How to Give like a Billionaire

I know what you’re thinking.  For sometime now you’ve been wondering what exactly Mr. and Mrs. jlcollinsnh have in common with Bill and Melinda Gates.  Here it is:

We both have Charitable Foundations

Now you’re thinking, “I knew it!  jlcollinsnh is a billionaire!”  In this you’d be, sadly I must say, mistaken.  More monk than minister, I’m afraid.

The Gates Foundation Building

Our foundation has no building at all

We talk a lot on this blog about investing and building your own F-you Money stash.  Very little time is spent on, well, spending it.  Since we  personally don’t much care for owning things we’ve not much to say.  We like travel.  We do spend on that.  Sending our daughter to college is money well spent, as she is so thoroughly embracing the experience.

But the money we’ve spent that has provided us with the most pure pleasure is that we’ve been privileged to give away.

In fact, I can specifically pin-point the $1200 that has given us the most satisfaction return of all.  I hesitate telling this story as it will be easy to read it as bragging when it’s only meant to illustrate.  Hope you take it in that spirit.

Many years ago we attended a charitable auction held by the Catholic grammar school our daughter then attended.  We had always been impressed with the teachers and the Mother Superior who ran the place.

One of our favorite local restaurants was Parkers.  Parkers had donated for auction a gourmet dinner for ten.  On the spur of the moment we decided to win it and gift it to the school’s teachers.

Bidding was spirited but as the amounts reached the actual cost of dinner for ten at Parkers, the competition dropped off.  At around $1200 we were the winners.

When I gifted it to the Mother Superior I also gave her two obligations.  First, she would have to choose which ten, of the about 15, teachers would get to go.  Second, she herself would have to attend.  See, we know this Mother Superior and needed to head off her selfless ways.

Parker stepped up

When word spread a couple of very interesting things happened.  Parker stepped up and expanded his donation to dinner for 15 so everyone got to go.   Another bidder offered to foot the bill for the wine.

Well, you know what happens when you mix fine food, wine and Catholic school teachers.  Let’s just say, a good time was had by all, and leave it at that….

In addition to personal pleasure, one of the benefits of charitable giving is the tax deduction.  Of course, to gain this benefit you must itemize your deductions on your tax return.  But if you have less than $11,600 (Married and Filing Jointly.  $5600 if Single) in itemized deductions you are better off taking the standard deduction and saving yourself the effort.

Five or six years ago it occurred to me that two life changes were coming down the pike that would affect my personal tax situation.  We were planing to sell the house and I was planning to retire.  Without the house and it’s associated deductible costs we’d no longer be itemizing.  Upon retiring I’d be in a lower tax bracket.  Both these things would be lowering the tax advantage of charitable giving.  The solution:

The JJ Collins Charitable Fund

If you’ve been reading this blog much you already know I’m a big fan of Vanguard.  So it should be no surprise that in setting up our foundation we used The Vanguard Charitable Endowment Program.  Here’s why:

  • You don’t have to be a billionaire.  You can open your own foundation with as little as $25,000.  Fancy building not included.
  • You get the tax deduction in the year you fund your foundation.  So I got to take the tax benefits when they mattered most to me.
  • If you have stocks or mutual funds or other assets that have appreciated in value you can move these directly into your charitable foundation. You get the tax deduction for their full market value and you don’t have to pay any capital gains taxes on the gain.  Double tax win and more $$ for your charities.
  • You can choose a variety of investment options so your donation grows tax free while waiting for you to allocate it.
  • You decide what charities receive your money, how much and when.  You can set this up to happen automatically.
  • You can add more money to your foundation whenever you choose.
  • Because it is run thru Vanguard, expenses are rock bottom.
  • Now I can tell unwanted solicitors, “We only give thru our foundation.  Please send us your written proposal.”  We’ve gotten exactly zero proposals.
  • It keeps our personal names off the lists some charities sell to future solicitors.

In addition to the tax advantages this offers, it also plays into some of my conclusions regarding charitable giving:

  • It is best to concentrate your giving.  We have selected two charities.
  • Giving small donations to many charities might be satisfying to you, but it dilutes the impact and a greater percent of your gift is eaten up in the processing of it.
  • Many small donations also gets you on many mailing lists.
  • Never give to phone solicitors.
  • The more I see a charity advertising, the less likely I am to believe they are focused on delivering my cash to those they claim to serve.
  • You need to do your homework.  In addition to scams, lots of charities simply aren’t very efficient in delivering your dollars to those in need.  You can check them out here: http://www.charitynavigator.org/

 

You don’t need a charity to help

There is also something to be said for giving outside the traditional, and tax-deductible, places.  Helping your friends and neighbors directly isn’t deductible, but it has immediate benefits all around.  This is something I’ll be trying to do more of in the coming years:

http://www.abovethecloudsretreats.com/project-one-corner.html

http://www.jamesaltucher.com/2011/03/how-to-become-a-superhero/

http://www.jamesaltucher.com/2011/04/10-reasons-why-i-would-never-donate-to-a-major-charity-or-how-to-be-a-superhero-part-2/

http://spartanstudent.blogspot.com/2009/01/scholarship_01.html

http://spartanstudent.blogspot.com/2011/05/dispatches-from-peru-beans-bananas-

and.htmlhttp://spartanstudent.blogspot.com/2011/10/this-past-winter-i-created-scholarship.html

Finally, while giving is a fine and pleasant thing, no one has an obligation to do so.  Anyone who tells you differently is trying to sell you something, most likely the idea of giving to them and/or their pet projects.

As individuals we only have one obligation to society: To make sure we, and our children, are not a burden to others.  The rest is our personal choice.  Make your own and make the world a far more interesting place.

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30 Comments

  1. Posted February 8, 2012 at 11:15 pm | Permalink

    Wow! Sounds like a fantastic way to make a big impact!
    I have dreams of setting up some kind of foundation in my later years and had no idea it was that easy. Or that it could be done without millions of dollars.

    • Posted February 9, 2012 at 11:31 pm | Permalink

      piece of cake to set up.

      one other thing I forgot to mention. If you have stocks or mutual funds or any assets that have appreciated in value you can move it directly into charitable foundation. You get the tax deduction for its full market value and you don’t have to pay any capital gains taxes on the gain.

      Double tax win and more $$ for your charities.

      think I’ll add this into the post….

  2. Posted February 10, 2012 at 7:52 pm | Permalink

    That’s really amazing. I’m nowhere near ready to set up my own foundation, but when I am I’ll know where to go now :) I really like that kid at Duke’s blog…thanks for sharing.

    • Posted February 10, 2012 at 8:55 pm | Permalink

      You will be sooner than you think. :)

      Yeah, I like the Spartan Student, too, and I was really impressed with his concept and execution of the Dare Mighty Things Scholarship.

  3. Posted February 11, 2012 at 9:57 am | Permalink

    Jim, great article. I will be sharing it with my father. He definitely want to do more charitable giving and this sounds like a great plan.

    • Posted February 11, 2012 at 4:37 pm | Permalink

      thanks Tom…

      Glad you liked and to see you’re still reading this stuff. Please give your dad my regards.

      Mmmm, wonder if I can get this blog classified as a charity….
      ;)

  4. Posted February 19, 2012 at 10:56 am | Permalink

    I have to admit I don’t give as much to charity as I’d like, but as my income grows that will probably change. I do have to admit that I sort of think of all the unpaid overtime I work as charity to the homeless (I’m a social worker at a homeless shelter). I love that you won and gave that dinner to the teachers. My mom is a public school teacher and they deserve so much more credit then what they get. They are teaching and shaping tomorrow’s leaders after all.

    • Posted February 19, 2012 at 11:38 am | Permalink

      Hi Kari…

      thanks for stopping by, and welcome.

      Giving is, as you know, not just about money. I have a great friend from high school who retired and returned to school to get his masters in social work. It is a tough and often thankless field.

      Each year I work as a volunteer with VITA (volunteer income tax assistance) helping lower income people complete their tax returns. It’s fun for me and I get to meet some interesting and wonderful people. Certainly shatters the common assumptions about the poor.

      My guess is your work with the homeless does the same.

  5. Cindy
    Posted February 21, 2012 at 9:22 am | Permalink

    Wonderful article! Doing your homework is an important step to charitable giving. Vanguard Charitable is a great way to give to your favorite 501c3 charities and the homework is done for you! Jim..you did an excellent job relaying all the reasons why a donor-advised fund is a good option for philanthropy. Thanks for being such a great ambassador to giving!

    • Posted February 21, 2012 at 12:56 pm | Permalink

      Thanks Cindy….

      …I appreciate the kind words. Glad to have you here and delighted to see you’ve subscribed!

      Hope to see more of your comments.

  6. Posted February 21, 2012 at 2:57 pm | Permalink

    Hi Jim-
    Thanks for your informative article. As a social worker I am keenly interested in meaningful gifting – especially when considering current diminished funding in light of increasing demand.
    Some thoughts from the book “Getting to Maybe: How the World is Changed,” by Westley, Zimmerman and Patton: think of the Grameen Bank model for microloans for entreprenurial start ups. Outcomes, accountability and tests of inference are important for established programs, but as a potential (micro) funder for start ups consider: (quoting from “Getting to Maybe…”):
    1) Support learning as a meaningful outcome – and reporting on learning as a form of authentic accountability.
    2)Create and nurture experimentation and learning about social change, especially failed policies and initiatives.
    3) Support small “safe-fail” initiatives to learn what works and doesn’t work before implementing policy changes widely.
    Thank you for your wrtiting and
    thank you to your readers for their responses.
    Fritz Hahn, Taos New Mexico

  7. Posted May 26, 2012 at 2:51 pm | Permalink

    Thanks for the post. I may be crazy, or it may have something to do with me living in Canada, but I refuse to use charitable donations as a tax-break. It may be different in the US, but in Canada government does a pretty good job providing social assistance to all those in need. Yes, I am sure that there is some abuse, some people are lazy jerks who suck the system, but vast majority (maybe 98% of the money) goes to those in need. And yes, government on occasion does something ridiculous and often wastes money, but I bet that overall, they are more efficient than any non-profit organization could be.

    Secondly, I must say that I disliked Bill Gates for a very long time – as a nerd, some of his moves did slow down the development of the new technology, some great things never took off as his inferior product simply steam-rolled over it… However, what he is doing now, not only with his own money, but also by having other billionaires donate even more – is nothing short of amazing. There are thousands of children in this world that are alive today thanks to his work and contribution.

    • Posted May 26, 2012 at 6:19 pm | Permalink

      Hey Mr. RS….

      good to see you here and thanks for commenting!

      yeah, I gather Canada throws a wider safety net than we do here in the US. Although a lot of tax dollars are spent on social causes here too.

      The argument I’d make for charities over government in handling these things is that charities have to win you over to get your money. governments just take it. accordingly it seems to me the charities have more motivation to run efficiently.

      that said, I think the even better choice is low key, local help provided to people and situations we can know personally. of course, here in the USA those kind are not deductible. that’s why I funded my foundation during my high tax/valuable deduction years. now, I’m free to do more of the more personal stuff and not worry about the deductions.

      Bill Gates seems to be a person that others have very strong feelings about. As for me, he was just a good foil for this post.

      • Posted May 26, 2012 at 9:44 pm | Permalink

        I agree about keeping the charity close to home.

        P.S. Forgot to mention in my earlier post – I shared some of your posts with my better half and she says she loves your writing style.

        Thanks for taking time to write – it is kind of you to share your story to help others who are striving for the same result.

        • Posted May 26, 2012 at 10:34 pm | Permalink

          thanks for letting me know and please give your lovely bride my thanks and regards.

          of course now that I know she’s reading I’ll be expecting her to comment. ;)

  8. CL
    Posted September 23, 2012 at 4:45 pm | Permalink

    I love this roadmap. It’s definitely something that I’ll use when I have $25000 to give away.

  9. Posted May 29, 2013 at 11:37 am | Permalink

    Wise words. And they can only help make the world a better place! On reading, I originally thought that that Parker may be the wine guru, then realized that though he’s not, he is definitely a guru, and a very generous one at that. Inspiring story. Thanks.

    • jlcollinsnh
      Posted May 29, 2013 at 11:59 am | Permalink

      Hi Tom…

      Glad to see you found your way to this post. It’s one of my personal favorites.

      We never knew Parker all that well, just as diners at his joint. Still, I remember a pretty nice wine list and I’d be surprised if he didn’t know his way around it.

      He sure knew his way around food!

      • Posted May 29, 2013 at 1:28 pm | Permalink

        What goes around, comes around. Often in the most unusual ways!

  10. cv
    Posted June 3, 2013 at 10:09 pm | Permalink

    Dear Mr. Collins,

    Thank you so much, first of all, for your help on my questions and comment previously on consolidating my assets. I enjoy reading all your posts- they have a very unusual flair. I often find myself reading them over again and taking away different points.

    I really appreciate your perspective on “giving”, not acting out of perceived duty, but out of sincere wish to benefit others. I was wondering if you can shed some light on my personal giving scenario:

    I’ve been working regularly for approximately 8 years, have been working seriously hard on stashing my FU money since the beginning of this year and planning to work full time for no more than another 10-15 years.

    I tithe a portion of my take home paycheck to the local church i go to (by choice), which comes out to 5k a year. I am not yet a registered member, still feeling the parish out- last year, they did not even bother sending me a tax receipt because I was “not registered”. Due to the location of this parish, there are some seriously wealthy patrons, including former domino farms pizza owner. So I am thinking of taking my contribution elsewhere. Obviously the funds at the moment is too small to start any kind of foundation; are there other options (aside from the uber-low-yield savings account at the bank I can contribute regularly and grow the money in, and donate a lump sum at the end of each year?

    I also volunteer 60-70 hours a year, and regularly take donations in if for some reason i am not able to meet the tithe amount during a given month.

    Hope this makes sense.

    • jlcollinsnh
      Posted June 4, 2013 at 11:33 pm | Permalink

      Hi CV…

      My first reaction is I’d instantly stop giving to any organization so unappreciative. 5k is a lot of money!

      There are just too many wonderful options. Just click on the Charity Navigator link in the post and you’ll find plenty.

      If the deduction is less important to you, as it is to me now, you might consider what I suggest at the end of the post: Direct and personal giving to friends, neighbors and local organizations whose work you value. These have little or no overhead or fund raising, so every penny goes to work helping.

      As for where to keep the money until you donate, even as low as rates are, the bank account is still the place. As it is for any money you’ll be giving/spending/using in the next few years. Investing is long-term: 5 years minimum. Decades ideally.

      You could also start an investment fund with the annual 5k each year, not yet donating any. In five years or so you’ll be at the 25k mark for the https://www.vanguardcharitable.org/giving/home.html

      You could then set it up and authorize distributions while adding to it as you chose. This is what I’d do. You’ll be creating something that will last longer and do more good.

      Good luck!

  11. Posted February 21, 2014 at 11:14 pm | Permalink

    Great post, never gave ‘starting a foundation’ any thought because I didn’t understand the benefits, but your post helps shed light on them. I love Charity Navigator, never make a donation without checking them out first, be sure to check their ranking!!

    • jlcollinsnh
      Posted April 4, 2014 at 1:39 pm | Permalink

      Glad it helped, Jim!

      Absolutely. Whether contributing directly or thru your charitable trust, it pays to vet any organization before sending them your money!

  12. Workinghard
    Posted March 25, 2014 at 10:09 pm | Permalink

    I don’t know how many times I’ve thought about a charitable trust fund. It’s been on my someday wish list. However, it’s my understanding that any money in the fund can only go to qualified non-profit or tax exempt organizations. Is that correct? Or can the money be used to help individuals in need? We give 10-12k a year to people rather than churches or organizations. I also prefer giving anonymously which calls for some creativity and using people out of state to help. It would be nice to have some of the advantages of a charitable trust fund.

    Thanks for addressing this topic! Now to read your other blogs.

    • jlcollinsnh
      Posted April 4, 2014 at 1:27 pm | Permalink

      Welcome WH…

      Correct. Your fund can only contribute to qualified, established charities. I suspect this is because, since it is tax deductible, the same rules for IRS charitable tax deductions apply.

      As it happens, like you, I frequently prefer to give directly to individuals and small organizations that may not qualify.

      So what I do is occasionally fund my charitable trust with larger donations that get me over the IRS standard deduction for the tax benefit. This money is then distributed over the next several years.

      At the same time the money I choose to give anonymously and to places not qualified I give randomly and without concern for the tax break.

      Hope that helps.

      • Workinghard
        Posted April 4, 2014 at 2:25 pm | Permalink

        Thanks for replying and everything you’re doing to help us (me)!

        I don’t care about the tax advantages per se of a charitable trust but the anonymity would be great.

  13. bookaunt
    Posted March 29, 2014 at 6:03 pm | Permalink

    Just to let you know that you can open a charitable gift account at Fidelity for $5000 while you are waiting to build a bigger stake.

    • jlcollinsnh
      Posted April 4, 2014 at 1:35 pm | Permalink

      Good to know, bookaunt.

      But for smaller sums like $5000 I would just distribute the cash directly to the charities of my choice without bothering with a charitable trust.

      Such trusts, in my view, are better at providing an immediate tax advantage for a larger donation that will be distributed over time.

      For instance, unless you have other deductions $5000 will be under the standard deduction amount and no tax benefit will be realized.

      But if you fund your trust with 25k and then distribute the money over five years at 5k per year, you get a very valuable 25k deduction in the year you fund your trust.

      Make sense?

      • bookaunt
        Posted April 5, 2014 at 2:01 am | Permalink

        There are are times when even a $5k charitable fund can be useful. It worked for us a couple of years ago when we wanted to sell some stock that had a significant capital gain. By funding our gift fund with that stock, we were able to shield the profit from taxes – worthwhile to us even though the amount was not much over $5k (but we did have other deductions).

        Also – when looking at setting up one of these funds, note that both Vanguard and Fidelity charge an annual cost/maintenance fee.

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