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How Can Major Gifts Go Wrong? Our May 2022 Newsletter

Goldman Sachs has recently re-published a helpful report on making large charitable gifts, which prompts me to return to this issue once again.

In our work, we see donors often making serious errors when making major gifts. These errors can end up undercutting—if not damaging—the intent of their gift, particularly over the long term. Indeed, the larger the gift, the more damage
these mistakes can make. Today, most donors are inclined to attach extensive restrictions on the use of a major gift. We find in our work that smart donors find a balance between no restrictions and too many. Just as the media is full of stories of unrestricted gifts being used for things a donor may not approve of, there are also stories of extensive restrictions leading to difficult, if not impossible, situations.

Here are four good guidelines when contemplating a major gift:

  • Use a gift agreement drafted by your advisors, not the agreement offered by
    the charity.
  • Specify how any unused funds will be managed if, for example, the project you
    are supporting comes in under budget.
  • If you are considering a naming gift, consider putting a time limit on the naming
    right.
  • Consider whether your gift should also include support for operations and/or
    endowment.

For the Goldman Sachs article and more, view the full May 2022 Philanthropy Matters Newsletter here.

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Charitable Giving and COVID-19 in Northern Michigan

It has been nine months now since the pandemic began its furious disruption of life in Northern Michigan.  With more than 11,000 cases and 196 deaths, the virus has had a palpable impact on the region’s 17 counties.  The impact of COVID-19 has received considerable attention, but much of this focus has been on its impact on the for-profit sector.

Yet Michigan’s nonprofits have been disrupted as well, and they are fundamentally important to the quality of life in Michigan.  They make our communities a better and more enjoyable place to live (e.g., TART Trails, the State Theatre, and the Old Town Playhouse), but they also provide an important safety net for our most vulnerable residents (e.g., Goodwill Northern Michigan, Safe Harbor, and Manna Food Project).  Further, and no less important, Michigan’s 50,000 nonprofits employ 10.6 percent of the state’s nonfarm workforce.[1]

(more…)

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#HalfMyDAF?

Once more, I read about how donors are abusing Donor Advised Funds (DAFs).  Billions of dollars are locked in these funds, rather than going to charity during the COVID-19 pandemic — when nonprofits need these funds the most, critics say.  (Washington Post 6/24/2020 article)

Well, yes, that’s true. 

If you create and give to a DAF, and the money sits in the fund earning interest, you’re getting a tax benefit now — but the public benefit hasn’t occurred and may not occur for many years.  Further, it’s true that if the fund is managed by an investment firm, such as Fidelity or Vanguard, they’re the only ones benefiting while the funds sit unused, due to investment fees.  (If your DAF is housed at a community foundation, the fees go to help the community foundation support its city or region, so in that case the fees are giving back.)

This critique always focuses on the difference between these gifts going directly to charity versus the gifts going to DAFs.  The donor gets the same tax benefit, but the public benefit is delayed in the case of the DAFs. 

For a moment, let’s consider the difference between a DAF and a private foundation.  A donor who creates a private foundation gets a tax benefit at the time of the gift, although the benefits can be slightly less attractive than a gift to a public charity, depending on the gift.  The private foundation is required by law to give away 5 percent of its assets each year.  The organizations that manage DAFs report that their funds, taken as a whole, give away about 20 percent every year.[1]  Thus, DAFs — again, taken as a group — are getting money into the hands of the charities that need it at a much higher rate than the private foundations. 

Critics complain about the $120 billion “locked away” in DAFs.  The top 10 U.S. private foundations alone have assets of more than $150 billion. 

The critics of DAFS have a valid argument, and I hope the #HalfMyDaf campaign will be successful.  But those critics that exhort DAF holders to distribute more should be aware that the DAFs’ wealthier brethren (private foundations) don’t have the same obligation and presently distribute much less on a pro rata basis. 

(Note: I would be happy to send you copies of the linked articles if you’re unable to access them.)


[1] National Philanthropic Trust, The 2019 DAF Report.  

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Corporate Giving

For those interested in the role of corporate philanthropy in our society, an article in today’s New York Times reports on an interesting new study.

Scholars from the University of Chicago, Boston University, and the University of British Columbia (my alma mater!) reviewed the grants made from 1998 to 2015 by the foundations of Fortune 500 companies.

The researchers found that corporate foundations frequently give to the favorite charities of congressmen who chair committees that have oversight on issues affecting the corporations. “Firms deploy their charitable foundations as a form of tax-exempt influence seeking,” quoted from the study by the New York Times (4/4/2018 p. B1 and B4. Charitable Giving by Corporations Is Also About Getting, a New Study Finds, Eduardo Porter)

-Mark Neithercut, April 4, 2018

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Repeal the Johnson Amendment? Seriously?

President Trump has promised to repeal the Johnson Amendment, which restricts public charities from endorsing candidates for political office. Some people believe the amendment unfairly limits the free speech of church leaders who wish to advise their members regarding a specific candidate or referendum.

Does this mean that donors can get a tax deduction for making a gift to a church that advocates for a specific candidate or millage proposal before the voters?

A suggested compromise would allow a minister or other religious leader to advocate for a candidate, but would prohibit the church from spending any funds to support a candidate. Again, I wonder, does this mean that a donor could make a tax-deductible gift to a church that was supporting the donor’s favorite candidate, and perhaps withhold a gift from another that does not?

And if this is allowed for churches, would it also be allowed for other public charities? I wonder how this might be relaxed for churches but not others.

Furthermore, there are no set guidelines regarding what is a church. In practical terms, if you say you are a church, you are a church and you are automatically a public charity. You do not need to seek an exemption from the IRS. I would imagine that hundreds of new “churches” would sprout up — fed by political, deductible gifts — solely to support certain political parties, candidates or positions.

This seems like a Pandora’s box, and there is little evidence to suggest that this problem needs fixing.

—Mark Neithercut
March 28, 2017

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