Philanthropy Now
- A CPA Shares Some of the Realities of Giving Today
BY Don Paris, CPA
With the tremendous charitable contributions made last year by Bill Gates and Warren Buffet, many people have become increasingly interested in some level of their own philanthropy. America's funny that way. In some cases, put a new hat on a celebrity and watch half of America follow suit (or, as in the case of President John F. Kennedy, not wearing them and largely killing an industry). As individual and independent as we are, we do like our trends.

But as Messrs. Gates and Buffet demonstrate, that's not always a bad thing. Many, many people and organizations will benefit from their generosity, and that will not go unnoticed. What has been somewhat under-reported; however, are the financial mechanics of the gifts. Having an army of legal and accounting personnel at one's disposal helps, but not unlike many of the differences between the mega wealthy and the rest of us, how do WE proceed?

If you think about all of the people who may be involved in your gift, the certified public accountant may not be near the top. I offer that this is a mistake. A logical list of others involved may be your family, banker, business partner(s), inside accounting department, and your legal counsel. The decision on giving and what amount is largely yours, of course, but think about the reasons you are doing it. It may very well be that you genuinely want to help a particular organization, but don't sell the opportunity short. A well-designed gift, timed and prepared, can offer you and your interests a significant amount of positive publicity and/or contribute to you and your family's or business' legacies. As unpalatable as this may sound to some people, it is your right and there are benefits to doing it, if only to inspire others to give - Bill Gates and Warren Buffet proved that.

For illustrative purposes, let's start with a gift of $100,000. You have the money, and it's not a hardship to part with it. You've identified a charity you want to give it to. Your internal accounting office has an idea of how to code it for tax purposes, and you've timed it to be similarly beneficial to you. Off to the mailbox.

Now, let's use that same $100,000 and look at things a little differently. Here are some options available to you that a Certified Public Accountant can counsel you on:

1. Consider not giving the gift all at once. You can still "pledge" the amount, but pay it over months or years. This is largely invisible or not of interest to the public.
2. Consider offering the gift with a matching requirement. This often provides the same "bang" but makes the charitable organization more accountable.
3. Consider making it posthumous. Perhaps make the charity beneficiary on insurance, stocks, or bonds.
4. Verify the tax status of the charity. You don't want to hear after the fact that your donation was not fully or partially deductible. Also, there are published lists of charities that have the highest and lowest "administrative costs" to operate. In some cases, charities use up to 30, 40, or 50% for operating costs such as salaries, office space, travel, etc. A good percentage to go for is 10% or less. This likely demonstrates that the charity will use your contribution wisely.
5. Negotiate. Most charitable organizations have a "Development" office or department that facilitates giving. They will often be your or your office's contact at the charity. It is not unusual or untoward to request a ceremony, plaque, naming rights, a press release or press conference or other consideration. In most cases, they prefer it. It's positive publicity for them that they are actively receiving such gifts.
6. Be kept apprised of the latest IRS rules, laws, and requirements regarding giving. The repercussions of operating with outdated information can be serious - and expensive. For example, did you know that you could make the contribution directly from your IRA and receive favorable tax treatment? Another favorite is to set up a special trust that provides you with income during your life, but the proceeds to the charity on your death.
7. Decide if you care how the gift is spent by the organization. If you don't, it can go into the general fund and pay for everything from salaries to stamps. If you want it to go to a new pool, roof, or painting, say so.
8. If your gift is large enough, consider giving it as an endowment. An endowment, in a nutshell, is where a principle amount is given but the charity is expected to operate only from the interest and investment income it generates.

Not everyone is looking to be a public hero. Even if you elect to give your gift anonymously, you will still need professional counsel on the back end (if for no other reason than the money you save can be donated elsewhere). Plan and research your gift as you would any expenditure of $100,000 or any other significant amount.

This is a fascinating time to be philanthropic. Many charities have taken a hit since September 11, 2001 and Hurricane Katrina. Those "event" needs tend to siphon off contributed dollars from the ongoing charities. And now, with giving so prominent in the news, the stronger economy, the Wall Street bonuses, and a general consumer confidence, more will be given. And do give. Just give wisely.

• "Giving" now but leaving your gift until after your death.
• The newest tax laws on giving.
  
• Building a legacy. Naming, endowments, and publicity.
• Philanthropy mistakes.