“THE LEGAL CORNER”
By Sam A. Moak
What is Philanthropy?
The information in this column is not intended as legal advice but to provide a general understanding of the law. Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.
As defined by the Oxford Dictionary, “philanthropy”is the desire to promote the welfare of others, expressed especially by the generous donation of money to good causes. While most of us may give to charity on a regular basis, many of us do so spur-of-the moment or when we feel we have a little extra money to give. Philanthropy allows a person or groups of people to give to charitable organizations consistently over a long time period. Philanthropy does not mean you have to give money, there are many opportunities to give your time or expertise to a charitable endeavor.
For example, earlier this week the Item ran a story on Huntsville Independent School District seeking volunteers. I strongly urge you to do so, you will find it may change a child’s life and is rewarding. However, this week’s column is on different ways you can financially be philanthropic.
Some of the largest philanthropies have existed for decades and are large enough to provide an endowment of giving to last in perpetuity. While you can give your own money to such large philanthropies to benefit your favorite charities, it’s not necessary to do so. In fact, you can begin your own philanthropic legacy for as little as $5,000. You may say “Sam, I can’t afford that,” but please read on because you or a group may be able to do more than you believe possible as I explain different types of philanthropies.
A private foundation is a legal entity established by an individual, family or group of individuals for philanthropic purposes. The Bill & Melinda Gates Foundation is the most prominent and largest example of a private foundation. Corporations can also establish private foundations as well as charitable organizations. The largest private foundations are endowed with billions of dollars in assets.
This is only an option if you have millions of dollars, however, because of the costs to manage and maintain such a philanthropy. As a legal entity, a private foundation has corporate and tax filings to maintain on a regular basis and myriad administrative tasks that go with any corporate endeavor. The overhead costs alone are typically too expensive and time-consuming for most of us, as individuals or as families, to establish such a philanthropic structure. You want your giving to achieve the most bang for the buck.
Charitable trusts are often established by wealthy donors that provide a philanthropic legacy while providing income and/or estate tax advantages to the donor. Typically, a person has an attorney draft a trust document, established for charitable purposes. An asset or assets are funded into the trust and the donor continues to enjoy the use of the asset for a period of years or until the donor dies. After death, charities become the beneficiaries of the trust assets.
The administrative burden with charitable trusts is not as onerous as with private foundations. However, meticulous financial records must be kept as well as the trust filing an annual tax return.
Public Foundations are legal non-profit entities established to provide grants to a charity or charities from donations elicited from the general public. Public foundations can benefit (or be) a single institution, such as a university (like Texas A&M’s Foundation). However, there are public foundations that benefit a wide variety of interests in a single community. Donations to public foundations usually involve a lager tax break to individual donors than donations to private foundations because the donor does not have ultimate “control” over who will receive the donation or grant.
Public foundations are more beneficial to donors who want to establish an initially modest philanthropic legacy. Initial thresholds to establish a philanthropic fund vary from $5,000 – $50,000. Oftentimes these thresholds can be met over a 2 or 3-year period.
However, an often overlooked method of philanthropy is the use of Donor-Advised Funds (DAF). A DAF can be established privately and provide the best combination of private and public philanthropy. With the assistance of your financial advisor and through wealth managers who specialize in managing philanthropic investments, you set up a fund with cash or an asset. Once established, you can make annual or more frequent periodic donations to the charities of your choice.
What is unique about this option is that you can give to your favorite charities anonymously, if you desire, and you can start your philanthropic giving for as little as $5,000. Once the fund is established, you can add assets and cash to it at any time; you can have friends and family add contributions to it; and you can name successor advisors in case you pass away. Establishing such a fund, even in a modest amount, can be a great vehicle for starting a legacy of multi-generational giving in your family.
If you or your family feel philanthropic, then contact an attorney and your financial advisor about how to do so. If you can’t do so financially, contact Huntsville Independent School District or New Waverly Independent School District and make a difference in a child’s life by donating your time.
Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas. www.moakandmoak.com