Expert Advice - August 2008

Charitable Contributions

Finding Your Philanthropic Style

by Steve Pacitti

Individuals and businesses in the United States have a long history and tradition of sharing their good fortunes by generously donating to charitable and philanthropic causes. In 2007, charitable contributions reached an estimated record high of $306.39 billion, according to Giving USA 2008, the yearbook on philanthropy by Giving USA Foundation released in June, 2008. Business icons Bill Gates and Warren Buffett have made national headlines for taking an active role in their foundations and making lifetime donations of substantial portions of their wealth for charitable causes.

Many donors practice “checkbook philanthropy” and write checks to their favorite charitable causes. Likewise, volunteerism in lieu of cash gifts is an invaluable contribution and often the lifeblood of many public charities. However, for donors seeking a more integrated, fulfilling and active mode of philanthropy, there are several options to consider.

Public-Private Partnerships

Growing in popularity, public-private partnerships are joint venture entities typically formed between a single business and a non-profit. Business owners often find that forming this type of “partnership” enables them to obtain the support and resources needed for success while “giving back” to their community. These partnerships are popular in the real-estate and healthcare industries. Forming a public-private partnership can be established for a short-term project or a long-term relationship depending on the shared goals of both entities.

There are numerous requirements for such ventures and both the profit and non-profit parties should seek competent specialized legal counsel. For example, any income derived by the non-profit should be “missioncentric” to the non-profit to avoid adverse tax consequences and possible loss of tax-exempt status. Likewise, the non-profit partner will have to have certain control devices and should not guarantee any debt.

Family Foundations

Another option for an individual or family is the creation of a family foundation. Family foundations are non-profit organizations formed and operated solely for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster amateur sports. The popularity of family foundations is booming. Estimates are that family foundations have increased almost 40% since the turn of the century, resulting in nearly six new family foundations per day, many established by donors in their 40’s and 50’s. Money contributed by the foundation generates an immediate income tax deduction for the donor and grows tax-free. However, once money is put into the foundation, it cannot generally be returned to the contributor. It must be used for philanthropic purposes. However, family foundations are an excellent way for philanthropists to actively participate in their charitable giving.

Not all family foundations are formed by Gates, Buffetts and Rockefellers. More than one-third of family foundations hold less than $250,000. Donor-advised Funds

A less expensive and intensive alternative to creating a family foundation is to establish a donor advised fund at the local community chest, such as the Nevada Community Foundation (www.nevadacf.org). The community foundation will hold the gift and generally make qualifying distributions at the donor’s direction. The community foundation will charge a small fee for administration of the account. Again, an immediate income tax charitable contribution deduction is available for the contribution and start-up expenses are minimal.

Charitable Trusts

Donors with lifetime charitable inclinations commonly establish charitable trusts, which are trusts with charitable beneficiaries. Two of the most common types of these trusts are charitable remainder trusts and charitable remainder lead trusts. While similar in purpose, they are opposite in operation. The charitable remainder trust pays its current income to the grantor and passes its assets to the charity at the grantor’s death. On the other hand, a charitable lead trust pays its income to the charity and the property passes to the trust’s beneficiaries (typically the donor’s heirs) at the grantor’s death. A current charitable contribution tax deduction is available for the value of the gift passing to the charity.

What’s right for you?

It’s important to make sure you follow your passion and take the time to develop a philanthropic plan. It’s a commitment of time, money and energy, but a rewarding one, as well.

Steve Pacitti
Steve Pacitti is an attorney at Kummer Kaempfer Bonner Renshaw & Ferrario.