CT Blue

The rich certainly are different than you and me. When they give money to charity, they have the option of having their cake and eating it too. 

I stumbled on this article at the New York Review of Books (most of it is behind a paywall, I subscribe so could read the whole thing).

It’s be Lewis B. Cullen, a seriously rich individual who has given a lot of money away, and is a little incensed that his peers aren’t following suit, but are getting charitable deductions anyway, at our expense, of course:

Writing in The New York Review back in 2003,1 I explained how a donor gets a tax deduction for all of the money put into a private foundation, yet the foundation is required to spend only 5 percent of its assets per year. That doesn’t mean “donate 5 percent to charity”—it means the 5 percent can be used for “administrative costs.” And I’ve commented on how these administrative costs may include generous salaries for family members and lavish all-expenses-paid tours to foreign countries for board members and administrators, all in the name of “research.” A recent article by Pablo Eisenberg in The Chronicle of Philanthropy disclosed payments made by the Otto Bremer Foundation to three of its board members amounting to over $1.2 million. Operating charities like the New York Public Library and the Metropolitan Museum of Art, on whose boards I serve, pay no trustee fees

So, if I’m rich enough, I can create a foundation, and hire Junior to run it at an inflated salary and never actually funnel a dime to good works of any sort.

But here’s a scam I can’t quite understand, as I can’t see what’s in it for the donor, though the Wall Street types (here they are again) make out like the bandits they are:

The more aggressive game in philanthropy I have in mind, one with a soothing but misleading name, is called Donor-Advised Funds (DAFs). Back in 1991, the Boston-based Fidelity Investments applied to the Brooklyn IRS and got a ruling that drastically changed the tax landscape governing charitable donations. Donors get the same tax benefits when they give to a DAF that they would get by contributing to a museum, soup kitchen, university, or any other federally accepted charity. But rather than having the gift made directly to a charity, the funds can simply sit in the account awaiting instructions from the donor. If the donor never gets around to making distributions, they stay in the account earning substantial fees for investment managers. Recently, mutual fund management companies such as Fidelity, Vanguard, and Charles Schwab have set up separate charity accounts to compete for funds. 

 These funds can provide such tax benefits because the donor must give up all legal control over his or her money when the transfer is made to a DAF. The control is transferred to the administrators of the DAF. Here’s a good example of what can happen. I’m a considerable supporter of a major cultural institution, and on its board of trustees. That institution had been receiving a sizable donation each year from a particular donor. When that donor had died, he had given his money to a DAF administered by a community trust. When the institution in question paid a call to the community trust, seeking confirmation about the continuation of the annual donation, it was told, “We’re not necessarily continuing to give that gift.” Note the use of the word “we”—nothing to do with the past practices of the late donor

So I can’t figure out that one, unless the people setting up these DAFs have far more money than brains. Then again, it’s primarily the rich that are being fleeced by the hedge fund managers.