Why, how, and where of charitable giving


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Why, how, and where of charitable giving

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