One of the most conceptually interesting and in practice one of the most divisive issues in "donor-centered philanthropy" is captured in a blurb below from a legislative update provided by Partnership in Philanthropic Planning. They are quoting Senator Grassley with horror, but he is making a point of fundamental interest. Donors get deductions today for gifts to vehicles which benefit no one but themselves in the year of the gift, and maybe for many years thereafter. This timing difference allows, in fact, profit-making third parties to get into the middle of the deal, and to manage the funds that are being held for future delivery to "real" charities, as opposed to financial vehicles, or "charitable buckets," as they are sometimes called. That managing the money aspect attracts banks, brokers, investment advisors; and, these intermediaries are now, as recent studies by PPP show, an increasingly dominant force in philanthropy. What this means is that increasingly, money is piling up in places that benefit a) the donor and b) the financial intermediaries, but which provide only a slight or no current benefit to the frontline charities feeding the poor, or otherwise filling in the social safety net or contributing to the arts or other public goods. Why, Grassley, is asking should taxpayers subsidize the wealthy today for benefiting themselves today and charity tomorrow? I must say that the points deserve more than a horrified response from advisors and fundraisers. Grassley's points deserve to be faced up to and addressed. Here, from an emailed update, is the PPP blurb.
Also, late last month, while commenting on the FY 2010 budget resolution and a PPP-supported amendment to extend and expand the IRA Charitable Rollover (see story below), Sen. Charles Grassley (R-IA), Ranking Member of the Senate Finance Committee, labeled "split-interest trusts" as "worrisome." He continued, "just like with donor-advised funds and supporting organizations, the contribution does not result in an immediate benefit actually providing services while the donor receives a significant tax benefit at the time of the contribution." Senator Grassley concluded his remarks, "we should make sure that grant-making entities, including split-interest trusts, are accountable for paying out minimum amounts to actual charities before we allow them to receive IRA rollovers."
Among the "charitable buckets" which provide a tax or financial benefit to donors and often to money managers, salespeople, planners, and/or attorneys, today with a limited or no benefit to front line charities in the year of the gift are these: Charitable Remainder Trust, Donor Advised Fund, Private Foundation, Supporting Organization, Conservation Easement, Pooled Income Fund, Gift of Life Insurance, Beneficiary Designation on Retirement Accounts, Gift of Home with Retained Life Estate. Having said that, which is simply true and must be acknowledged, the benefit of these tools to society is that they are helpful in getting donors to let go of the money at all. Without these incentives for both donors and advisors we would not have a perfect world in which everyone is generous and gives for all and only the right reasons right now to frontline charities. We would more likely have a worse world where advisors, attorneys, planners, money managers and their clients, find some way other, more rewarding way, than philanthropy to invest their time, money, and talent.
Jesus set the bar so high in philanthropy (give all you have to the poor and follow me - right now) that those committed to purity in caritas (love and charity) must be saints in the making. I have personally come to the conclusion that getting the Scribes and Pharisees well paid and the rich comfortably coddled is the best way to advance the interests of the poor, short of moral action in community with others, which candidly, is not something I would bet on. You would have to be a fool, or poet, or prophet, to expect unmixed goodness to motivate anyone. I stand with the crass, the control freaks, and the vulgar. And, I suspect I am within conspiratorial whispering distance of Senator Grassley on that moral high ground, the political grandstand.
A well informed and thoughtful friend emailed me to point out that with charitable remainder trusts and gift annuities and retained interest in a home the tax deduction for the gift is partial. The deduction takes actuarial factors into account to discount the deduction to reflect the fact that the charity will not receive the remainder interest until some time in the future. Yet, with foundations and donor advised funds, the donor gets a full tax deduction for the gift today, even if grants only flow to charity in a little trickle over a very long time.
"Make a law, make a business," as the saying goes. Out of that timing difference, or delay, between giving money tax deductably into a foundation or donor advised fund and gifting money out, many a money manageemtn business has been built. Grassley may be concerned about - or wanting to tap - these huge built up pools of tax-deferred charitable assets in donor advised funds and foundations. Why should the government fund the safety net? Why not force the charitable pools of tax deferred capital to do it? The politicians could take credit for holding the line on taxes.
The problem would be, though, that the donors might lose interest, or some would, in giving at all. And advisors and financial firms, not seeing a good honest buck in it, would fail to raise the philanthropic issues, and go back to other less genteel tax reduction strategies.
Posted by: Phil Cubeta | May 21, 2009 at 05:30 PM