Chapter 32
How to give like a billionaire
I know what you’re thinking. For some time now you’ve been wondering what exactly Mrs. Collins and I have in common with Bill and Melinda Gates. Here it is:
We both have Charitable Foundations
Now you’re thinking, “I knew it! Jim is a billionaire!” In this you’d be, sadly I must say, mistaken. More monk than minister, I’m afraid. We don’t even have a fancy Gates-like building to house it in.
We’ve talked a lot about investing and building your own F-You Money, but virtually nothing on, well, spending it. Since we personally don’t much care for owning things I’ve not much to say. We like to travel. We do spend on that. Sending our daughter to college was money well spent, as she so thoroughly embraced the experience.
But the money we’ve spent that has provided us with the most pure personal pleasure is that we’ve been privileged to give away.
In fact, I can specifically pinpoint the $1,200 that has given us the most satisfactory 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 a point. I 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 called Parker’s, after the chef who owned it. On this occasion Parker 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 Parker’s, the competition dropped off. At around $1,200 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 fifteen total—teachers would get to go. Second, she herself would have to attend. See, we knew this Mother Superior and needed to head off her selfless ways.
When word spread a couple of very interesting things happened. Parker himself stepped up and expanded his donation to dinner for fifteen 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. For instance, if you are married and filing jointly you are allowed a standard deduction of $12,600 in 2015. Should you have less than that in itemized deductions you are better off taking the standard deduction and saving yourself the effort.
A few years ago it occurred to me that two life changes were coming down the pike that would affect my personal tax situation. We were planning to sell our house and I was planning to retire. Without the house and its associated deductible costs we’d no longer be itemizing. Upon retiring I’d be in a lower tax bracket. Both these things would lower the tax advantage of charitable giving. The solution:
The JJ Collins Charitable Fund
You already know I’m a huge 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, 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 money for your charities.
If you are faced with the RMDs we discussed in Chapter 20, you can roll all or part of a tax-advantaged account directly into your charitable foundation tax free.
You can choose a variety of investment options so your donation grows tax-free while waiting for you to allocate it.
You decide which 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. (If your balance falls below $15,000 you will be charged an annual $250 Account maintenance fee.) Because it is run through Vanguard, expenses are rock bottom.
Now I can tell unwanted solicitors, “We only give through 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 other solicitors.
In addition to the tax advantages this offers, it also plays into some of my personal conclusions regarding charitable giving:
It is best to concentrate your giving. We have selected just 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, many charities simply aren’t very efficient in delivering your dollars to those in need.
Several websites vet charities. This is the one I’ve used: 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, especially since I’m not currently itemizing my deductions.
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 ensure 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.