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Charitable foundations aren't just for the über-rich

The Chronicle of Philanthropy's 50 most generous donors from 2012 list shows that there are more donors under 40 giving away more than ever before.

This is Hal Ornstein’s philosophy in a nutshell: The beauty of wealth is giving it away.

Ornstein is a podiatrist in New Jersey, and an eternal optimist, brimming with positivity. His offices and examination rooms are covered top to bottom with Wizard of Oz decorations. More to the point, he’s generous. He donates money to animal causes, food pantries, his son’s college, his own alma mater. The list goes on.

So it makes sense that he and his wife Anna and their sons Tyler and Zach would have their own charitable foundation, appropriately named The Ornstein Family Foundation. But the reason they founded it has less to do with charity and more to do with Hal Ornstein’s mutual funds.

“Mutual finds are really great when you’re starting out,” Ornstein said, “(They) worked out great to build up significant assets. As you then grow your financial portfolio, you get taxed like crazy. It’s unbelievable.”

The idea of starting a foundation came from his financial planner, Paul Wilson. Coincidentally, Wilson called Ornstein during the interview for this story.

“If I was gonna sum it up in 30 seconds,” said Ornstein into the phone, “what were the tax advantages (to the family foundation) so I at least I can sound somewhat educated.”

“You moved low cost basis assets into a charitable foundation, therefore saving you from capital gains taxes whenever you sold those assets. So you got an income tax deduction instead of capital gains taxes whenever you sold them in the future. Plus, you reduced the 1099s that you were getting from those mutual funds on an annual basis.”

“But,” Wilson continued, “you were also very charitable before then. So it just fit for you, that’s all. You were already giving the money away. It’s just you were giving away money instead of mutual funds.”

The closest that both Ornstein and his planner, Wilson, would come to quantifying his net worth was to say that he’s a “multimillionaire.” (That’s Wilson’s word. Ornstein prefers not to calculate his “worth” in dollar amounts.) Still, it’s not as though we’re talking Rockefeller level wealth here.

“I always thought you had to have like millions and millions of dollars to do a foundation,” said Ornstein, who capitalized his foundation with just $240,000. “It’s amazing how ignorant we are.”

“65% of all the foundations in the country are under a million (dollars),” said Page Snow, Chief Philanthropic Officer at Foundation Source. Her organization manages 1,200 foundations nationwide. It also sets up foundations for some clients, including the Ornsteins. Snow says Foundation Source can get a foundation up and running in as short a time as three days.

“What happens is our legal department has already created a shell foundation, and the head of our legal department effectively is the head of that foundation temporarily,” said Snow, “When somebody tells us they want a private foundation… (the legal department representative) resigns from the foundation and the family comes in. That’s why we can very quickly get a private foundation set up.”

Also, all of the new foundations that Foundation Source sets up are technically based in Delware, a state that happens to be friendly to corporations. And all of the foundations Foundation Source sets up are, technically, little corporations.

Ornstein has become an evangelist for foundations. Snow says he called her on the phone to say he needed her help promoting foundations to his wealthy doctor friends. “This is the first time this ever happened to me,” she said.

“When you say you have a foundation it’s like you lift your chest high, of pride,” said Ornstein. “It doesn’t matter how much you have in it. It’s the fact that it’s cool because it really shows what you’re about. It shows your paradigm, your spirit and your blessings.”

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It used to be thought that a private foundation didn’t make sense for a donor with less than several million to commit to philanthropy. However, that’s no longer the case. Thanks to technological innovations and outsourced services that automate and simplify how they are operated, private foundations now have a much lower entry point. Many of our clients start their foundations with assets of less than $1 million and add to them over time. All things being equal, having an account at a donor-advised fund can rarely match the visceral sense of ownership and ultimate satisfaction that comes from having one’s own private foundation. It’s all about the inherent advantages a foundation provides—principally flexibility and control.

Bit of a disagreement here. Yes, private foundations (PF's) can be set up with small dollar amounts but it is a waste. Better to use a donor advised fund if amount in play is less than a couple million. PF's should be used for the business of philanthropy not as a charitable pocketbook. See my blog at www.charitable-nation.com August 14,2013 post.

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