Transcript Charitable Giving: Why, How, and Where

How to cure cancer, save the
world, and do
other cool things in your spare
time
Non-traditional philanthropy
Steve Kirsch
Chairman
Infoseek
Charitable giving agenda
• Why?
• How?
• Where?
“I worked really hard to make it”
“… we’re talking REALLY hard
…nights…weekends…holidays… gave up
sex for 2 years…”
“Now you are asking me to give it away?!?”
“Are you nuts?”
“Where do you want your estate
to go tomorrow?”
CHOOSE ANY TWO:
Family
Taxes
Philanthropy
Who gets to spend your dough?
You? Or the government?
Giving statistics in Silicon Valley
One of the richest areas on the planet, yet
for high net worth households (assets >$1M
not including their home) :
• 45% give < $2,000/yr
• 6% give $0
Source: Community Foundation Silicon Valley
The best things in life aren’t all
that expensive
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House
Car
Vacations
Subscription to Fortune
Replay/Tivo box
Private jet
Assets for guaranteed income for rest of your life
So now what?
So we had a choice...
• Sit on our assets
or
• Put those assets to work in a way that will
benefit:
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ourselves
our kids
future generations of our family
our friends and community
Why it is better to donate to
charity sooner than later
• No tax advantages to
giving after you are
dead
• No personal
satisfaction to giving
after you are dead
• Giving can ultimately
benefit you or your
family
deviated septum
presbyopia
hair loss
snoring
lactose intolerance
psoriasis
receding gums
near sighted
torn ACL
type I diabetes
macular degeneration
ringing in my ears
Example
• Ten years from now, you might be
diagnosed with:
– Heart disease/stroke
– Cancer
– Macular degeneration
• At that time, starting a giving plan will be
too late to have an impact on your health
• In hindsight, would you think keeping your
assets sitting in stocks was the right move?
Life changing advice
• SK: “How do you get people to donate large
sums?”
• LE: “You know, there are some people in
this world who are looking for places to
give money away”
• SK: “Say what? What have you been
smoking?”
Was he right? Let’s find out...
What kind of person do you want to be? In
“A Christmas Carol,” did you like Scrooge
better
BEFORE
or
AFTER
?
Virtually all who try philanthropy
stick with it
• 100% donor satisfaction at CFSV:
– No donor advised endowment funds have
closed (except if the donors move)
Giving need not be altruistic
• Can be totally pragmatic
• Example
– We give because we get a higher return on our
assets
– Our one-time $50M donation may cure cancer,
diabetes, or arthritis; save the world; save the
environment; etc.
– Was that a good use of $50M? Or should I have
invested it in stocks? For whose benefit?
Giving need not be altruistic
• Or giving can be in your self-interest
• Example: donate to causes that affect or
may affect you or your immediate family
– aging research
– heart disease
– asteroids
Giving may actually save you
money!
Example:
– You donate to a CRT when your stock is locked
up at $50
– Trust can short other shares to lock in the gain
– Trust pays you back your donation over time
Result:
– You can actually end up with more money in
your pocket than if you sold that stock at $25 in
a selling window
“Why Give?” Summary
• We DO give to make a positive difference
in our own lives and the lives of people we
care about.
• We DO NOT give not out of a sense of
obligation or payback or civic duty or
because it is “the right thing to do” or “to
create a legacy”
Agenda
• Why?
• How?
• Where?
Giving survey
• Would you rather donate:
– your own money
– someone else’s money
Giving options
• Charitable Lead Trust (income to charity
now, later assets pass to heirs)
• Charitable Remainder Trust (income to you
now, later assets pass to charity)
• Donor advised fund
• Supporting organization to a community
foundation
• Private foundation
Which option?
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Smart estate uses a combination
CRT: Secure income stream for you
CLT: Pass money to your heirs
Donor advised fund: Under $1M assets;
minimizes tax bite and maximizes
charitable giving
• Supporting org: >$5M in assets; you can
influence investments and donations
Easiest way to donate
• Gift appreciated stock to a donor advised
fund at local Community Foundation
(typically $25K minimum)
• E-mail* them whenever you want to make a
grant
• After you make the donation, you spend the
rest of your life giving away someone else’s
money!
* For any progressive community foundation
Charitable fund advantages
• You can add stock (and liquidate) when
your stock is locked up
• Can donate to fund when stock peaks;
decide on recipient later
• Gift to charities at anytime from the fund
• Less hassle (no personal recordkeeping, no
periodic stock transfers, e-mail donations)
Advantages of charitable fund
• Endowment compounds tax free forever
• You get to give away an infinite amount of
OPM and your annual grants will typically
increase each year
• All this from a ONE-TIME donation!
Carnegie Foundation
• Donated $5.2M 100 years ago
• Built 65 public libraries
• Still in operation today
How to donate to charities when
your stock is locked up
• Your stock seems to always peak when you
are locked up… but...
• You donate the stock; the charity shorts
other shares
• Allows you to give charity lots more money
AND gives you a bigger writeoff
• Typically done through a community
foundation
Hypothetical example
• You start an Internet music company
• At IPO, you are worth $2.5B, but you can’t
sell any shares
• So you donate 1% ($25M) to a charitable
fund
• You get a nice writeoff and can make
donations to your favorite causes for the rest
of your life without an additional
investment
Giving strategy
Make periodic small donations as
your stock rises
Many notable philanthropists regret not
having taken advantage of this strategy.
Don’t make the same mistake.
The San Diego Foundation
• $285M assets
• 600 funds
• $5K to $50M
Kirsch Foundation
• Identified areas we thought were important
for ourselves, our kids, our friends:
environment, education, medicine, ...
• Started with a donor advised fund at my
local community foundation
• Added to it over the years
• Switched to a supporting organization so I
could invest assets more aggressively
Kirsch Foundation
• Hired CEO
• Recruited world-class medical advisory
board (including Gordon Gill from UCSD)
• Currently
– $50 M in assets
– Donate $5M per year
– Recruiting program officers in medical and
environmental areas
My recommendation
• Start NOW with a small donor advised fund
• Add to it as you become comfortable with
the results and as your estate grows
• 10% of your net worth after taxes is a good
starting amount
Agenda
• Why?
• How?
• Where?
Traditional philanthropy
• Donate to American Cancer Society, United
Way, public TV, etc.
How to give intelligently
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Figure out the areas important to you
Create your own criteria (I have 20)
Make a long term commitment
Realize that results are often hard to
quantify
• See my website for details:
www.skirsch.com
How we give
• Saving the world (NEOS, Ploughshares)
• Encouraging philanthropy (talks, website)
• Environment (we own two EVs, AB71,
NRDC, EV tax credits, solar vehicle)
• Fixing what is broken (knee surgery advice,
stem cell ban, selling body parts, etc.)
How we give
• Medical research projects (diabetes, bridge
funding gaps)
• Medical sponsorships (3 yr; $540K grants)
• Local (Tech Museum, AMTSJ, library, …)
• Education (MIT, people skills)
• Misc (Mars Society, Buzz Aldrin, …)
• Socially responsible investing (Targesome)
Curing cancer
• Invested $2M in a “for profit” startup doing
cancer cure research
• We can’t lose!
– FAILURE: supported research; superior tax
deduction to a charitable donation
– SUCCESS: Cure cancer, win Nobel prize, save
millions of lives, get a big capital gain
Why donate $2.5M to MIT?
• Practical reasons:
– Someone there is going to invent something
that will make a big difference in our lives, or
lives of our children
• NOT because:
– Sense of obligation (“payback”)
– Altruism
Summary
• While your reasons for giving may vary, it
makes sense to start a giving program now
• Easiest way to get started is set up a donor
advised fund at a community foundation
• It’s as easy as opening a bank account, a lot
more fun and satisfying than doing the rest
of your estate planning
Summary
• The time to give to many causes is NOW,
before they create a problem for you or a
family member or your community
Survey
• How many of you have I convinced to setup
a donor advised fund or to begin/expand
your own charitable giving?
• If I haven’t, why not?
For more info
… and a copy of this talk, please see my
website:
www.skirsch.com