- Hi Guys, Toby Mathis here with Anderson Business Advisors
and today I want to talk to you about non-profits.
This is near and dear to my heart
and I have a personal philosophy that basically
states that if you're good at making money,
you should be very generous and make sure
that you're taking care of those who can't.
I get this from something called The Gospel of Wealth
that was written by Andrew Carnegie
more than a hundred years ago,
Where he basically stated that
millionaires were the trustees of the poor.
In other words, not that you just give money away
but that you do good works with your money and help those
that may be not as fortunate as you or maybe they're not
as good at making money as you are.
If you are good at making money,
one of the best places to put it,
is inside of your own non-profit.
Now here's the thing, a lot of people say
"oh, non-profit that's horrible.
"What am I going to do with the money?"
It's an operating business.
In fact, whether or not you're around,
that thing may just keep on going on.
It's a great legacy tool to make sure
that your kids are taken care of
because they always have a place to work.
No better example than Milton Hershey,
who in 1905 created the Hershey Trust,
which established his charitable intent
and manages his various charitable activities.
Now charitable activities are basically falling
into a few different categories.
But it's for charitable activities, literally,
they call it charitable activities, education activities,
or religious activities all fall under 501(c)(3).
Those are the ones we're so used to dealing with
where you get a charitable donation for putting money in.
Right now if you put money into an operating charity,
even your own, you can write off up to 60%
of your adjusted gross income.
You did not mishear that.
If you make a million dollars
of adjusted gross income, you can give away
$600,000 into your own 501(c)(3).
If you have equivalent assets, like real estate,
or other assets that have fair market value,
you can give those in.
Those can qualify up to that 60% threshold.
There are a few rules depending on when you purchased it,
if you've boughten and gave it
in the year that you purchased it,
then you're going to be limited to your bases.
But otherwise if you've held on to a piece of property
for 10 years and its appreciated huge in value,
don't sell it and give money, give the asset itself.
If you've had stock that you have very low basis in
and it has run up over the years,
give the stock to your charity.
It doesn't pay tax.
You get a donation based off the fair market value.
So anyways, we get that money into the charity.
Milton Hershey again, great example, he set this up in 1905.
He died without children, I think it was 1930's.
The Hershey Trust continues to manage the museum,
a hospital, it was an orphanage and a school.
It's a tremendous school that helps kids without parents,
not just orphans but also if they're incarcerated,
over 2,000 kids a year,
continues to this day and is worth over
12.6 billion dollars
'cause its primary holding is the Hershey company,
the publicly traded Hershey Chocolate Company.
So this thing just keeps getting
bigger and bigger and bigger.
No family, no kids, no descendants and it's still growing
to this day and there's a ton of examples just like that.
That these things get set up and because
they don't pay tax, they continue to grow.
Now what qualifies as charitable activity,
If you don't want to be a church,
if you don't want to be those things?
Helping the poor in any methodology could be even providing
housing to them, helping them by providing them
rental housing or providing houses for them to buy.
Low to moderate income qualifies.
In San Francisco, by the way, $100,000
in a family can qualify as a moderate income family.
And if you're doing HUD houses
that is where your standard comes from.
You could be providing HUD housing.
That qualifies as a charitable activity.
You're providing housing for Vets,
you're providing housing for single moms,
you're providing housing for transitional housing
for incarcerated women who are coming out.
We actually have a great example of that
where they've just exploded because organizations like,
"hey, yeah we need this help.
"We need someone to help by housing them."
Boom, there's the charity sitting there.
Pays zero tax, doesn't even pay the real estate tax.
It allows you to actually increase your capita,
if you know what that is.
I mean, it allows you to actually get a lot more.
The difference is there are no private owners of a charity.
The great example that just popped up
is the founder of IKEA did not want IKEA to be sold
by his descendants and he knew that's what would happen.
He put the stock into non-profits before he passed.
That way there is a board that's watching over
his baby, the IKEA.
He left his descendants board seats.
They still have two out of seven,
I believe is what the number is.
But they can never get enough control to liquidate.
Which is what his fear was, is he wanted
what he started to continue to grow
and that's how he's protecting it.
And there's a lot of people that do that.
So it is a tremendous tool to create a legacy
that does not get stripped down
because someone decides to sell all your stuff.
And it continues even beyond you living.
It is not owned by shareholders.
This is important.
You do not own it, you control it,
but you can give control to future generations.
Nobody gets to just take the money.
If you want money out of a non-profit,
you're going to have to earn it.
You're going to have to work and get paid.
So, if you leave a legacy behind that is your non-profit,
and there's basically two flavors,
there's an operating non-profit and there are foundations.
Foundations are the ones that we all hear about.
The private foundations where you have to give money away,
5% of the assets every year.
That's what they would have to do.
But an operating non-profit does not, it can just continue
to operate and do what it's doing.
And it might be providing low income housing,
it might be providing housing for veterans,
it may be providing housing for disabled,
it may be providing residential
assisted living for elderly folks.
It doesn't really matter so long as it's falling
in that category, and boom it qualifies
and then your heirs can continue to operate it
but they're not entitled to go take all those assets.
They are allowed to work for it,
they're allow to get a salary,
they're allowed to get benefits,
but they're not allowed to go in there
and pillage it, doesn't happen.
And then if they ever decide
to close it down, they don't get the money.
There's no owner the way a traditional corporation is.
All they get to do is distribute
that to other qualified 501(c)(3)s.
So if your kids really aren't getting along
or if you have generations down the, few generations down
and they're just not seeing eye to eye,
they can literally break that thing down
but they can't take the money.
They could set up other 501(c)(3)'s with similar purposes,
and say "hey we don't work well together
"but we're going to separate off and we're going to continue
"going down the line that you established
"of what you believed was important."
Yes, there's huge tax benefits to doing that.
And if you want great example of that, look at what happened
with Howard Hughes and you can Google it up.
Before the government came in they were a little worried
about some erratic behavior by Mr. Hughes.
He took all of his shares in the Hughes Aviation Company
and dumped it into a non-profit.
Boom, story he was no longer the shareholder.
He got a massive tax deduction.
In fact, a huge tax deduction,
caused the government they were all upset
because of how many millions of dollars
they didn't get to take.
And then he received moneys back for many years.
And it just kind of sat there, didn't do a huge amount.
Now, I believe it is the largest bequeathment
for medical research in the world
and it's one of largest top five charities on the planet
after Howard Hughes passed away.
Because boom the shepherds come in,
they see his vision, and they say,
"Hey, we want to actually make
"this vision more of a reality" and it grows.
And because it's not taxed you have
what's called exponential growth
It goes broom and just takes off because you're not
taxing it so the growth stays in the company.
And if people are continued to give moneys to it
it just continues to snowball and it's a fantastic tool.
One of the most under-utilized tools that's out there.
I'm always surprised when I see somebody
who's heavy into real estate, then they're paying
big taxes on something and they're looking at me saying,
"what should I do?" And I look at them and say,
"You need to quit holding all those assets,
we need to start transferring some of those
out of your estate, getting you some tax breaks
for doing so, and making sure that you are always secured.
If it really comes down to it we can
put a deferred compensation plan in place
and make sure you get paid until you pass away.
But you're never going to run out of money if you do that.
You want to make sure that you're
doing these things proactively though.
But what a powerful tool.
The rich know how to use it, the top 2%
for decades have understood the power of non-profits
and they all have them put in place cause they understand
that it doesn't matter what their kids do,
who their kids marry, whether they have mistakes,
whether they have huge liabilities,
whether they're just not good at managing money,
that non-profit's going to be safe
and it's going to be a safety net
and it continues to do what you envisioned
and you want to make sure that somebody
doesn't hijack your vision.
This is how you do it, is you set that thing up
and just let it go, tremendous tool.
Love working with 'em.
Hope this was helpful.