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Managing Foundations and Charitable Trusts: Essential Knowledge, Tools, and Techniques for Donors and Advisors

ISBN: 978-1-118-09349-8
288 pages
June 2011
Managing Foundations and Charitable Trusts: Essential Knowledge, Tools, and Techniques for Donors and Advisors (1118093496) cover image

Description

The insider's guide to charitable organizations for donors and their advisors

Do you know when to use a private foundation, a donor-advised fund, or a charitable remainder trust or other charitable vehicle? Do you know the different tax benefits, limitations, and control rules for each alternative? Do you have an appropriate investment policy for your endowed charities? Do you have a rubric for avoiding fraud? Do you know what to look for to make sure that your charitable donations don't do the opposite of what you intend?

In Managing Foundations and Charitable Trusts, Roger D. Silk and James W. Lintott provide a comprehensive guide for charitable donors and their advisers. Additional topics include:

  • Foundation Governance
  • When to seek additional professional help
  • When and how to turn a CRT interest into cash
  • Key tax issues
  • Creating a legacy
  • Why tax planning is so difficult, and how to approach it

Straightforward and authoritative, Managing Foundations and Charitable Trusts is a handy, easy-to-read guide that all donors and their advisors will want to keep on hand.

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Table of Contents

Preface xiii

Acknowledgments xvii

CHAPTER 1 The Basics of Charitable Giving 1

Direct Gifts 2

Supporting Organizations 6

Donor-Advised Funds 8

Private Foundations 12

Conclusion 18

CHAPTER 2 Tax Incentives and Limitations 21

Four Powerful Tax Incentives 21

Details on Tax Deduction Limits 25

Finding the Best Giving Strategy 27

The $1.6 Trillion Loss 28

Estate Taxes 29

Conclusion 30

CHAPTER 3 Charitable Planning and Taxes 33

Giving Approach 34

Tax Planning Complexity 37

Guidelines for Analytical Expenditure: Or Is Analysis Worth It? 39

What to Do When Tax Rates Are Uncertain 40

Timing of Gain Realization 41

Charitable Remainder Trusts and Deferral 42

Conclusion 42

CHAPTER 4 Planning with Charitable Lead Trusts and Charitable Remainder Trusts 43

Charitable Lead Trusts 43

Charitable Remainder Trusts 47

Flexibility and Irrevocability 52

CHAPTER 5 Foundations and Children 53

Affluenza 54

Bringing Families Closer 56

Transmitting Values 56

Providing Valuable Skills 56

Conclusion 59

CHAPTER 6 Benefits of Giving While You’re Still Alive 61

Personal Satisfaction 61

Create a Legacy 62

The Problem with Waiting 63

From the Grave: Control—But Not Too Much 64

What about Too Little Direction? 66

Who Gets Control? 68

Conclusion 69

CHAPTER 7 Effective Foundations: The Business of Philanthropy 71

The Mission Revisited 71

Getting Started 74

Know Your Charities 75

Governing for Effectiveness 77

Approaches to Grant Making 81

You Get What You Negotiate 82

Stand on the Shoulders of Others 83

Outside Experts Can Make the Difference 84

Types of Support: Periodic versus Endowment, General versus Program 84

Is Measurement Worthwhile? 86

Establishing Measures 90

Provide Feedback 91

Give Wisdom in Addition to Wealth 91

Give Strategically 93

Exercise of Leverage 95

Make Foreign Donations Deductible 96

Use Public Relations Effectively 97

Create Financial Leverage through Tax-Exempt Financing 98

Let Your Foundation Do the Dirty Work 98

Conclusion 99

CHAPTER 8 The Road to Hell: Beware of Unintended Consequences 101

Food Aid 103

Private Charity and Unintended Consequences 105

Fungible Money and Inadvertent Funding of Terrorism 107

How to Give Restricted Grants 109

Poverty—Again 110

CHAPTER 9 Developing an Appropriate Foundation Investment Policy 113

What to Include in an Investment Policy 113

Conclusion 121

CHAPTER 10 Developing and Implementing a Foundation Asset Allocation Policy 123

Differences between Corporation and Foundation Investment Plans 123

The Seven Deadly Sins of Foundation Asset Allocation Policy 125

Developing a Good Asset Allocation Policy 129

Should an Asset Allocation Policy Change over Time? 135

Capturing the Rebalancing Bonus 136

Active Management versus Indexing 137

Who Is Responsible for the Asset Allocation Policy? 138

Conclusion 139

CHAPTER 11 Main Themes in Legal Compliance 141

Some Compliance Errors May Seem Funny, but They’re Not 142

A Fail-Safe System 143

Required Activities 144

Prohibited Activities 147

Conclusion 151

CHAPTER 12 Fraud, Inflation, and Market Risk 153

Stanford Case 157

Enron 160

Baptist Foundation of Arizona Case 162

The Bre-X Fraud 163

Allied Capital 166

Fraudulent or Not? You Decide 167

What Is XYZ? 169

How Will Social Security End? 170

Promised Benefits 170

Real Terms 171

Inflation: A Brief History 174

Inflation Indexing 176

Foundations and Endowments Are Highly Exposed to Inflation 180

Avoiding Fraud 180

CHAPTER 13 Other Planned Giving Vehicles 183

Charitable Gift Annuity 183

Gift Annuities versus Regular Annuities 184

Partial Exclusion of Annuity Payments from Income Tax 185

Bargain Sale 186

Charitable Gift Annuity versus CRT 189

Remainder Gifts with Retained Life Estate 190

Pooled Income Funds 192

CHAPTER 14 Donor-Advised Funds 195

History 196

Guidelines—Highlights 196

Fees and Costs 199

CHAPTER 15 Building Assets with Charitable Planning 201

Professionally Managed, Turnkey Private Foundations 205

Foundation Manager’s Role 206

Conclusion 207

CHAPTER 16 How to Select a Foundation Manager 209

Choosing a Full-Service Manager 209

Conclusion 212

CHAPTER 17 What Can You Donate to Charity? 213

Publicly Traded Securities 213

Nonpublicly Traded Business Interests 215

Tangible Personal Property 216

Intangible Personal Property 218

Qualified Retirement Plans 221

Real Estate 223

Conclusion 225

CHAPTER 18 When the Shoe No Longer Fits 227

Private Foundations 227

Charitable Remainder Trusts 231

Getting Rid of Other Charitable Vehicles 243

Conclusion 245

Selected Resources 247

About the Authors 249

Index 251

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Author Information

Roger D. Silk, CEO of Sterling Foundation Management, is widely recognized as a leading expert in the field of private foundations and charitable trusts. As a founder and board member of several nonprofit organizations, former bond trader at the World Bank, and Stanford-trained PhD economist, Dr. Silk possesses a unique blend of experience, practical knowledge, and theoretical insight that has enabled him to help build Sterling Foundation Management into the market leader that it is today.

James W. Lintott is Chairman of Sterling Foundation Management and a board member of Dean and Deluca and several private investment companies. He has over two decades of experience working with wealthy individuals and families. In addition, Mr. Lintott serves on the boards of a number of nationally recognized charities, including the Freer/Sackler Galleries of the Smithsonian Institution, the U.S.-Japan Foundation, and Best Buddies International.

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