I’ve always been weary of charities, you hear too often how their top executives get paid a ridiculous ton of money, or how low their real aid ratio is… and now there’s this article that shows once again how corrupt our politicians are:
the nation’s most influential charity watchdog put it on its “watch list” of problematic nonprofits last month. The Clinton family’s mega-charity took in more than $140 million in grants and pledges in 2013 but spent just $9 million on direct aid. (FYI that’s about 6%)
The group spent the bulk of its windfall on administration, travel, and salaries and bonuses, with the fattest payouts going to family friends… far below the 75 percent rate of spending that nonprofit experts say a good charity should spend on its mission
the foundation claimed it spent $30 million on payroll and employee benefits; $8.7 million in rent and office expenses; $9.2 million on “conferences, conventions and meetings”; $8 million on fund-raising; and nearly $8.5 million on travel…
There’s a group of people at my work who are all about setting up charitable giving as a mechanism of reducing tax exposure. I’m not sure how it works, since I am not involved with their clients and don’t expect to amass sufficient wealth to need this technique myself, but my understanding is that having an actual charitable goal is mostly a formality, and the idea of spending 9% on the cause is fine because you avoid paying 35-39% in tax on everything else the charity manages.
It’s a shame that this causes charities whose cause is genuinely about bettering things to be suspect, too. I do believe that charities do have a problem in that they need to pay their staffs a professional compensation, yet most people want charit workers to use volunteers or pay their staffs next to nothing, and then complain if the ship is not run as tight as a private enterprise with professional grade managers and staff.
As for the Clintons, it would not surprise me if they do the same, but try to add spin to it. Organizations love to talk about the dollar amounts they spend on nice-sounding things when they are large enough, particularly if it’s hard to contextualize what those figures mean in terms of the size of the problem and the size of the organization’s total budget.
Say you donate $100 to your “charity”, you get $35 back in taxes. Then use your charity’s $100 to spend say $90 for yourself (travel, expenses, etc…), going on “charity” travels/meetings/whatever, and spend $10 for real donations.
On a net basis… for the -$100 you gave away, you used/got 35+90 = +$125 of value
Well, the article does demonstrate that the Clinton foundation spent only 6% of its budget on direct aid. Maybe that is just how all these organizations work, but some people might still draw their own conclusions from that.
It’s called a CLAT–Charitable Lead Annuity Trust. (Might also be called a GRAT–Grantor Retained Annuity Trust.)
Basically, you arrange to pay a certain amount per year to a charity. Once you’ve paid all your mandatory charitable contributions, the remainder passes to the beneficiaries free of estate taxes.
Suppose that you have a $100m Trust, and the portfolio makes 7% per year, and the term is fifteen years. The IRS requires that you pay 5% out to the charitable beneficiaries. After fifteen years, your trust is worth $135m, and it moves out of your estate, so you don’t have to pay estate tax on it.
Had you taken the CFP exam, you would have known this.
I’m not one to bash CFPs, though this is a good example of how just because something is harder (I do think the CFA exams are probably harder to pass) doesn’t automatically mean it’s more useful.
Yep. I certainly can. Happens all the time. Fraudulently, I might add.
The old CPA firm I used to work for (which wouldn’t allow me to use Excel) is being investigated for coming up with tax schemes like this. If convicted, the partners are facing jail time.
There was some Silicon valley start up that was trying to produce score cards and rankings for charities based on net aid recieved. I don’t know what happened to them
Just more evidence why the government should stop matching charitable donations based on tax bracket or at all for that matter. If the donor’s marginal tax rate is 40%, the government offers a 66.67% match. If the the donor’s marginal rate is 10%, the government offers a 11.11% match. Just perverse. If only 6% of the total is “helping” society, the people would no doubt be better off if the money stayed in the Treasury’s coffers. And not to mention, the 6% doesn’t even have to help the American people. Tax revenue is being sent overseas without the voters having a say. At least government aid is being distributed by elected officials, in theory anyway.
Except that’s not how matching grants work. What happens is that the nonprofit asks for government funding, and the government says, “This project meets stated objectives, so we’ll give you X, but at least 50% of your funding has to come from other sources,” because the government likes it when it can say “this is a public-private partnership,” because it sounds all participatory-y.
Then the nonprofit goes to other donors or the public and says “For every $1 you contribute, the government [or other donor] will match you $1, so your contribution is even more vaulable than you think it is.” It makes it sound like the government is matching what you paid, but in fact it’s because the government has said “someone else has to pay some too, or we’re not doing anything.”
Effectively though, the government is still matching charitable contributions in some form. If your marginal tax rate is 45% and you donate $1000 to some charity, you paid $550 of your after tax income, and the charity receives $450 that would otherwise have become tax revenue. In other words, the government matches 45%/55% = 82% of after tax contributions.
Except that vanilla donations aren’t generally matched. And when there is a matching requirement, this is the government’s way of contributing less of its own money, not contributing more.
