right-wing attempts to harm the American middle class in order to bestow special treatment on the very wealthiest and special interests……” Bottom line, social welfare organizations can “educate” you as to the issues but not directly support any candidates.  Donors to such organizations remain anonymous.    Educational or political?  You decide. 
  • Super-PACs are a new kind of political action committee that have been around now for about two years.  According to http://www.opensecrets.org super-PACs are:  “….ttechnically known as independent expenditure-only committees, [that] may raise unlimited sums of money from corporations, unions, associations and individuals, then spend unlimited sums to overtly advocate for or against political candidates. Super PACs must, however, report their donors to the Federal Election Commission on a monthly or quarterly basis — the Super PAC’s choice — as a traditional PAC would. Unlike traditional PACs, Super PACs are prohibited from donating money directly to political candidates.”  Unlike social welfare organizations, super-PACs can support candidates but cannot directly finance their campaigns. Donors must be disclosed. 
  • Direct contributions to political candidates are severely limited, so these organizations provide effective work-arounds for those who want to spread the gospel truth according to the organization. 
  • Because social welfare groups do not have to report their donor lists to the public, more money has been flowing to the social welfare groups.   What a surprise!
  • Both sets of groups are aggressively promoting their agenda in advertisements that, while not specifically endorsed by the candidates, pretty clearly point the way to those candidates.

This is a great example of caveat emptor – let the buyer beware.  In the short term, there is absolutely no chance of curbing abuses in this arena.  Each one of us must take everything we hear and read with a couple pounds of salt. 

Happy voting!

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Affluenza – The Dreaded Scourge of the 1%

Posted in Uncategorized, tagged , , , , , , , , on July 11, 2012 | Leave a Comment »

Affluenza - n  Also called:  sudden-wealth syndrome – the guilt or lack of motivation experienced by people who have made or inherited large amounts of money. 

And collectively, the other 99% sighs and says “get over it!”  Money may be the root of all evil but we all want more of it.  How else do you explain the explosion in state lotteries and legalized gambling or the obsessive drive to get into the “best schools?”  (not just college or grad school, but nursery, grade and high school as well!) 

“I’ve been rich and I’ve been poor.  Believe me, rich is better.” – Mae West

“Hey, all you need is a dollar and a dream!” – New York State Lottery

But we do know and can grudgingly accept the fact that the acquisition of sudden wealth, earned or inherited, can be devastating to the acquirer and his/her family.  Consider the self destruction of certain entertainers, athletes, and scions of billionaire families that we read about all too often.  While affluenza is an affliction many of us wouldn’t mind having, it actually has the potential to ruin lives and families. 

Apparently, the ultra-rich among us may be taking heed.  According to the 2012 U.S. Trust Insights on Wealth and Worth™, some 45% of baby-boomer-age high and ultra-high net worth Americans feel that it is not important to leave an inheritance for their children.  Hmmm, maybe affluenza is a disease that will take care of itself!  But then again, probably not.  Old habits tend to die hard, and estate planning – and the leaving of a financial legacy – have been societal habits for hundreds of years. 

So, what can we do about this problem?  Most high net worth individuals (HNWI’s) are very concerned about their estate planning.  In fact, I would venture to say that the majority of HNWI’s are more concerned and interested in estate and gift planning than income tax planning.  The disposition of their financial legacy is a big deal to them, whether it is getting money to the kids and grandkids so they don’t have to sweat and struggle, or endowing a chair or naming a building at the old alma mater.  And here is where traditional estate planning both excels and fails – it excels by concerning itself with the tax efficient transfer of assets to beneficiaries and charities but it fails by doing nothing to assist the families in psychologically and emotionally preparing for the eventual transfer of wealth.  Perhaps this is why family wealth typically does not last very long – “From shirtsleeves to shirtsleeves in three generations.”   

I am reading a very interesting book right now called Beating the Midas Cur$e by Perry Cochell and Rodney Zeeb.  While the book is several years old and the statistics may have shifted a bit due to the events that have occurred on Wall Street in the last four years, the premise is still rock solid – we need to rethink our approach to planning in a way that puts family before fortune and, by so doing, greatly increase the chance that both will survive and thrive for generations.  The authors have developed The Heritage Process™ which is their specific consultative approach to helping clients determine and control their true legacy while interweaving it with traditional estate planning.  It sounds tough, but it is actually not rocket science.  It is a process that focuses on values and vision and, ideally, starts early, when kids are still in the cradle.  It is a process that does not assume that children or grandchildren will automatically soak up the lessons learned through the school of hard knocks by the matriarchs and patriarchs of the family.  It is a process that explicitly acknowledges that money management, philanthropy, and social responsibility must be taught and reinforced throughout life.  It is a process that, quite frankly, scares the heck out of traditional planners who would rather shy away from the “soft” stuff that deals with feelings and emotions and focus instead like a laser on the numbers.  But as you can see, they do so at their peril.   

Warren Buffet, the Oracle of Omaha once famously said:  “…a very rich person should leave his kids enough to do anything but not enough to do nothing.”  Determining that proper mix – the right amount financial inheritance offset by philanthropy and coupled with the appropriate values and visions of the family – that is the challenge.

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Congratulate Me – I Now Have Several More Letters After My Name

Posted in Uncategorized, tagged , , , , , , on June 27, 2012 | 1 Comment »

Forgive me for feeling a bit full of myself right about now, but I just successfully completed the third and final exam toward my designation as a Chartered Advisor in Philanthropy® (CAP®) from the American College in Bryn Mawr Pennsylvania. 

 

 

I officially now have more letters after my name than in my name, which I might add, is no small accomplishment, and requires me to switch to a smaller font on my business cards.  So please don’t deflate my bubble by telling me you never heard of the CAP® designation.  Few people actually have, which begs the question – if a professional earns an unknown designation, does it make a sound?  More to the point – how important is a designation in a field that is still trying to find itself? (As one rather arrogant attorney put it to me once “there are more crap designations around……”)

 

Many people are involved in the nascent profession of “gift planning.”  And like the financial planners of 25 years ago, the professional status of gift planners and philanthropic advisors appears to be tied directly to the fields from which they emerge.  Right or wrong, accountants and attorneys may tend to get more respect as gift planners because they are perceived as technicians cobbling together tax and estate plans that encompass philanthropy as one piece of the puzzle.  Anecdotal evidence suggests that they get more respect than, say, life insurance or wealth management professionals who may be perceived as more product-focused and less client-focused.  And development officers working for the charities themselves, well, we all know what they want!  (If you don’t believe me, check out this fascinating discussion in the Chronicle of Philanthropy group on LinkedIn.)  So because we all come from different backgrounds and pedigrees, I believe that a really good argument can be made for the development of a professional designation that attempts to reach across all of these professional silos and achieve common ground.  Isn’t that part of the growth of any profession? 

 

So, what can I do now with the CAP® designation that I couldn’t do before as a “mere” CPA?  Not much.  But studying for the designation has enhanced my technical knowledge of some tax tools and techniques and it has also helped me develop a more global perspective on the field of philanthropy.  I have new appreciation for the work done on the other side of the table by development officers and fundraising executives.  But most important, I have newfound respect for the philanthropic impulses that motivate many of my clients.  What we do as technicians is help our clients select and develop the most efficient tools for the transfer of wealth to their families and suitable charities, but those techniques are the mere tools of the trade and we cannot forget that.  Understanding what motivates our clients is far more important because that will enable us to plan more effectively for the optimal solution.  As Phil Cubeta, the Sallie B. and William B. Wallace Chair of Philanthropy at the American College has written:  “The purpose of CAP….is to bring advisors and fundraisers together in common purpose around a shared body of knowledge and to help our donors and clients do great things for the charities they love and support while also taking care of the family’s financial needs.”

 

That sounds like a winner to me.

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