September 24, 2024 • 19 mins
Discover how to align your charitable intentions with your investment goals as we chat with Sanem Alkan on smart philanthropy and impact investing. Sanem's expertise brings to light the transformative shifts in philanthropy, from the pivotal 1969 Tax Reform Act to today's cutting-edge trends like the United Nations' Sustainable Development Goals (SDGs), blended finance, and venture philanthropy. Learn how to merge financial returns with social impact, leveraging strategic philanthropic tools such as program-related and mission-related investments. Sanem also explores the critical role of planning and advisory support for achieving tax-efficient charitable giving.
For business owners, Sanem unveils advanced strategies like charitable remainder trusts, donor-advised funds, and corporate foundations, which not only offer tax benefits but also bolster legacy planning and business reputation. She provides a wealth of resources for those eager to deepen their knowledge in this evolving field, including books, organizations, and certification programs. Tune in and transform your approach to philanthropy and impact investing on this month's Financial Perspectives episode.
If you'd like to learn more about the show, have a topic or speaker to suggest, or would like to leave us a comment, email podcast@cfa-sf.org.
This podcast is produced by CFA Society San Francisco, a not-for-profit professional association, providing professional learning and career resources to over 13,000 investment industry professionals worldwide. To learn more about CFA Society San Francisco, visit our website or connect with us on LinkedIn.
The information contained in this podcast does not constitute financial or investment advice. Please consult your own financial advisor for information concerning your specific situation.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Lindsey Helman (00:04):
Hello and welcome to Financial
Perspectives, a CFA Society SanFrancisco podcast, where we
interview and discuss trendswith leaders from across the
investment and finance industry.
This month, our host, TanyaSuba-Tang, membership Director
with CFA Society San Francisco,had the pleasure of speaking
with Sinem Alkan, board advisor,venture partner and senior
(00:25):
impact advisor for SiliconValley-based philanthropist
Sheri Sobrato.
Listen in as they discuss smartphilanthropy and impact
investing.
Tanya Suba-Tang (00:40):
Hello Sanem, welcome to our podcast.
Sanem Alkan (00:43):
Hello, nice to see you.
Tanya Suba-Tang (00:45):
It's great seeing you.
Actually, I probably should saygreat seeing you again and
welcome back to the show.
Sanem Alkan (00:51):
That is correct.
It's great to be back here.
Tanya Suba-Tang (00:53):
So, for our listeners who might not realize,
Sanem was actually one of myfirst interviews and it's so
great to see you.
I think we recorded our firstone back in season two.
So, wow, a lot of thingshappened since then, and today
we are going to talk about smartphilanthropy and impact
investing and, honestly, I can'tthink of a better person to
(01:15):
have this conversation with thanyou, Sanem, because your
background is extensive when itcomes to investment management,
technology and philanthropy.
Sanem Alkan (01:24):
Thanks so much.
It's been a pleasure to be onthis career path.
I did start my career inalternative investments and
traditional investments and thenmoved into philanthropy.
In recent years it's been agreat learning experience and
also coming at a time when theindustries, the sectors, have
changed a ton and almost found amiddle point.
(01:47):
There's a lot of convergencehappening, which I'd love to go
into in this podcast indifferent ways, but everything
I've learned, everything I'veexperienced, now I get to put in
action.
So it's a lovely time to bewhere I am.
Tanya Suba-Tang (01:58):
So kind of jumping right into your
conversation Now, manyphilanthropist families tend to
look for ways to make socialimpact while they make
for-profit investments.
So what are some ways they cancombine charitable intent with
investment goals?
Sanem Alkan (02:12):
Yeah, this has become an exciting topic in the
US in recent years.
I'd like to share some context.
For several decades, familieshave set up private foundations
to make donations.
This is a very common way tobasically make charitable
investments in the US and thesefoundations have historically
had annual distributionrequirements to comply with tax
(02:34):
regulations.
What changed the sector quite abit was a Tax Reform Act in
1969.
This allowed privatefoundations to support
for-profit ventures if theirgoal was aligned with the
mission of the foundation.
The Tax Reform Act refers tothis as program-related
investments, pris for short.
Foundations can make loans,equity investments or use other
(02:57):
forms of financial support tobusinesses, nonprofits and even
individuals, as long as theseinvestments are charitable and
even if there may not be afinancial return.
But then came another conceptorganically, in the late 90s and
early 2000s, as the sectormoved towards what's called
impact investing, foundationsstarted making what we call
(03:18):
mission-related investments MRIsfor short to further their
mission and also achievefinancial returns.
So while PRIs the first conceptI mentioned they're governed by
the US tax law.
Mris are made from afoundation's endowment and
they're used to generate marketrate or near market rate returns
.
So slightly different conceptby 2015 or so, irs issued
(03:43):
clarifications to affirm thatMRIs could be made without
jeopardizing a foundation'sfiduciary responsibility.
By this time, a lot of MRIs hadbeen done, but this was a clear
turning point and since then,mris have been a popular tool,
as investors have paid moreattention to responsible
investments and we always talkabout ESG, environmental, social
(04:04):
and governance criteria.
So this has really been a greatpoint where MRIs have been very
popular.
Since early 2000s, several newtrends have emerged making
impact investing an excitingarea for more families, and also
versus setting up a privatefoundation.
And let me explain what impactinvesting really means in this
context.
This is the practice ofgenerating returns with social
(04:27):
or environmental impact.
Investments can be made inprojects, companies or funds
that seek to generate measurablepositive outcomes and financial
returns.
So there are numerous ways onecan make impact and generate
returns.
For example, in 2015, theUnited Nations established
Sustainable Development GoalsSDGs for short, setting
(04:49):
ambitious global targetsrequiring trillions of dollars
in investment.
This in turn catalyzed the needfor innovating financing
mechanisms, which includesconcepts like blended finance.
So let me explain what blendedfinance is.
This is the use ofphilanthropic capital to
leverage private or public fundsfor large scale projects in
(05:09):
underfunded areas likeinfrastructure, healthcare and
climate resilience and de-riskinvestments, and investors can
get involved by using grants,loans, guarantees or equity
investments and moving closer tothis era 2020s.
(05:33):
Another great tool for familiesis venture philanthropy.
This is the merger of venturecapital and philanthropy.
Donors invest in nonprofits orsocial enterprises, expecting
social returns that they canmeasure and, like venture
capital investors, they tend tofocus on hands-on enrollment,
capacity building and multi-yearcommitments.
(05:53):
It's a lot more hands-on thanthe prior concepts.
Another concept that I see alot is collaborative giving.
This is when individuals andfamilies form partnerships with
each other and other foundations, organizations, to not only
pool resources and expertise,but to really just create
(06:14):
momentum.
They could take many forms, butthey tend to use donor advice,
funds, giving circles, jointventures to do stuff like this.
I think maybe the final one isadvocacy and policy philanthropy
.
A lot of philanthropists directfunding to influence policy,
support advocacy efforts tocreate systemic change, they
(06:35):
provide funding for research,public campaigns and they
support think tanks so manydifferent ways, depending on how
involved the families want toget.
Tanya Suba-Tang (06:43):
So can you describe some complex gifting
strategies for families toleverage?
Sanem Alkan (06:48):
Yeah, actually, the tax reform I mentioned, the Tax
Reform Act of 1969, was pivotalin creating very robust,
complex giving environment aswell.
This allowed philanthropists toform various tax-efficient,
tax-related charitable givingvehicles to maximize the impact
of their donations for boththeir beneficiaries and the
(07:09):
nonprofits they wanted tosupport.
One caveat, one disclaimerthese methods require a lot of
planning and generally it's anarmy of advisors around these
families, from legal financialplanning advisors like tax
advisors, attorneys, to evenfinancial planners.
It's very important tounderstand the donor's goals and
plan around it while navigatingstate and federal tax laws.
(07:32):
But I just want to share acouple of examples.
There are maybe five key onesthat I would highlight.
Some are similar, but thepayments or who gives the
benefit may be differentdepending on the context.
So I'll be a little bittechnical here, but it might be
helpful for the audience.
First category charitableremainder trusts.
So a donor transfers propertywhich could be real estate,
(07:53):
stocks, some property into atrust.
The trust then provides incometo the donor or beneficiaries
for a specified period of timeand after that income period
ends, the remaining assets go tothe charity.
Donors receive or putting theseassets into the trust, they
receive an immediate charitabletax deduction and they also
avoid capital gains on theappreciated property.
(08:15):
So this is very, very valuablefor a lot of families.
A similar concept is charitablelead trusts.
Instead of remainder trust,it's a lead trust.
In this case, same exactprocess the owner transfers
property into a trust andthere's an income for a set
period of time, but the income,instead of going to the
beneficiary, it goes to thecharity and after that term ends
(08:35):
, the remaining assets in thiscase go to the donor and
beneficiaries, so the partiesare reversed.
This also reduces the donor'staxable estate and provides an
immediate charitable deduction.
So these two are very commonlyused, especially in the US.
Another idea is bargain sales.
The donor sells a property to acharity at less than fair
(08:56):
market value, as the namesuggests, and the difference
between the sale price and thefair market value is as the name
suggests.
And the difference between thesale price and the fair market
value is considered a charitablecontribution, and this is what
the donor uses to take a taxdeduction.
The charity benefits fromacquiring a property at a
reduced cost.
So it's pretty straightforward.
Another one is called retainedlife estate.
A donor transfers a deed, aproperty deed, to a charity but
(09:19):
retains the right to live in oruse that property for life, and
when the donor passes, thecharity takes full ownership of
the property.
But when this transfer is made,the donor takes an immediate
tax deduction on the property'scurrent value minus the value of
the retained life estate.
So it's an interesting strategyand a lot of people do that
with their families withproperty, but in this case,
(09:40):
instead of a family member, thisis a charity benefiting.
And then maybe the finalcategory is outright gifting of
real estate.
This can be made to a charityjust like it can be made to any
person.
This way, the donor avoidscapital gain taxes, receives a
charitable deduction and removesthe property from the taxable
estate.
Again, this one, much like theothers, can be pretty
(10:01):
complicated and in this case inparticular, people have to pay
attention to the charities realestate acceptance requirements.
They have to actually also geta valuation and assess
environmental risks.
So complexity of transfers varyfrom strategy to strategy, but
these are some of the ways.
One other interesting topic isuse of LLCs limited liability
(10:26):
companies.
I put this in complex giftingbecause this wasn't a popular
concept in the past, but it isone of the most flexible
strategies for philanthropiststoday.
It is actually flexible,private and gives the
philanthropists a ton of control.
So the way this works the donorfunds an LLC with cash,
appreciated assets, any otherproperty, and then the LLC in
(10:47):
return can donate money,property or even invest in
social enterprises, as long asthey align with the donor's
philanthropic goals.
Now this is an amazing tool,but there's one caveat Taxation
is different.
So in the US we make donationsprivate donations or use a
foundation we take an immediatetax deduction.
(11:08):
When we use an LLC, thededuction occurs only if the LLC
makes a donation to a qualifiedcharity and the LLC member
takes the deduction on theirpersonal tax returns.
It flows through to the taxreturn of the donor.
So there has to be an extrastep there.
But there are amazing advantages.
Donor retains control over theLLC assets to the point of how
(11:29):
they should be invested anddistributed, so that's a huge
plus.
This can make it more strategicand long-term for philanthropic
purposes.
And then there's a lot ofprivacy.
Unlike in other foundation typeentities, there's no public
disclosure requirements, so youcould basically have a ton of
privacy and even make politicaldonations, support for-profit
(11:52):
social enterprises, lobby,without the restrictions that a
typical 501c3 foundation wouldhave.
And also maybe this isinteresting for our
international audience LLCs cansupport individuals and
international organizationswhich, as some people may know,
can be very tough forfoundations in the US to do.
So international philanthropybecomes an opportunity and it's
(12:14):
a very powerfulmulti-generational tool.
There are also no self-dealingrules that foundations tend to
face, where there are somerestrictions between founder and
related party interactions withthe foundation.
So LLCs could be a great wayfor families to do complex
giving.
Tanya Suba-Tang (12:31):
So we talked a little bit about strategies and
families.
So what kind of strategiescould business owners use to
manage and transfer assets moreefficiently?
Sanem Alkan (12:40):
Yeah, this is a great question, especially after
we just went through a bunch oftopics that help any
philanthropist.
Business owners generally tryto take advantage of taxable
solutions and also really careabout multi-generational or
succession planning, andcharitable giving is an amazing
way to do this.
For example, business ownerscan donate their interest in the
(13:02):
business partially or fully.
If they have an S corporation,they could donate that stock.
There are some issues withunrelated business taxable
income.
This is more for accountants toaddress, but there are many
ways one could put a privatestock or other assets from the
business into trusts, llcs,donor advice funds.
(13:23):
They can certainly createcharitable remainder trusts what
I discussed earlier orcharitable leave trusts.
Essentially, they haveappreciated assets and
charitable giving is a verynatural way to not only avoid
capital gains tax but alsoreally empower other generations
in these families to benefit.
They can also set up what wecall donor advice funds.
(13:45):
I touched on that brieflywithout really explaining, but
it is a much simpler, cheaperway to do philanthropy.
A business owner can contributecash stock assets to what we
call DAFs.
In short, they receive thatimmediate tax deduction but
retain the ability to recommendgrants to charities over time.
They're very flexible, easy toset up, and you could use
(14:07):
Fidelity, schwab type ofintermediaries to do this, and
it's actually not just forbusiness owners but for anybody,
a great strategy.
And, of course, as businessowners, they could set up a
corporate foundation and what wecall corporate social
responsibility programs.
So it doesn't have to stop witha personal philanthropic goal.
It could be a corporatephilanthropic goal.
(14:28):
A lot of companies benefitgreatly and Maybe this is a good
time to mash and just list acouple of benefits of charitable
giving for business owners.
So tax benefits, which we'vebeen talking about at length,
legacy planning, businesscontinuity and succession,
enhanced reputation, especiallyif they're local and
community-based donors, and, Iwould say, personal satisfaction
(14:50):
.
A lot of people I've workedwith over the years really
benefit from combining theirbusiness and personal
philanthropy and they can reallymake a lot of impact that way.
And, of course, as with thefirst category, tons of
challenges and considerationsand probably an army of advisors
necessary, even more so in thisarea.
And there are also liquidityissues that business owners tend
(15:13):
to navigate, especially if theyare private business owners.
So I would say, very similar tothe first category, but a
little bit more holistic andcomprehensive.
Tanya Suba-Tang (15:22):
Wow, what a wealth of knowledge you just
shared with us, asanem.
So obviously in our podcast, wealways like to kind of wrap
things up with actionable itemsor even resources that our
listeners can use to read moreand learn more.
So what, if you have any,you're willing to share some
recommendations for ourlisteners to kind of learn more
(15:42):
about smart philanthropy andimpact investing?
Sanem Alkan (15:45):
Thanks for asking.
There are so many amazingresources nowadays, especially
in planned giving and combininglifetime giving with estate
planning.
There are some books maybe I'llmention those.
The Art of Planned Giving byDouglas E White is a good one.
It offers insights into thepsychology of donors and various
(16:06):
planned giving techniques, likecomplex giving.
Planned Giving for the SmallNonprofit is a good one by
Jordan and Quinn, two writers.
It's a practical guide tosetting up and managing plan
giving programs and complexgiving strategies and there's a
simpler guide Bruce Hopkinswrote charitable giving law made
easy.
It's an accessible overview ofthe legal aspects of things.
(16:27):
But I think beyond that thereare organizations like the
American Council on GiftAnnuities or National
Association of Charitable GiftPlanners even IRS, and the
Council on Gift Annuities orNational Association of
Charitable Gift Planners evenIRS, and the Council on
Foundations where people couldsearch for information resources
.
You know, especially on complexgifting strategies.
A lot of great content that way.
(16:48):
And I also really migrate tocertification, educational
programs.
I think it's.
I mean I've collected quite afew myself over the years in
terms of learning experience.
It can be amazing.
But there's chartered advisoryin philanthropy.
It's a really good program andcertified specialist in plan
giving.
That's another one that peoplecould get and, of course, you
(17:10):
could be part of organizationslike Partnership for
Philanthropic Planning orAssociation of Fundraising
Professionals to do a lot oflifelong learning.
There are also some onlinecourses and webinars, especially
in plan giving.
Foundation Center is a good one.
So, yeah, there are quite a fewresources, but I would say
generally, it's a very rapidlyevolving space, and what I've
(17:33):
learned in the last decade inparticular is the worlds of
investments and philanthropy arecoming to the middle.
A lot of people are now usingentities that we used to think
as structured high finance.
They're using those forphilanthropy now, and the type
of collaboration we used to see,the type of structuring we used
to see in the traditional oralternative investment world,
(17:55):
are now applying to philanthropyand impact investing.
So keeping an open mind andconstantly learning and reading
about these topics could be verysmart.
Tanya Suba-Tang (18:03):
Well, thank you again so much for joining us
today and for really sharingyour insights and knowledge
regarding this space.
Sanem Alkan (18:10):
It was great seeing you and yeah, thank you so much
for giving me the opportunityto share a little bit of insight
.
Lindsey Helman (18:23):
Thank you for listening to this month's
episode with Sanem Alkan, andthank you so much, Sanem, for
all of your insights.
You've given us a lot toconsider when it comes to
charitable giving strategies.
Join us next time for anotherFinancial Perspectives episode,
airing on the last Tuesday ofthe month.
We love hearing from ourlisteners, so be sure to click
the link at the top of eachepisode description to send us a
(18:45):
message or reach us by email atpodcast@cfa-sf.
org.
We look forward to hearing whatyou thought about this episode
and receive any suggestions youmay have on future topics you'd
like us to cover.
Thank you for being a dedicatedlistener.
(19:06):
This podcast is produced by CFASociety San Francisco, a
not-for-profit professionalassociation providing
professional learning and careerresources to over 13,000
investment industryprofessionals worldwide.
To learn more about CFA SocietySan Francisco, visit our
website at cfa-sforg or connectwith us on LinkedIn.
Hello and welcome to Financial
Perspectives, a CFA Society SanFrancisco podcast, where we
interview and discuss trendswith leaders from across the
investment and finance industry.
This month, our host, TanyaSuba-Tang, membership Director
with CFA Society San Francisco,had the pleasure of speaking
with Sinem Alkan, board advisor,venture partner and senior
(00:25):
impact advisor for SiliconValley-based philanthropist
Sheri Sobrato.
Listen in as they discuss smartphilanthropy and impact
investing.
Tanya Suba-Tang (00:40):
Hello Sanem, welcome to our podcast.
Sanem Alkan (00:43):
Hello, nice to see you.
Tanya Suba-Tang (00:45):
It's great seeing you.
Actually, I probably should saygreat seeing you again and
welcome back to the show.
Sanem Alkan (00:51):
That is correct.
It's great to be back here.
Tanya Suba-Tang (00:53):
So, for our listeners who might not realize,
Sanem was actually one of myfirst interviews and it's so
great to see you.
I think we recorded our firstone back in season two.
So, wow, a lot of thingshappened since then, and today
we are going to talk about smartphilanthropy and impact
investing and, honestly, I can'tthink of a better person to
(01:15):
have this conversation with thanyou, Sanem, because your
background is extensive when itcomes to investment management,
technology and philanthropy.
Sanem Alkan (01:24):
Thanks so much.
It's been a pleasure to be onthis career path.
I did start my career inalternative investments and
traditional investments and thenmoved into philanthropy.
In recent years it's been agreat learning experience and
also coming at a time when theindustries, the sectors, have
changed a ton and almost found amiddle point.
(01:47):
There's a lot of convergencehappening, which I'd love to go
into in this podcast indifferent ways, but everything
I've learned, everything I'veexperienced, now I get to put in
action.
So it's a lovely time to bewhere I am.
Tanya Suba-Tang (01:58):
So kind of jumping right into your
conversation Now, manyphilanthropist families tend to
look for ways to make socialimpact while they make
for-profit investments.
So what are some ways they cancombine charitable intent with
investment goals?
Sanem Alkan (02:12):
Yeah, this has become an exciting topic in the
US in recent years.
I'd like to share some context.
For several decades, familieshave set up private foundations
to make donations.
This is a very common way tobasically make charitable
investments in the US and thesefoundations have historically
had annual distributionrequirements to comply with tax
(02:34):
regulations.
What changed the sector quite abit was a Tax Reform Act in
1969.
This allowed privatefoundations to support
for-profit ventures if theirgoal was aligned with the
mission of the foundation.
The Tax Reform Act refers tothis as program-related
investments, pris for short.
Foundations can make loans,equity investments or use other
(02:57):
forms of financial support tobusinesses, nonprofits and even
individuals, as long as theseinvestments are charitable and
even if there may not be afinancial return.
But then came another conceptorganically, in the late 90s and
early 2000s, as the sectormoved towards what's called
impact investing, foundationsstarted making what we call
(03:18):
mission-related investments MRIsfor short to further their
mission and also achievefinancial returns.
So while PRIs the first conceptI mentioned they're governed by
the US tax law.
Mris are made from afoundation's endowment and
they're used to generate marketrate or near market rate returns
.
So slightly different conceptby 2015 or so, irs issued
(03:43):
clarifications to affirm thatMRIs could be made without
jeopardizing a foundation'sfiduciary responsibility.
By this time, a lot of MRIs hadbeen done, but this was a clear
turning point and since then,mris have been a popular tool,
as investors have paid moreattention to responsible
investments and we always talkabout ESG, environmental, social
(04:04):
and governance criteria.
So this has really been a greatpoint where MRIs have been very
popular.
Since early 2000s, several newtrends have emerged making
impact investing an excitingarea for more families, and also
versus setting up a privatefoundation.
And let me explain what impactinvesting really means in this
context.
This is the practice ofgenerating returns with social
(04:27):
or environmental impact.
Investments can be made inprojects, companies or funds
that seek to generate measurablepositive outcomes and financial
returns.
So there are numerous ways onecan make impact and generate
returns.
For example, in 2015, theUnited Nations established
Sustainable Development GoalsSDGs for short, setting
(04:49):
ambitious global targetsrequiring trillions of dollars
in investment.
This in turn catalyzed the needfor innovating financing
mechanisms, which includesconcepts like blended finance.
So let me explain what blendedfinance is.
This is the use ofphilanthropic capital to
leverage private or public fundsfor large scale projects in
(05:09):
underfunded areas likeinfrastructure, healthcare and
climate resilience and de-riskinvestments, and investors can
get involved by using grants,loans, guarantees or equity
investments and moving closer tothis era 2020s.
(05:33):
Another great tool for familiesis venture philanthropy.
This is the merger of venturecapital and philanthropy.
Donors invest in nonprofits orsocial enterprises, expecting
social returns that they canmeasure and, like venture
capital investors, they tend tofocus on hands-on enrollment,
capacity building and multi-yearcommitments.
(05:53):
It's a lot more hands-on thanthe prior concepts.
Another concept that I see alot is collaborative giving.
This is when individuals andfamilies form partnerships with
each other and other foundations, organizations, to not only
pool resources and expertise,but to really just create
(06:14):
momentum.
They could take many forms, butthey tend to use donor advice,
funds, giving circles, jointventures to do stuff like this.
I think maybe the final one isadvocacy and policy philanthropy
.
A lot of philanthropists directfunding to influence policy,
support advocacy efforts tocreate systemic change, they
(06:35):
provide funding for research,public campaigns and they
support think tanks so manydifferent ways, depending on how
involved the families want toget.
Tanya Suba-Tang (06:43):
So can you describe some complex gifting
strategies for families toleverage?
Sanem Alkan (06:48):
Yeah, actually, the tax reform I mentioned, the Tax
Reform Act of 1969, was pivotalin creating very robust,
complex giving environment aswell.
This allowed philanthropists toform various tax-efficient,
tax-related charitable givingvehicles to maximize the impact
of their donations for boththeir beneficiaries and the
(07:09):
nonprofits they wanted tosupport.
One caveat, one disclaimerthese methods require a lot of
planning and generally it's anarmy of advisors around these
families, from legal financialplanning advisors like tax
advisors, attorneys, to evenfinancial planners.
It's very important tounderstand the donor's goals and
plan around it while navigatingstate and federal tax laws.
(07:32):
But I just want to share acouple of examples.
There are maybe five key onesthat I would highlight.
Some are similar, but thepayments or who gives the
benefit may be differentdepending on the context.
So I'll be a little bittechnical here, but it might be
helpful for the audience.
First category charitableremainder trusts.
So a donor transfers propertywhich could be real estate,
(07:53):
stocks, some property into atrust.
The trust then provides incometo the donor or beneficiaries
for a specified period of timeand after that income period
ends, the remaining assets go tothe charity.
Donors receive or putting theseassets into the trust, they
receive an immediate charitabletax deduction and they also
avoid capital gains on theappreciated property.
(08:15):
So this is very, very valuablefor a lot of families.
A similar concept is charitablelead trusts.
Instead of remainder trust,it's a lead trust.
In this case, same exactprocess the owner transfers
property into a trust andthere's an income for a set
period of time, but the income,instead of going to the
beneficiary, it goes to thecharity and after that term ends
(08:35):
, the remaining assets in thiscase go to the donor and
beneficiaries, so the partiesare reversed.
This also reduces the donor'staxable estate and provides an
immediate charitable deduction.
So these two are very commonlyused, especially in the US.
Another idea is bargain sales.
The donor sells a property to acharity at less than fair
(08:56):
market value, as the namesuggests, and the difference
between the sale price and thefair market value is as the name
suggests.
And the difference between thesale price and the fair market
value is considered a charitablecontribution, and this is what
the donor uses to take a taxdeduction.
The charity benefits fromacquiring a property at a
reduced cost.
So it's pretty straightforward.
Another one is called retainedlife estate.
A donor transfers a deed, aproperty deed, to a charity but
(09:19):
retains the right to live in oruse that property for life, and
when the donor passes, thecharity takes full ownership of
the property.
But when this transfer is made,the donor takes an immediate
tax deduction on the property'scurrent value minus the value of
the retained life estate.
So it's an interesting strategyand a lot of people do that
with their families withproperty, but in this case,
(09:40):
instead of a family member, thisis a charity benefiting.
And then maybe the finalcategory is outright gifting of
real estate.
This can be made to a charityjust like it can be made to any
person.
This way, the donor avoidscapital gain taxes, receives a
charitable deduction and removesthe property from the taxable
estate.
Again, this one, much like theothers, can be pretty
(10:01):
complicated and in this case inparticular, people have to pay
attention to the charities realestate acceptance requirements.
They have to actually also geta valuation and assess
environmental risks.
So complexity of transfers varyfrom strategy to strategy, but
these are some of the ways.
One other interesting topic isuse of LLCs limited liability
(10:26):
companies.
I put this in complex giftingbecause this wasn't a popular
concept in the past, but it isone of the most flexible
strategies for philanthropiststoday.
It is actually flexible,private and gives the
philanthropists a ton of control.
So the way this works the donorfunds an LLC with cash,
appreciated assets, any otherproperty, and then the LLC in
(10:47):
return can donate money,property or even invest in
social enterprises, as long asthey align with the donor's
philanthropic goals.
Now this is an amazing tool,but there's one caveat Taxation
is different.
So in the US we make donationsprivate donations or use a
foundation we take an immediatetax deduction.
(11:08):
When we use an LLC, thededuction occurs only if the LLC
makes a donation to a qualifiedcharity and the LLC member
takes the deduction on theirpersonal tax returns.
It flows through to the taxreturn of the donor.
So there has to be an extrastep there.
But there are amazing advantages.
Donor retains control over theLLC assets to the point of how
(11:29):
they should be invested anddistributed, so that's a huge
plus.
This can make it more strategicand long-term for philanthropic
purposes.
And then there's a lot ofprivacy.
Unlike in other foundation typeentities, there's no public
disclosure requirements, so youcould basically have a ton of
privacy and even make politicaldonations, support for-profit
(11:52):
social enterprises, lobby,without the restrictions that a
typical 501c3 foundation wouldhave.
And also maybe this isinteresting for our
international audience LLCs cansupport individuals and
international organizationswhich, as some people may know,
can be very tough forfoundations in the US to do.
So international philanthropybecomes an opportunity and it's
(12:14):
a very powerfulmulti-generational tool.
There are also no self-dealingrules that foundations tend to
face, where there are somerestrictions between founder and
related party interactions withthe foundation.
So LLCs could be a great wayfor families to do complex
giving.
Tanya Suba-Tang (12:31):
So we talked a little bit about strategies and
families.
So what kind of strategiescould business owners use to
manage and transfer assets moreefficiently?
Sanem Alkan (12:40):
Yeah, this is a great question, especially after
we just went through a bunch oftopics that help any
philanthropist.
Business owners generally tryto take advantage of taxable
solutions and also really careabout multi-generational or
succession planning, andcharitable giving is an amazing
way to do this.
For example, business ownerscan donate their interest in the
(13:02):
business partially or fully.
If they have an S corporation,they could donate that stock.
There are some issues withunrelated business taxable
income.
This is more for accountants toaddress, but there are many
ways one could put a privatestock or other assets from the
business into trusts, llcs,donor advice funds.
(13:23):
They can certainly createcharitable remainder trusts what
I discussed earlier orcharitable leave trusts.
Essentially, they haveappreciated assets and
charitable giving is a verynatural way to not only avoid
capital gains tax but alsoreally empower other generations
in these families to benefit.
They can also set up what wecall donor advice funds.
(13:45):
I touched on that brieflywithout really explaining, but
it is a much simpler, cheaperway to do philanthropy.
A business owner can contributecash stock assets to what we
call DAFs.
In short, they receive thatimmediate tax deduction but
retain the ability to recommendgrants to charities over time.
They're very flexible, easy toset up, and you could use
(14:07):
Fidelity, schwab type ofintermediaries to do this, and
it's actually not just forbusiness owners but for anybody,
a great strategy.
And, of course, as businessowners, they could set up a
corporate foundation and what wecall corporate social
responsibility programs.
So it doesn't have to stop witha personal philanthropic goal.
It could be a corporatephilanthropic goal.
(14:28):
A lot of companies benefitgreatly and Maybe this is a good
time to mash and just list acouple of benefits of charitable
giving for business owners.
So tax benefits, which we'vebeen talking about at length,
legacy planning, businesscontinuity and succession,
enhanced reputation, especiallyif they're local and
community-based donors, and, Iwould say, personal satisfaction
(14:50):
.
A lot of people I've workedwith over the years really
benefit from combining theirbusiness and personal
philanthropy and they can reallymake a lot of impact that way.
And, of course, as with thefirst category, tons of
challenges and considerationsand probably an army of advisors
necessary, even more so in thisarea.
And there are also liquidityissues that business owners tend
(15:13):
to navigate, especially if theyare private business owners.
So I would say, very similar tothe first category, but a
little bit more holistic andcomprehensive.
Tanya Suba-Tang (15:22):
Wow, what a wealth of knowledge you just
shared with us, asanem.
So obviously in our podcast, wealways like to kind of wrap
things up with actionable itemsor even resources that our
listeners can use to read moreand learn more.
So what, if you have any,you're willing to share some
recommendations for ourlisteners to kind of learn more
(15:42):
about smart philanthropy andimpact investing?
Sanem Alkan (15:45):
Thanks for asking.
There are so many amazingresources nowadays, especially
in planned giving and combininglifetime giving with estate
planning.
There are some books maybe I'llmention those.
The Art of Planned Giving byDouglas E White is a good one.
It offers insights into thepsychology of donors and various
(16:06):
planned giving techniques, likecomplex giving.
Planned Giving for the SmallNonprofit is a good one by
Jordan and Quinn, two writers.
It's a practical guide tosetting up and managing plan
giving programs and complexgiving strategies and there's a
simpler guide Bruce Hopkinswrote charitable giving law made
easy.
It's an accessible overview ofthe legal aspects of things.
(16:27):
But I think beyond that thereare organizations like the
American Council on GiftAnnuities or National
Association of Charitable GiftPlanners even IRS, and the
Council on Gift Annuities orNational Association of
Charitable Gift Planners evenIRS, and the Council on
Foundations where people couldsearch for information resources
.
You know, especially on complexgifting strategies.
A lot of great content that way.
(16:48):
And I also really migrate tocertification, educational
programs.
I think it's.
I mean I've collected quite afew myself over the years in
terms of learning experience.
It can be amazing.
But there's chartered advisoryin philanthropy.
It's a really good program andcertified specialist in plan
giving.
That's another one that peoplecould get and, of course, you
(17:10):
could be part of organizationslike Partnership for
Philanthropic Planning orAssociation of Fundraising
Professionals to do a lot oflifelong learning.
There are also some onlinecourses and webinars, especially
in plan giving.
Foundation Center is a good one.
So, yeah, there are quite a fewresources, but I would say
generally, it's a very rapidlyevolving space, and what I've
(17:33):
learned in the last decade inparticular is the worlds of
investments and philanthropy arecoming to the middle.
A lot of people are now usingentities that we used to think
as structured high finance.
They're using those forphilanthropy now, and the type
of collaboration we used to see,the type of structuring we used
to see in the traditional oralternative investment world,
(17:55):
are now applying to philanthropyand impact investing.
So keeping an open mind andconstantly learning and reading
about these topics could be verysmart.
Tanya Suba-Tang (18:03):
Well, thank you again so much for joining us
today and for really sharingyour insights and knowledge
regarding this space.
Sanem Alkan (18:10):
It was great seeing you and yeah, thank you so much
for giving me the opportunityto share a little bit of insight
.
Lindsey Helman (18:23):
Thank you for listening to this month's
episode with Sanem Alkan, andthank you so much, Sanem, for
all of your insights.
You've given us a lot toconsider when it comes to
charitable giving strategies.
Join us next time for anotherFinancial Perspectives episode,
airing on the last Tuesday ofthe month.
We love hearing from ourlisteners, so be sure to click
the link at the top of eachepisode description to send us a
(18:45):
message or reach us by email atpodcast@cfa-sf.
org.
We look forward to hearing whatyou thought about this episode
and receive any suggestions youmay have on future topics you'd
like us to cover.
Thank you for being a dedicatedlistener.
(19:06):
This podcast is produced by CFASociety San Francisco, a
not-for-profit professionalassociation providing
professional learning and careerresources to over 13,000
investment industryprofessionals worldwide.
To learn more about CFA SocietySan Francisco, visit our
website at cfa-sforg or connectwith us on LinkedIn.
Popular Podcasts
24/7 News: The Latest
The latest news in 4 minutes updated every hour, every day.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com