Where Charity Begins

Al Jacobs

Those of you who follow my writings regularly expect to encounter the subject of money. Since this is what you’ve tuned in for, I’ll not disappoint you … well, not exactly, though I must warn you this time I’ll not dwell on the processes of making money, but rather on its disposal. I want to discuss giving it away.

If you’re asking why I advocate giving it away, the reason is simple: In the final analysis there’s a practical limit on personal consumption, beyond which satisfaction is marginal. At some point in our finite lives there must be more than mere acquisition. In this world you’ll find deserving people, and the opportunity to share your bounty in a meaningful way is exactly that – an opportunity.

There’s satisfaction in giving back a portion of your good fortune and this is the time I’ve chosen to discuss it. Fair enough for a reason, I hope. Perhaps you consider the autumn a strange time to focus on benevolence. Admittedly, the subject is customarily relegated to the end of the year when tax deductions are sought. However, this is the season most meaningful for me; you’ll understand why shortly.

Before I get into the details of generosity, I want to pass on a few observations concerning America’s charitable foundations. The more than 1.5 million philanthropic organizations soliciting grants and donations, and presumably existing to bestow beneficence as provided in their charters, function in a strange sphere of unreality. Of the $390 billion in public donations these organizations received in 2016, a huge portion of the funds never saw their way to any intended purpose.

As to applicable rules, federal law provides private foundation need to donate no more than five percent of their assets each year to retain their non-profit status. Add to this administrative expenses such as salaries and rents included in the five percent and the results are predictable. The actual philanthropy of many foundations is abysmal.

This leads to a fundamental question: What eventually happens to these massive unspent amounts? Anyone with an understanding of mankind knows exactly what happens. Human nature is such that insider abuses of any organizational system are and always have been, integral to the system, not aberrations from it. Very simply, those who control the operation tend to pass benefits on to themselves and their cohorts.

A few statistics over the past couple of decades provide an idea of how it works. In 1997, the average giving by 26 major foundations, each worth $1 billion or more, was 4.7 percent of assets. To put giving in perspective, expenses and overhead are included in this category. Skip forward to 2001 when the nation’s 64,000 foundations, then worth about $371 billion, donated a mere $23 billion for charitable purposes. Of that sum, $4.3 billion – some 16 percent – represented overhead.

During the Great Recession, from 2008 through 2013, total giving averaged out at $285 billion annually in inflation-adjusted dollars, but the data reveals the donations to assets ratio remained below the five percent figure. Evidently, neither the misfortune of the recipients nor the charitable instincts of the foundations seemed to make a difference – nor did the numbers improve with a return to a more robust economy.

In 2016, those foundations holding $965.3 billion in assets reported total giving of $46.8 billion, or 4.8 percent. You may then add the practice of nonprofit organizations to provide their senior officials with elegant accommodation, plentiful benefits and loans often subsequently forgiven – in emulation of for-profit corporations – and the picture begins to come through clearly. In the world of foundation charity, nothing seems to be much different than in the non-charitable world of business.

While we’re analyzing charitable giving, we mustn’t ignore the many wealthy Americans who devote substantial fortunes to this endeavor. How do they stack up? Consider one prominent individual: Hillary Clinton. During her most recent presidential campaign, the publication Mother Jones reported: “Clinton’s tax filings show she and Bill Clinton donated just over $1 million to charity last year, 96 percent of which went to their own foundation and four percent to fund a golf tournament. This is pretty darned incestuous: taking a deduction for contributing to the employer of your daughter and expense payer of your husband.”

Nor does Donald Trump escape unscathed. An Associated Press review of his financial records disclosed: “Donald Trump, widely believed to be the wealthiest American ever to run for president, is nowhere among the ranks of the country’s most generous citizens, Trump said he donated $102 million worth of cash and land to philanthropic and conservation organizations over the past five years, but he provided little documentation for these contributions and tax filings show Trump made no charitable contributions in his own name since 2008. Furthermore he hasn’t released his tax records. Such documents would likely provide a clearer picture of his giving.”

The real problem is most persons reporting – or in most cases misreporting – on the charitable natures of the wealthy are sadly out of their element. Should you want to know what sort of charities Bill Gates or Warren Buffett support, you’ll not find them on their personal tax returns. People whose net worth is measured in eight or more figures generally conduct their giving through private foundations, as do both Mr. Trump and Mrs. Clinton. It’s the tax returns of these foundations, filed annually and available for public scrutiny, that illustrates the charitable natures of their founders.

So where do we go from here? My belief is charity begins at home … though not with the cynicism normally intended. There’s another way to target your donations. Let me suggest how this might be done. Imagine for a moment you’re an architect with a love for your profession. What better gift might you make than enable young engineering and architectural students to pursue that career?

You can establish a private non-profit educational foundation into which you will contribute sums of money. These funds will become available for scholarships to students chosen by the foundation directors whom you select, perhaps faculty members at a nearby college. Selections will normally by made prior to the commencement of each academic year, with the students receiving payments at the start of each semester – perhaps October and February – while pursuing their degrees at a university of their choice as long as they perform satisfactorily. It will, of course, be your task to monitor their performance. In this way deserving students benefit directly to the extent of nearly 100 percent of your contributions. In addition, your donations to the foundation qualify as deductions on your tax return. All things considered, can you conceive of a more meaningful sort of charitable endeavor?

A final comment: From my observations over the years, those persons who flaunt their contributions are usually grandstanding for the attention it attracts. Such donations rarely result in benefits of any sort. The truly charitable among us are often unnoticed, but what they accomplish can be profound. Keep this in mind as your interests broaden and your net worth grows.

Al Jacobs, a professional investor for nearly a half-century, issues a monthly newsletter in which he shares his financial knowledge and experience. You may view it on http://www.roadwaytoprosperity.com.



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