How To Stay Anonymous When You Give To Charity
By Deborah L. Jacobs, Forbes Staff
For many years Charles Feeney, who went from rags to riches as co-founder of the Duty Free Shoppers chain, carried anonymous giving to extremes. He reportedly gave away $600 million over several decades before going public with his story in 1997, anticipating that a pending lawsuit from the sale of his company would blow his cover anyway.
Only then did he reveal that he had conducted most of this philanthropy through private foundations set up in Bermuda. Although going offshore ensured his anonymity for many years, it disqualified him from the tax deductions that he otherwise would have been entitled to.
Now Feeney is one of the 92 U.S. billionaires who have pledged to give away at least half of their fortunes during life or at death. Facebook co-founders Mark Zuckerberg and Dustin Moskovitz are among those who have joined the philanthropic campaign led by Berkshire‘s Warren Buffet and Microsoft co-founder Bill Gates.
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Going public about his giving has been a gradual about face for the 81-year-old Feeney, as my colleague Steven Bertoni writes in the October 8, 2012 issue of FORBES magazine.
Still, many other wealthy people (and ordinary folks too) may prefer to keep their giving a secret–for example, because they shun the limelight, are concerned about kidnapping attempts if people find out they are wealthy, or want to avoid hostility from people philosophically opposed to the causes they support.
One of the few surveys on anonymous giving concluded that the primary reason donors like to keep their identities a secret is to avoid getting badgered by fund-raising requests.
The 1991 study, Survey on Anonymous Giving, by the Center on Philanthropy at Indiana University was based on responses from 563 senior development officers who had either graduated from a training course at the university’s fund-raising school or been certified as fund-raisers by the National Society of Fund-Raising Executives.
It showed that 50.6 percent of people who give anonymously do so to minimize solicitations from other organizations. The next most frequent motivation cited in the study was a deeply felt religious conviction—5.3 percent of the respondents gave that as a reason.
When philanthropists talk about the spiritual aspects of giving anonymously, they often cite the 12th-century Jewish wise man Maimonides, who ranked anonymous giving as the second-highest level of charity.
Maimonides taught that the rich person shouldn’t feel superior for giving and the poor person shouldn’t feel inferior.
Julie Salamon explored that philosophy in her 2003 book, RamBam's Ladder: A Meditation on Generosity and Why It Is Necessary To Give (Workman). “Likewise, some wealthy people today prefer to give anonymously because they feel very lucky that they had the brains or the right family to have more than the person down the block,” Salamon once told me. “They want to set the balance straight and don’t want a lot of credit for it.”
Still, giving anonymously isn’t easy, especially for the superrich. Here are the pros and cons of various philanthropic vehicles, which may be used separately or in some cases in combination with each other.
Set up a private foundation. This giving vehicle gives you a lot of control over investments and grant making, but it’s difficult to remain anonymous.
Federal law requires private foundations to report the names of their significant contributors—those who give $5,000 or more during a taxable year—on their annual tax returns. Those names, submitted on Schedule B of Form 990-PF, are a matter of public record, which helps deter abuses.
Make direct gifts to public charities. Like private foundations, they must report the names of their significant contributors on Form 990, and reveal to anyone who wants to know, the value and type of property donated worth $5,000 or more.
That can be a clue to who is gifting it. For example, if a charity received a large block of stock from a particular company, and a certain executive there is known to be divesting, it’s possible to draw a link between the two.
Form 990s are now accessible through GuideStar, a national database of not-for-profits. For public charities (in contrast to private foundations) the Internal Revenue Service is supposed to remove Schedule B or obscure the names listed on it before it makes a Form 990 available to the public, but foul-ups have occurred, so there’s always a slight risk that there will be a disclosure fumble by the IRS.
Nor can you completely control loose lips within the organization. Without any request for privacy, you should assume your gift won’t be kept confidential.
If you wish to remain anonymous, negotiate privacy terms, including who within the charity can be aware of the gift, directly with the recipient organization. Just remember that all it takes is one slip-up, whether it’s an overheard cell-phone conversation or an e-mail message sent to the wrong person, and you’ve lost the cause you’re trying to protect.
Use an advisor as intermediary. Although advisors can’t guarantee anonymity, they can help protect clients’ identities. With this strategy you channel the funds through the advisor—such as a law firm, bank, or trusted adviser—which issues a check to the charity and gets the tax receipt for you.
Ask both the charity and the advisor–say it’s a law firm–to document that the gift was made by the firm as agent for an undisclosed principal. The receipt from the charity might read, “Thank you for your gift of $100,000 you made as agent for an anonymous donor.”
The law firm in turn could pass along the receipt to the client with a letter that says, “We made a gift anonymously, as you directed. Here is the receipt that corresponds to the contribution.”
Create an entity. With this arrangement the donor remains anonymous because the check to charity comes from the entity, not from the individuals.
One possibility is to use a revocable trust to make the gift. The trust gets the income tax deduction, but if it’s set up as a grantor trust—so named because the creator retains certain powers and the tax liability—then the deduction will flow through to the donor.
Another option is a single-member limited liability company or LLC, which also protects the owner from personal liability. For federal tax purposes, however, the limited liability company is treated as what’s called a disregarded entity, meaning the tax liability flows through to the members as if they were one and the same. Therefore, the donor gets the benefit of any tax deduction the LLC receives for the gift.
One caveat: In some jurisdictions the organizing documents for limited liability companies are public records and may have the name of the manager on them. Therefore, you want to name an accountant or lawyer the manager rather than an adult child or close business associate, who could be linked to you.
Set up a donor-advised fund. This is a public charity through which individuals and groups can make grants to not-for-profits. You can set up a donor-advised fund account at a community foundation (you can find one in your community here), religious organization, or university, or at one of the commercial gift funds like those operated by Fidelity, Charles Schwab and Vanguard.
The trade-off is that once the money has been donated to the fund, you no longer have absolute control over it. You can recommend grants to charities approved by the IRS, and most often those suggestions will be honored, but you cannot legally require payouts to a particular organization.
A key selling point of donor-advised funds, however, is that they offer donors anonymity if they want it. If privacy is a priority, make that clear to the sponsor, and give the fund a name that won’t be linked to you. Checks sent to charities can simply use this fund name or indicate that the grant is made at the suggestion of an anonymous donor.
Your name is typically known to the organization that operates the fund. For an extra layer of protection, you can have a law firm or advisor set up the fund on your behalf.
Donate online. You can make a gift through a website that serves as a clearinghouse for charitable donations. One example is Network For Good, a not-for-profit that functions much like a donor-advised fund, except that it processes donations through the donor’s credit card.
You can choose whether to remain anonymous or be identified to the recipient charity. Either way, you get a tax receipt from Network for Good.
To some extent the choice of an anonymous-giving vehicle will depend on your privacy goals and plans for future gifts. Setting up a trust, limited liability company, or donor-advised fund probably makes the most sense for someone who’ll be making donations through that structure on a continuing basis.
For a one-time gift, it might be easier to use a bank or a lawyer as intermediary or to go through an online clearinghouse.