On Wednesday, former Vice President Joe Biden and his wife Dr. Jill Biden launched their new charitable foundation, the Biden Foundation. This will be a continuation of the couple’s work on equal rights, which they focused on during their years in office. The new organization will prioritize fighting cancer, ending violence against women and children, supporting military families, and achieving equal rights for all.

The fight against cancer became particularly important to the Biden family after Joe’s oldest son Beau passed away from the disease in May 2015. The foundation will continue to support the Cancer Moonshot Initiative–the White House anti-cancer effort that Biden headed–which aims to find the cure. Jill Biden is a college professor and will keep working on her longtime goal to increase people’s access to affordable, high-quality education. In a video promoting the new foundation, the former vice president said, “As long as we have a breath in us, we’re going to be working on it.”

Joe and Jill Biden announce The Biden Foundation in new vid, plan to focus on cancer research, violence against women, foreign policy issues pic.twitter.com/z6296Cp8wi

— Kyle Griffin (@kylegriffin1) February 1, 2017

The foundation’s executive director will be Louisa Terrell, who used to work for Facebook, Yahoo, and for Joe Biden when he was a senator. The board will also consist of several former Biden aides and advisers. It will accept donations from private foundations, donor-advised funds, and corporate foundations, but not from foreign citizens, entities, or any other foreign sources. In a statement the Bidens said:

We look forward to this new chapter where we will continue our work to ensure that everyone—no matter their income level, race, gender, age, or sexuality—is treated with dignity and gets a fair shot at achieving the American Dream.

In the promotional video, Biden also said he has high hopes for the millennial generation, calling it the most open, most tolerant, and most generous generation in American History. He said that we now have the power to change the culture, “Just as we did when we spoke up and said that the only criteria for who you marry should be who you love.”

From fighting cancer to changing the culture on domestic violence — we’re just getting started. Join us: https://t.co/QHaFokMnrZ

— Joe Biden (@JoeBiden) February 1, 2017

Emma Von Zeipel

Emma Von Zeipel is a staff writer at Law Street Media. She is originally from one of the islands of Stockholm, Sweden. After working for Democratic Voice of Burma in Thailand, she ended up in New York City. She has a BA in journalism from Stockholm University and is passionate about human rights, good books, horses, and European chocolate. Contact Emma at EVonZeipel@LawStreetMedia.com.

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The locks left in the chain links of Paris’s iconic Pont des Arts bridge have long been contentious–they were seen as an eyesore, a tourist trap, and a threat to the structural integrity of the bridge, as the weight of hundreds upon hundreds of metal locks weighed down the balustrades. Romantics see the love locks as a symbol of commitment, but locals see them as a form of littering. The city began removing the locks en masse last year but the “love lock trend” still exists across Paris and has spread to practically every major city with an attractive set of bridges. Yet as of this month, the Parisian locks will take on a new identity–they are being bundled together and auctioned for charity, specifically to raise money for refugees living in Paris.

The auction is slated for the spring of 2017 and Bruno Julliard, first deputy mayor of Paris, expects to raise approximately 100,000 euros for the refugee community–but there have been no specific plans released for which organizations will receive the profits. Nor has there been a clear outline of what specifically the money would go toward. Refugees are in need of shelter, food, medical care and supplies, legal representation, job training and placement–which of these efforts will be prioritized when the love lock funds roll in?

Julliard has essentially two options before him: donate a massive sum to a single organization, or donate multiple small amounts to the various charities working to secure housing and employment for the thousands of refugees living in Paris. The general statement Julliard released made a vague reference toward funding “organizations” (plural not singular) working to support refugees in Paris but gave no information about whether that means local, neighborhood organizations or larger, international charities. If several different organizations are going to receive funding, then orchestrating the auction becomes a much more challenging task. What if those bidding on the locks only want to give to certain charities that are benefitting from the funds and not others?

While several small donations to multiple causes can help with immediate issues like purchasing supplies, there is an economic argument that a one-time large donation to a single organization will be more impactful in the long run. However, the true efficacy of the donation has more to do with how the organization spends it money than the sum itself. The websites Givewell and CharityNavigator  only exist because we have seen charities mishandle funds time and again, making us wary of where we donate our money.

At the moment, the sale of the love locks may read as a feel-good publicity stunt but if the auction truly does raise the money that Julliard expects, the funds will become an object of public debate, with every non-profit that even tangentially works with refugees looking for a grant and every anti-refugee National Front supporter arguing that the funds should be spent elsewhere. Unless there is a clear plan of which charity the money is going to and how it will be spent when it gets there, the love lock auction will be, at best, a shallow gesture that does not effectively help Paris’s refugees.

Jillian Sequeira

Jillian Sequeira was a member of the College of William and Mary Class of 2016, with a double major in Government and Italian. When she’s not blogging, she’s photographing graffiti around the world and worshiping at the altar of Elon Musk and all things Tesla. Contact Jillian at Staff@LawStreetMedia.com

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The U.S. government uses incentives in its tax policy to promote charitable giving. Most people are aware that they can deduct donations that they make to charitable institutions from their taxes. For small amounts, some people may not take advantage of this. Others might prefer to send the money that they would owe in taxes to a favorite charity, which is more in tune with their values. As a result, they try to diminish their tax burden as much as possible in favor of donating to charity. But very wealthy individuals can take it to a whole new level.

One strategy to reduce your tax burden that you can use is the creation of your own charitable trust. Charitable trusts allow the wealthy to preserve their asset value by not paying capital gains taxes on assets they sell through the trust, deducting the value of the gift that was made from their personal income tax, and taking advantage of other tax benefits designed to encourage charitable giving.

The charity gets a taste and the donor, who otherwise might not have given to charity at all, is incentivized to give. So is this a situation where greed is morally good?

Bet To Live Strategy

Take a look at this video about one of the most popular kinds of charitable trusts that you can create, the charitable remainder trust. Assuming of course that you have a million dollars. It gives a simple explanation of how the process works but, more importantly, a glimpse into why the process works.

As you saw in the video, the fact that the beneficiary is a charity can be irrelevant. In fact, the commenter goes out of his way to explain that you don’t actually need to care about being charitable in order to take advantage of this setup. What you should care about is whether you and your spouse have a long life expectancy. Because if so you then will be able to get the maximum amount of utility out of your trust.

This is why the charitable remainder trust, and other ways that the government incentivizes charitable giving by providing tax benefits to donors, is thought of as a good idea. Not because it rewards people for giving to charity but because it incentivizes people who otherwise wouldn’t into donating as well.

People who are motivated by their conscience to give money to charity–particularly those who have an issue of critical importance to them and a charity that focuses on that issue–are going to give money anyway. They have a built-in incentive to do so and may even give whether they could claim a tax benefit from it. But those only make up a portion of donors all charitable donors in the United States. The other portion includes those who are pushed to donate to charity because they want the financial benefits that donating provides. Of course, there is likely some overlap, those who get satisfaction or social benefits as well as a tax deduction for their actions, but there is a subset for whom it is all about the money. And if they weren’t benefitting themselves they wouldn’t be giving to charity.

By providing a financial motivation to donate we are capturing a donor class for charities that we otherwise would not have. What we want is to maximize the donor pool and by appealing both to greed and to altruism we can get the most donors possible. So what is the problem here?

Institutional Dynamics

One problem that exists with this setup is the amount of benefit that charities actually receive. Incentivizing the wealthy to give to charity through greed may be a great idea–but only if those charities actually get the money–or enough money to justify our privileging a charitable donation over what government would collect in the form of taxes. People who want to take advantage of the tax benefits that we use to encourage charitable giving will often set up a private foundation, which will, in turn, donate money to various charitable endeavors. But the IRS only requires the private foundation to spend 5 percent of its assets annually. Further, it doesn’t require that 5 percent to go to the actual mission of the charity they are donating to, it can go to things like administrative costs.

The individuals setting up these private foundations are receiving very generous benefits in the form of a tax deduction, but the charities that are supposed to ultimately benefit from these foundations may not be.

The amount that each institution needs to spend to be considered charitable–5 percent–is an arbitrary number that does not really represent what is the best amount for these institutions to spend. Especially when that percentage is so small. And while foundations could spend more than the required 5 percent, they rarely do.

It might be a good idea to treat different types of charitable giving in different ways. For example, a donor who is setting up his or her own private foundation versus one who is giving to an already established one. Allowing a donor who creates their own charity to label that activity as “charitable” when it only needs to spend 5 percent of the gift on that purpose may be unfair. Whereas we may want to allow academic institutions managing large endowments to be fiscally conservative to preserve their resources. It may make sense for us to treat different types of foundations differently and not have a blanket 5 percent expenditure rule in order to qualify. What should be prioritized is the benefit received by the recipients of the foundation, not the potential benefits to a donor.

We also might want to take a look at just how good a deal a charitable remainder trust is for the donor and how good a deal it is for the charity. It isn’t a bad idea to incentivize charitable giving by appealing to greed–in fact, it may be a very good idea–but we can probably negotiate a better deal for the charities. In both the remainder trust and the lead trust, the charities receive a benefit but the donors arguably benefit the most. For example, with a charitable remainder trust, you can sell an asset, such as a stock, through the trust to avoid a capital gains tax. And then you can deduct from your taxes the value of the asset that you gave to the charitable trust. Over the term of the trust (which can be in years or for your or someone else’s lifespan) you receive payments from those assets. Whatever is left at the end of the term goes to the charity but the donor, if they were fortunate to live for a long time after its creation, may have taken the bulk of those assets in annuities in addition to the tax benefits they received for forming the trust in the first place.

The lead trust operates in the reverse, giving the charity annuity payments and then the remainder of the assets to the creator of the trust (or their heirs). But it is still a good deal for the donor, especially those of extreme wealth. In some cases, a lead trust can result in a profit beyond the initial tax deduction that will eventually go to its recipient.

Another concern with this incentive is: what qualifies as a charity? The definition of charity can go beyond what we might think of as traditional charitable pursuits such as clothing the naked or feeding the hungry. There seems to be a wide range of what can be included as a charitable activity, including groups that act primarily as political special interest groups.

How the Wealthy Use Charitable Trusts

The Koch brothers’ charitable giving provides a prime example of how a charitable trust can be used to protect generational wealth. In this case, the trust established by Fred Koch, the father of Charles and David, was a charitable lead trust. A charitable lead trust allows a donor to give money to the beneficiary tax-free as long as the interest that accrues on the original amount is donated to charity for a period–in this case 20 years. This allows the heirs to keep more of the fortune left for them while at the same time ensuring a steady stream of income charity. For the Koch brothers, the charitable trust is not only protecting generational wealth, it is also used to promote a specific political ideology. A tax subsidy for this may go beyond what most Americans are willing to support, which is one reason why these methods may be worth revisiting.

Another example of estate planning to protect generational wealth can be found in the Walton family, the heirs to the Walmart empire. The Waltons have used a variety of trusts, including charitable trusts, to avoid paying estate taxes on their wealth, thus preserving it in the Walton family for future generations.

The trust most famously used by the Waltons is the so-called “Jackie O Trust,” which is a charitable lead trust. For a family with a lot of wealth and a lot of time this can be a useful tool. For example, Helen Walton, Sam Walton’s wife, set up four trusts in 2003. When she set them up the IRS set a rate of 3.6 percent, which is based on the interest rates for U.S. Treasury bonds at the time the trust is formed and how much the trust is likely to go to charity versus the heirs. But because interest rates on U.S. Treasury bonds are so low–and they have been for a while now–investments into these trusts easily beat those rates. In fact, the trusts returned 14 percent a year from 2007 to 2011. Which means that the Waltons pay 3.6 percent of this money in estate taxes, but the extra 10.4 percent that the trust earned went back into the pile and eventually go to the Walton family. They are making more money for their future estates than they are giving away.

Conclusion

Charitable trusts have a worthy goal–to promote charitable giving–and use an effective strategy to try to achieve it. It is the kind of appeal to self-interest that the original federalists would have been proud of. One that acknowledges the dearth of altruism in human nature and makes the best of it. But the balance of funds given to the charity versus the financial benefit to the donor may not be sufficient to justify the loss of tax income to the government. The regulations on this kind of giving could do more to ensure that charities get a higher percentage of the gift and that the gift is specifically used for tangible charitable activities, not for administrative costs and salaries. Appealing to a wealthy family’s self-interest in order to promote charitable giving is smart. But it can and should be a better deal for charities than it is now to justify foregone tax revenue.

These regulations also could do more to define what qualifies as a charity in the first place. Political discourse is a worthy goal in and of itself. But it may not be one that Americans want their government to promote through a tax incentive. Or, if we decide it is, then that should be separate from the promotion of charitable contributions. We can be careful about how money that we allow to go to charity rather than to government projects is being spent by taking another look at what we define as charitable. The rules for what is charitable are murky–donations to a 501(c)3 that engages in “education” are deductible, while a donation to a 501(c)4 that engages in politics is not, but the line between the two is not clearly defined. The requirements for the kinds of donations that we want to allow exemptions for should be clearer and more stringent.

If we are going to siphon tax dollars away from important government functions, through charitable tax deductions, the charities that are eligible should be ones that do charitable work that is similar to those goals. That way individuals who don’t want their taxes to support policy X but have no problem with policy Y can give to a charity that does something similar to policy Y. They are still incentivized to give but lost government revenue should not be done in vain.

Resources

Fidelity: Charitable Giving That Gives Back

Salon: 10 Tax Dodges That Help The Rich Get Richer

Mother Jones: Exposed: The Dark Money ATM of The Conservative Movement

Daily Kos: Jane Mayer’s “Dark Money” Exposes Charles Koch’s Campus Lobbying Scheme

Goodreads: Dark Money: The Hidden History of the Billionaires Behind The Rise of the Radical Right

Money Crashers: What Is A Charitable Remainder Trust- Definition, Rules & Taxation

Inside Philanthropy: Dept. of Murky Money: What the Heck Is a Charitable Trust?

Bloomberg: How The Waltons Maintain Their Billionaire Fortune: Taxes

The New York Times: Minding Your Business: The Jackie Onassis Trust, and a Variation On It

Daily Kos: 501(c)(3)s, 501(c)(4), and the Rest. A Primer

The Sunlight Foundation: The Difference Between Super PACs and Dark Money Groups

The Washington Post: How Is The IRS Supposed to Vet 501(c)(4) Groups Anyway?

Grantspace: What is a Foundation?

Mary Kate Leahy

Mary Kate Leahy (@marykate_leahy) has a J.D. from William and Mary and a Bachelor’s in Political Science from Manhattanville College. She is also a proud graduate of Woodlands Academy of the Sacred Heart. She enjoys spending her time with her kuvasz, Finn, and tackling a never-ending list of projects. Contact Mary Kate at staff@LawStreetMedia.com

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The Girl Scouts of Western Washington were more than thrilled when they recently received a $100,000 donation to fund activities for girls participating in the organization. However after seeing the note that came attached to the donation, the program made a hard call–to send the money back. According to Seattle Metropolitan magazine, the note read:

Please guarantee that our gift will not be used to support transgender girls. If you can’t, please return the money

This past May the Girl Scouts of America clarified its  longtime policy of allowing transgender girls to be Girl Scouts. While that decision resulted in applause from some, it also garnered protest–presumably the people who sent the note and donation fall into that camp.

The Chief Executive Officer of the Western Washington Chapter, Megan Ferland, claimed to feel very sad after receiving the letter, but sent it back without any hesitation. She said: Girl Scouts is for every girl. And every girl should have the opportunity to be a Girl Scout if she wants to.

With $100,000 covering nearly a third of the organization’s financial assistance program for the year, returning the gift was a big loss. So in an effort to replace the donation, the Western Washington council set up an Indigogo fundraiser, and received significantly more than the original donation. The “Girl Scouts is #ForEVERYGirl” page was able to raise more than $175,000 from more than 3,200 donors in one day, and more than $249,000 from over 4,900 donors in two days.

This is reportedly the second time the Western Washington Girl Scouts under the leadership of Megan Ferland have taken a stand to support transgender individuals, even though the organization has received some controversial feedback in regards to the issue. “Our position is not new,” Andrea Bastiani Archibald, the Girl Scouts USA’s chief girl expert, told CNN. “It conforms with our continuous commitment to inclusivity.”

However, as much as various arms of the Girl Scouts organization have stood up for transgender individuals, Boy Scouts of America has taken a different road when it comes to acceptance of LGBTQ individuals. After long debate, the Boy Scouts of America’s National Council was finally able to vote and ease a long-standing ban and allow openly gay young men in the organization in 2013. The policy took effect in January 2014. Although the vote was considered a milestone, there were some who were distraught with the outcome. There was talk of a new organization being formed, but that has yet to come to fruition. “This has been a challenging chapter in our history,” the BSA chief executive, Wayne Brock, said after the vote. “While people have differing opinions on this policy, kids are better off when they’re in Scouting.”

With a long road ahead, it seems both organizations are taking the necessary steps to ensure Boy and Girl Scouts of America include all people, although the Boy Scouts are clearly trailing behind the Girl Scouts somewhat. This move toward equality is certainly a good thing–whether it means extending membership or not taking donations that don’t go to further equality. 

Angel Idowu

Angel Idowu is a member of the Beloit College Class of 2016 and was a Law Street Media Fellow for the Summer of 2015. Contact Angel at staff@LawStreetMedia.com.

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