Please email ft@wealthmonitor.com or call:EMEA: +44 (0)20 7059 6184 USA: +1 646 378-3155 for further information on wealthmonitor and how to receive more articles like the one below.
--------------------------------------------------------------------------------------------------------
There has been plenty of news coverage of the ever-expanding ranks of millionaires created by start-up Internet companies, a wave of M&A activity and (until recently) increasing real estate prices. What has gone less remarked on is the increase in and changing nature of philanthropy as the result of the wealth boom.
While much comes from Buffet’s USD 31bn pledge to the Bill and Melinda Gates foundation, total charitable donations in the US for 2006 came to USD 295bn, a one percent increase over the year before after inflation, according to the Chronicle of Philanthropy.
But are the ranks of givers actually growing? Or are a few outliers like Buffet skewing statistics?
Wayne Starr of BKD Wealth Advisors has seen no increase in the numbers of clients looking to engage in charitable giving. Among his clients “about half have specific goals” with regard to charity, and that number has not increased despite recent headlines. Those that aren’t interested in philanthropy from the beginning rarely become so later, he said. However, the amount of annual giving among the charitable does increase with income level, and income growth rates among top earners are at historic highs: the top 1% of earners are receiving the largest share of the national income since 1928, according to a study by Thomas Piketty and Emmanuel Saez in 2006, and publicized by a New York Times article this year.
Although the ranks of the charitably-inclined may not necessarily be growing, Mary McGrath of Cozad Asset Management said she is seeing clients who have previously given to charity express interest in increasing their donations as they age. “The focus changes on the edge of retirement,” McGrath said. “People in their seventies are realizing they have much more than they need to live on.” While some might be inclined to leave that money to the next generation, George Bittner, Executive Vice President of the Kansas City Community Foundation said an IRA worth USD 1m can see up to 75% of it value eaten up by state and federal taxes if bequeathed, while donating that same IRA to charity allows the donor to control what it will be used for. Besides, many high net worth individuals who have generated their own fortunes are reluctant to pass the majority of their wealth to their heirs. “They don’t want to take away the thrill of letting them [their children] build their own fortunes,” McGrath said she is hearing from her clients. Some are telling her “If I just give it to them, it won’t mean anything.”
The way in which high net worth individuals give to charity is also changing. With more individuals coming from the entrepreneurial ranks or having made their fortunes in real estate, donations of land or stock in privately held companies are becoming increasingly popular, according to Bittner.
New vehicles are also being developed to provide more flexibility. A charitable remainder trust (CRT), for example, can allow a client to continue receiving income while allowing them to make a tax free charitable contribution. In a CRT, individuals can make a donation to a trust, incurring a tax benefit for the present value of the donation. The trust continues to grow tax free, while generating dividends for the donor or their beneficiary. After a set time, the trust passes to the charity.
Technology has also changed patterns in giving, according to Bittner. Innovations like Guidestar, a website that allows you to track a charity’s performance against its peers, have introduced market forces and increased accountability into the staid world of philanthropy by allowing donors to compare the performance of different non-profits. Charities now have to compete among themselves on efficiency as retiring entrepreneurs look to bring the same hard-nosed business acumen to their philanthropy as they did to their for-profit ventures.
Savvy Warren Buffet went shopping for the most effective charity to give the bulk of his money to, rather than bestowing all of it to his own Susan Thompson Buffett Foundation. And, as in the investment world, where Buffet goes many are likely to follow.
--------------------------------------------------------------------------------------------------------
wealthmonitor is a unique proprietary intelligence service that identifies the new wealth being created as a result of potential and announced liquitidy events. wealthmonitor provides clients with articles such as the one above in real-time via personalize emails and BlackBerry alerts, as well as bespoke reports. For more information please email ft@wealthmonitor.com or call:EMEA: +44 (0)20 7059 6184 USA: +1 646 378-3155
