[Editor's note: The following article was prepared by Wachovia Trust Nonprofit and Philanthropic Services.]
Corporate charitable giving is an integral part of U.S. philanthropy. Corporations give through many different mechanisms for many different charitable purposes. And, increasingly, companies are encouraging executives to support nonprofit organizations - both financially and through technical expertise.
While the figures vary from study to study, the message was the same: Corporate giving was up in 2007.1
- Giving USA 2008 estimates corporate giving (other than sponsorships) at $15.69 billion for the year, up 1.9% from 2006.
- The Committee Encouraging Corporate Philanthropy (CECP) found that contributions from large multinational corporations grew by 5.6% to a median $26.05 million, up from $24.67 million 2006. Roughly two thirds of the corporations surveyed increased their giving in 2007, including more than half of the corporations reporting lower profits.
- Cash donations by the nation's 150 largest businesses, as ranked by Forbes magazine, rose by 8% to $3.8 billion according to The Chronicle of Philanthropy's annual survey. This compares to a 6% increase in 2006.
- Giving by grant-making corporate foundations was up about 7% from 2006 to an estimated $4.4 billion. New gifts from corporations to their foundations were an important factor in this growth.
These studies also identify some interesting characteristics of corporate gifts and giving. More than 80% of the corporate executives responding to the CECP survey said that economic conditions should have an "unimportant" or "neutral" impact on corporate giving. An even higher percentage said companies should maintain cash reserves or endowments to enable them to continue giving during economic downturns.
The Chronicle survey found that many companies actively encourage employee giving and volunteering. Twenty-two percent of the businesses surveyed said they had made changes to their volunteer programs in the past year. Among the steps taken: promoting volunteer opportunities on company Intranet sites, increasing paid time off and money matched for employees' volunteer efforts, and promoting volunteerism among employees working overseas. "Skills-based volunteering," where employees' professional skills are matched with the needs of charities, continues to grow in popularity.
Corporate Foundation Giving Patterns
* Other includes religion and the social sciences.
** Public Affairs and Society Benefit includes civil rights and social action, community improvement and development, philanthropy and voluntarism, and public affairs.
Includes endowment funds
Source: Key Facts on Corporate Foundations, Foundation Center, April 2008: 2006 data from sample of 200 larger corporate foundations, excluding giving by corporate operating foundations.
Giving by Entrepreneurs
Another study2 provides a look at some of the people behind an important portion of corporate and individual giving - entrepreneurs. On average, entrepreneurial households give nearly twice as much to charity as do other high-net-worth households (those with net worth of $1 million or more or an income of more than $200,000 a year). In 2005, entrepreneurial households gave an average of $232,206 versus $120,651 for high-net-worth households. As you can see in the accompanying graph, their contributions benefited a variety of causes.
Entrepreneur respondents cited various motivations for charitable giving. The top five: meeting critical needs (87.7%), giving back to society (86.3%), a belief that those with more should give to those with less (78.4%), a wish to bring about a desired impact (75.3%), and to set an example for children and others (74.3%).
Benefiting from a Program of Planned Giving
While companies and their executives alike give, and give generously, many executives are unaware of various planning strategies that can help them make donations and preserve as much of their wealth as possible for future generations. The following are gifting and estate planning strategies that may be of interest to you.
Gifts of Appreciating Securities. Making charitable gifts removes the gifted assets and any future appreciation in those assets from your estate for estate-tax purposes. Consequently, appreciating securities can be a good gift choice for many executives. Within IRS limits, you generally may claim an income-tax deduction for the full fair market value of securities that have been held for more than one year without having to pay capital gains tax on the securities' appreciation. In most cases, if the charity later sells the securities, it won't have to pay capital gains tax either.
Gifts of Stock Options. For many executives, stock options are an important factor in the compensation equation - and in their financial planning. Charitable gifts can be a way to manage stock options to your income- and/or estate-tax advantage. For example, if you have nonqualified stock options that must be exercised before their expiration date or before you retire, you might consider exercising your options and donating the stock you receive to charity - either outright or in a charitable remainder trust that will pay you and your spouse a lifetime income (discussed later).
As long as all tax law requirements are met, you will gain a charitable income-tax deduction for the fair market value of your gift and remove the value of the stock from your estate for estate-tax purposes. But take care when you exercise incentive stock options. Gifting your shares of stock before you've met a required holding period generally would result in adverse income-tax consequences. Another charitable alternative is to leave unexercised nonqualified stock options to a charitable organization. Your estate could claim an estate-tax charitable deduction for the bequest.
Charitable Lead Trusts (CLTs). If you are currently making regular gifts to a favorite charity - or would like to - you may find it to your advantage to use a charitable lead trust for those gifts. A CLT pays income to the charity of your choice for a specified period. At the end of that period, the trust property passes to the person you've named as the trust's remainder beneficiary - your child or grandchild, for example - or back to you.
If your trust is a qualified CLT with the remaining property going to a child, grandchild, or someone else, the amount of your taxable gift is reduced by the value of the charity's interest in the trust. If you set up your CLT as a "grantor" trust (generally, each year you recognize all the trust's income, gain, loss, deductions, and credits on your individual income-tax return), you receive a charitable income-tax deduction in the year you create and fund the trust for the present value of the gifts to the charity.
Charitable Remainder Trusts (CRTs). You might want to consider setting up a charitable remainder trust to make a significant charitable gift and provide yourself with a retirement income source. With a CRT, you transfer property to a trust set up to ultimately benefit a charity of your choice. The trust pays you, you and your spouse, or another noncharitable beneficiary an income for life or for a specified period. The trust ends at the death of the last income beneficiary or the expiration of the term of years, and the charity receives the trust property.
Using a CRT to make a charitable gift can provide numerous advantages. You secure an income-tax deduction for the present value of the charity's remainder interest in the trust in the year you create the trust - even though the charity will not receive your gift until some time in the future - and avoid estate taxes on the gift property.
Charitable Gift Annuities. A charitable gift annuity could also play a part in your retirement and gift planning. With a charitable gift annuity, you make an irrevocable gift of cash or securities to a charity. In return, the charity agrees to make fixed payments to you (or another beneficiary) for life. The payment amount depends on various factors, including the value of your contribution and your age at the time you make the gift. You can claim an income-tax deduction based on the actuarial present value of the charitable gift.
Donor-advised Funds. A donor-advised fund is a fund administered by a charity, such as a community foundation, or a commercial sponsor that makes grants or otherwise distributes money to support charitable causes. A contribution to a donor-advised fund may be a suitable strategy for you if you've realized a large capital gain or have some other increase in income for the year and want to minimize your income-tax liability, or if you simply want some say over how your gift will be used. Your contribution will generate an income-tax deduction in the year of the gift - even if the fund doesn't make grants until sometime later.
With a donor-advised fund, you tell the recipient charity how you would like a donation to be used or distributed and act in an advisory capacity with regard to investment strategy and grant making. You also can name joint and successor advisors, such as children or grandchildren, to continue your charitable legacy into the future. The organization administering the fund will make a reasonable effort to follow your advice and carry out your wishes. However, the organization retains ultimate control over how the gift will actually be used.
While a donor-advised fund doesn't give you as much control over your gift as a family foundation (discussed below) does, donor-advised funds typically can be created with smaller donations. Donor-advised funds are also less complicated and have fewer IRS requirements than family foundations.
Family Foundations. For a larger ongoing program of charitable giving, consider creating a family, or private, foundation. A family foundation generally is a tax-exempt trust or corporation that holds funds and makes contributions and grants to other charitable organizations. Typically, an individual or family forms a family foundation to support specific charitable, scientific, or educational projects. The person or family who creates the foundation contributes the initial funding and may make subsequent donations. Family members often serve on the boards of private foundations.
You determine how the foundation's funds will be used. Family foundations are subject to stringent federal tax rules. Consequently, you must take care to structure and administer your foundation properly. Most people rely on a professional administrator, such as Wachovia, to oversee their foundations. Wachovia has been providing trustee and asset management services to private foundations of all types and sizes for decades.
Along with the advantage of continuing asset control, a family foundation offers an opportunity to work together as a family toward a common cause. Contributions to a private foundation qualify for the federal charitable income-, estate-, and gift-tax deductions.
Wealth Replacement Trusts. If you have concerns about the possibility of charitable gifts you make now depriving your family or other beneficiaries of assets they may need later, a wealth replacement trust may be an attractive option. With this strategy, you create an irrevocable trust that purchases an insurance policy on your life in the amount you are donating to charity. Upon your death, the insurance proceeds are distributed to the trust beneficiaries you've named. Because the trust - and not you - owns the policy, no estate taxes are due on the policy proceeds.
For more information on these and other planned giving strategies, please contact your Wachovia Philanthropic Consultant.
1 Giving USA, a publication of Giving USA FoundationTM, researched and written by the Center on Philanthropy at Indiana University; The Committee Encouraging Corporate Philanthropy, 2008; The Chronicle of Philanthropy, annual survey on corporate giving, 2008; Key Facts on Corporate Foundations, Foundation Center, 2008
2 Portraits of Donors, The Center on Philanthropy at Indiana University for Bank of America, 2007
Trust services are offered through Wachovia Bank, N.A. (Wachovia), a national banking association and subsidiary of Wachovia Corporation, or Delaware Trust Company, N.A., a subsidiary of Wachovia. Trusts that have their situs in and are governed by the law of Delaware use Delaware Trust Company as the trustee. Wachovia does not provide legal or tax advice.