Why, how, and where of charitable giving

How to cure cancer, save the world, and do

other cool things in your spare time

Non-traditional philanthropy

Steve Kirsch

Chairman

Infoseek

Charitable giving agenda

• Why?• How?• Where?

“I worked really hard to make it”

“… we’re talking REALLY hard …nights…weekends…holidays… gave up

sex for 2 years…”“Now you are asking me to give it away?!?”

“Are you nuts?”

“Where do you want your estate to go tomorrow?”

CHOOSE ANY TWO:FamilyTaxesPhilanthropy

Who gets to spend your dough? You? Or the government?

Giving statistics in Silicon Valley

One of the richest areas on the planet, yet for high net worth households (assets >$1M not including their home) :

• 45% give < $2,000/yr• 6% give $0

Source: Community Foundation Silicon Valley

The best things in life aren’t all that expensive

• House• Car• Vacations• Subscription to Fortune• Replay/Tivo box• Private jet• Assets for guaranteed income for rest of your life

So now what?

So we had a choice...

• Sit on our assetsor

• Put those assets to work in a way that will benefit:– ourselves– our kids– future generations of our family– our friends and community

Why it is better to donate to charity sooner than later

• No tax advantages to giving after you are dead

• No personal satisfaction to giving after you are dead

• Giving can ultimately benefit you or your family

deviated septumpresbyopiahair losssnoringlactose intolerancepsoriasisreceding gumsnear sightedtorn ACLtype I diabetesmacular degenerationringing in my ears

Example

• Ten years from now, you might be diagnosed with:– Heart disease/stroke– Cancer– Macular degeneration

• At that time, starting a giving plan will be too late to have an impact on your health

• In hindsight, would you think keeping your assets sitting in stocks was the right move?

Life changing advice

• SK: “How do you get people to donate large sums?”

• LE: “You know, there are some people in this world who are looking for places to give money away”

• SK: “Say what? What have you been smoking?”

Was he right? Let’s find out...

What kind of person do you want to be? In “A Christmas Carol,” did you like Scrooge better

BEFORE or

AFTER

?

Virtually all who try philanthropy stick with it

• 100% donor satisfaction at CFSV:– No donor advised endowment funds have

closed (except if the donors move)

Giving need not be altruistic

• Can be totally pragmatic• Example

– We give because we get a higher return on our assets

– Our one-time $50M donation may cure cancer, diabetes, or arthritis; save the world; save the environment; etc.

– Was that a good use of $50M? Or should I have invested it in stocks? For whose benefit?

Giving need not be altruistic

• Or giving can be in your self-interest• Example: donate to causes that affect or

may affect you or your immediate family– aging research– heart disease– asteroids

Giving may actually save you money!

Example: – You donate to a CRT when your stock is locked

up at $50– Trust can short other shares to lock in the gain– Trust pays you back your donation over time

Result:– You can actually end up with more money in

your pocket than if you sold that stock at $25 in a selling window

“Why Give?” Summary

• We DO give to make a positive difference in our own lives and the lives of people we care about.

• 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”

Agenda

• Why?• How?• Where?

Giving survey

• Would you rather donate:– your own money– someone else’s money

Giving options

• Charitable Lead Trust (income to charity now, later assets pass to heirs)

• Charitable Remainder Trust (income to you now, later assets pass to charity)

• Donor advised fund• Supporting organization to a community

foundation• Private foundation

Which option?

• Smart estate uses a combination• CRT: Secure income stream for you• CLT: Pass money to your heirs• Donor advised fund: Under $1M assets;

minimizes tax bite and maximizes charitable giving

• Supporting org: >$5M in assets; you can influence investments and donations

Easiest way to donate

• Gift appreciated stock to a donor advised fund at local Community Foundation (typically $25K minimum)

• E-mail* them whenever you want to make a grant

• After you make the donation, you spend the rest of your life giving away someone else’s money!

* For any progressive community foundation

Charitable fund advantages

• You can add stock (and liquidate) when your stock is locked up

• Can donate to fund when stock peaks; decide on recipient later

• Gift to charities at anytime from the fund• Less hassle (no personal recordkeeping, no

periodic stock transfers, e-mail donations)

Advantages of charitable fund

• Endowment compounds tax free forever• You get to give away an infinite amount of

OPM and your annual grants will typically increase each year

• All this from a ONE-TIME donation!

Carnegie Foundation

• Donated $5.2M 100 years ago• Built 65 public libraries• Still in operation today

How to donate to charities when your stock is locked up

• Your stock seems to always peak when you are locked up… but...

• You donate the stock; the charity shorts other shares

• Allows you to give charity lots more money AND gives you a bigger writeoff

• Typically done through a community foundation

Hypothetical example

• You start an Internet music company• At IPO, you are worth $2.5B, but you can’t

sell any shares• So you donate 1% ($25M) to a charitable

fund• You get a nice writeoff and can make

donations to your favorite causes for the rest of your life without an additional investment

Giving strategy

Make periodic small donations as your stock rises

Many notable philanthropists regret not having taken advantage of this strategy.

Don’t make the same mistake.

The San Diego Foundation

• $285M assets• 600 funds• $5K to $50M

Kirsch Foundation

• Identified areas we thought were important for ourselves, our kids, our friends: environment, education, medicine, ...

• Started with a donor advised fund at my local community foundation

• Added to it over the years• Switched to a supporting organization so I

could invest assets more aggressively

Kirsch Foundation

• Hired CEO• Recruited world-class medical advisory

board (including Gordon Gill from UCSD)• Currently

– $50 M in assets – Donate $5M per year – Recruiting program officers in medical and

environmental areas

My recommendation

• Start NOW with a small donor advised fund• Add to it as you become comfortable with

the results and as your estate grows• 10% of your net worth after taxes is a good

starting amount

Agenda

• Why?• How?• Where?

Traditional philanthropy

• Donate to American Cancer Society, United Way, public TV, etc.

How to give intelligently

• Figure out the areas important to you• Create your own criteria (I have 20)• Make a long term commitment• Realize that results are often hard to

quantify• See my website for details:

www.skirsch.com

How we give

• Saving the world (NEOS, Ploughshares)• Encouraging philanthropy (talks, website)• Environment (we own two EVs, AB71,

NRDC, EV tax credits, solar vehicle)• Fixing what is broken (knee surgery advice,

stem cell ban, selling body parts, etc.)

How we give

• Medical research projects (diabetes, bridge funding gaps)

• Medical sponsorships (3 yr; $540K grants)• Local (Tech Museum, AMTSJ, library, …)• Education (MIT, people skills)• Misc (Mars Society, Buzz Aldrin, …)• Socially responsible investing (Targesome)

Curing cancer

• Invested $2M in a “for profit” startup doing cancer cure research

• We can’t lose!– FAILURE: supported research; superior tax

deduction to a charitable donation– SUCCESS: Cure cancer, win Nobel prize, save

millions of lives, get a big capital gain

Why donate $2.5M to MIT?

• Practical reasons:– Someone there is going to invent something

that will make a big difference in our lives, or lives of our children

• NOT because:– Sense of obligation (“payback”)– Altruism

Summary

• While your reasons for giving may vary, it makes sense to start a giving program now

• Easiest way to get started is set up a donor advised fund at a community foundation

• It’s as easy as opening a bank account, a lot more fun and satisfying than doing the rest of your estate planning

Summary

• The time to give to many causes is NOW, before they create a problem for you or a family member or your community

Survey

• How many of you have I convinced to setup a donor advised fund or to begin/expand your own charitable giving?

• If I haven’t, why not?

For more info

… and a copy of this talk, please see my website:

www.skirsch.com