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A Charity of Charities
Phoenix umbrella helps families form own foundations

By Russ Wiles
The Arizona Republic

Malcolm Lein worries about the environment. He's concerned about global population growth. He wants to play a role in promoting world peace. But rather than just fretting about these issues, he and his wife Miriam did something about them. They established a family foundation 10 years ago through a Phoenix charitable umbrella group that directs ongoing financial support to various philanthropic entities. Through this organization - the American Foundation - the Leins' gifts provide help to more than 40 non-profit outfits each year.

Charitable giving is nothing new, of course, but the 15 people employed by the American Foundation believe they are providing one of the simplest, most flexible and most populistic programs around - one that's open to anyone with as little as $5,000 to spare. "We feel it's as easy as setting up a bank account," said Benson Schaub, the American Foundation's founder and chief executive officer. The American Foundation offers a simple program so individuals, families, small corporations and other entities can start foundations. Donors complete a two-page application, with no notarization or appraisals required. Accounts can be established at the same bank or brokerage where you hold investments by transferring title. "This program is appropriate for people looking for additional tax deductions before the end of the year," Schaub said. Holiday giving also boosts enthusiasm in November and December. There is a key caveat in that donors must realize their contributions become irrevocable gifts.

Yet donors maintain some control over the money because they can recommend changes in the way it's invested and can specify different charities to receive distributions. The American Foundation honors most such requests, Schaub said. Donors can fund their foundations with all types of assets - cash, stocks, real estate, business interests, cars and other personal property - provided they meet the $5,000 initial minimum and $1,000 threshold for subsequent donations. The Leins chose to finance their foundation using the cash generated by three Valley apartment complexes. Malcolm and Miriam Lein are retired architects from Minnesota who started to buy investment real estate early in their careers.

What do donors get from establishing a foundation? Tax breaks are a major factor. First, donors can avoid paying capital gains levies on appreciated property by giving it away. Second, they can reap income tax deductions for donations. Third, donors may be able to trim or avoid estate taxes, although most Americans aren't wealthy enough to trigger these levies, which kick in on estates valued above $625,000 for singles and $1.25 million for couples who have planned appropriately. (Those amounts will rise gradually to $1 million and $2 million by 2006.)

Foundations set up through the American Foundation become accounts of the Phoenix group and receive its status as a public charity. As such, they offer higher tax advantages than private foundations that have not met certain Internal Revenue Service requirements, Benson said. For example, donations to a family foundation can be used to offset 50 percent of adjusted gross income, compared with 30 percent for private foundations. Also, deductions can be taken at fair market value rather than at cost for private foundations. With appreciating assets such as stocks or real estate, fair market value usually is higher.

Benson believes the perpetual nature of gifting through the group's family foundations helps donors become attached to the charities they're aiding. "We get together as a family to decide where we want the money to go," said Colleen Manley, a Phoenix lawyer who, with her siblings and parents, contributes to a foundation. "This helps us keep track of what each person's interests are." The family's donations support such institutions as St. Theresa's Catholic Church in Phoenix to the National Tai-Chi Chuan Foundation. "We have a lot of ability to tailor our giving as we want," said Siglinde Goodson, Manley's mother. "This provides a feeling that we're managing our donations." The American Foundation encourages donors to establish their accounts so that the principal grows over the years, with interest or income paid out annually to support philanthropic entities. This perpetual structure helps charities become more stable by providing an annual source of support, Schaub said.

What does the American Foundation get for its trouble? The group is an IRS-qualified charity and becomes one of the donor's charitable beneficiaries, Benson said. Donors must allocate at least 1 percent of their account's value each year to the American Foundation. The money is used to meet administrative costs and to support the group's own charitable programs. "We view ourselves as a charity of charities," Benson said. The American Foundation also provides related assistance in supplying pertinent tax information, calculating appropriate distribution amounts and the like. Donors receive semiannual reports on trust and foundation performance. The foundation supervises about $50 million. The group, formerly known as the Interstate Community Foundation, has been around since 1982. Its turnkey program resembles the Charitable Gift Fund run by Fidelity Investments of Boston (800-682-4438; www.charitable-gift.org).

Donors in Fidelity's plan can reap similar tax benefits while recommending that their gift dollars support particular charities. However, the program is less flexible than that run by the American Foundation. For example, donors must direct their gifts into any of four investment pools composed of Fidelity mutual funds. These pools have objectives ranging from capital preservation to growth. Also, donors to the Fidelity program are limited to giving cash or securities such as stocks, bonds and mutual funds. In addition, the minimum initial donation is $10,000 for individuals and $100,000 for businesses, with subsequent contributions of $1,000 and $5,000.

Fidelity's Charitable Gift Fund, which was launched in 1991, counts $1.3 billion in assets. Benson predicts giving through such programs will increase as a middle-class strategy as more baby boomers reach prime estate-planning years in their 50s and 60s. The trend could accelerate if the stock market continues to roar. "There has been an explosion of wealth in the U.S. and, we believe, an increased need for charity throughout the world," he said.

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