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We probably read last week a number of billionaires pledging most of their wealth totaling billions to charity during their life time or at death. The ‘pledge’ has been spearheaded by two of the wealthiest individuals, Warren Buffett and Bill Gates. I remember many years ago what one highly successful and famous local entrepreneur said in his keynote speech “society has given more to me than what I can ever give back to society”. He was referring to the roads that have been paved, the electricity that is available at the touch of a switch, the water faucet that can be turned on at a moment’s notice to provide drinking water, the medical discoveries over the last 100 years, the transportation systems and the innumerable comforts we now enjoy. These have all been made possible by the efforts and hard work of countless people many who will remain unnamed, unrecognized and probably inadequately compensated! The billionaire’s pledge simply recognizes the fact they need to give back to society.

In Houston the charitable fund-raising events are over, the pledges already made have to be honored. There are many organizations that ask for help during the year and all of them support very noble causes. A few notable ones come to mind- the Red Cross, the Salvation Army, St. Jude’s. Among Indian charities that are doing great work are Pratham, Ekal, IACF, Daya and a host of religious organizations all started by an individual or a group of individuals but which today provide services to thousands of people in need. We give to charities for many reasons- ‘business relationship’ ‘reciprocity’ ‘being put on the spot’ or ‘obligation’. There are a few who give for the ‘recognition’ they receive at the fund raising events and then there others who do so for ‘tax’ reasons. No matter what the reason, it is still a worthy cause that we support and there is, first of all, a benefit to us and secondly to others.

To accomplish our charitable goals, we may also want to create our own charitable entities. One simplified version of a private foundation is to set up an account at a “donor advised fund” of a brokerage or mutual fund company. Any contributions or gifts (irrevocable) you make to your own “donor advised fund account” are deductible in the year made to the extent allowed by law. Contributions made over a period of time may be accumulated and grants to public charities may be made at a later date. Grants may be requested by you and made by the fund on a disclosed (in the name of your foundation) or an anonymous basis. While the charitable donor advised fund is easy to set up, the only disadvantage is that most donor advised funds do not distribute to charities in other countries. The other options are to set your own private foundations or charitable trusts. While the process to set up a private foundation is not difficult, it still needs the assistance of a qualified attorney. The advantages of a private foundation are the flexibility in making grants to charities, including qualifying charities in foreign countries-such as your alma mater or hospital. One must remember that private family foundations are still considered as regulated charities constituted for the benefit of the public and not for the benefit of the grantors or creators. They are therefore subject to scrutiny of the Internal Revenue Service and the Texas Attorney General as well as the public. Therefore it is important to follow the best practices for charities and foundations, which involve the following, by no means complete list - no indication of self-dealing, timely accounting and filing of financial statements, filing of tax returns, public disclosure of such statements, transparency, a board of directors to oversee the administration of the charity, prudent investment practices as defined by the Uniform Management of Institutional Funds Act and the Uniform Prudent Investor Act (Consult a financial or legal advisor regarding Donor Advised Funds or Private Foundations )

I was recently talking to John (name changed to protect identity) who while discussing if he was involved with any local charitable organizations, told me a wonderful story of how he had gone to his hometown in India and had started working with the school there. Every year, on his travel to India, he would visit the school and help buy books, materials, build additional classrooms, rest rooms, provide old computers etc. He could ‘touch, feel and see’ the children growing up with the help he had provided. There is also my friend who travels abroad frequently. On his visits, he has met with a charity organization abroad which requests sponsorship for the education of specific needy children. He has sponsored a number of children that he has not only helped educate but also followed their growth over the years. Then I know this lady who at age 68 discovered her latent talent of drawing- she has specialized in creating fine single line drawings that have been auctioned to provide funding for a charity hospital in a small town in India (she has raised about $ 75,000 so far). What a tremendous amount of satisfaction these people have received with their efforts! In addition with these three ‘small’ examples of charity, their work has created a powerful chain impact in their towns and cities.

So, in giving to charity, let us remember that we do it for many different reasons, for our own benefit as well as for the benefit of others. We are all seeking fulfillment or satisfaction. So while the billionaires are giving away their billions, I think we should remember that “small is also beautiful”!

Note: Title partly based on the book title “Small is beautiful. Economics as if people mattered” by E. F. Schumacher (1973)

Jay Kabad, CFP®, is President of Jaykay Wealth Advisors, Inc, a Houston-based wealth management firm. He received his Graduate degree from IIT Madras and an MBA from University of Pittsburgh, PA in 1980 and has been in business for 27 years. He is a Financial Advisor with LPL Financial and can be contacted at 713-780-4575. Securities and investment advisory services are offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. The opinions voiced in this material are for general information only. Tracking#691292