Can anyone explain if the wealthiest billionaires claiming to give away all their wealth worth hundreds of billions in charity is actually legit cuz most of their donations are in stocks, that too usually to their own charitable foundation and ofc stocks are not liquid..so..

[u/Sea_Background_9507]

[u/LavenderRosemary]

Hi, I work for a nonprofit dealing with donor records and accounting and I have my undergrad degree in nonprofit administration.

I'm not really sure what you're asking but some nonprofits do hold investments in stocks in the form of endowments. Depending on the amount in the endowment, the dividends paid could cover the operating expenses of the organization allowing all additional donations to go purely towards programming. Of course this depends on the type of organization. Not all nonprofits take stock donations or may take it but liquidate the amount.

Regardless, all financial information for nonprofits are publicly available through 990 tax forms.

[u/curiouscirrus]

Usually stocks are liquidated immediately upon receipt of the non-profit foundation. Even if they aren’t, it’s a non-reversible transaction. The foundation owns the assets after the donation and it’s up to them what they do with them.

[u/Sea_Background_9507 → u/curiouscirrus]

Yeah but most of the time most big donations in billions are donated to the foundation belonging to the person donating it so what's the point.. and it could also help in tax savings..

[u/curiouscirrus → u/Sea_Background_9507]

The point is that they can no longer use the money for their own benefit. They can choose when and to whom to grant the money, but they can’t do anything with it that would benefit themselves. I’m sure there are some shady kickbacks and whatnot happening all the time, but legally at least that’s how it should work and if they violate it the IRS could come after them.

Edit: As far as tax savings, they get those when the money is transferred to the foundation, not when the foundation grants to recipients.

[u/Sea_Background_9507 → u/curiouscirrus]

But they could also not use that money themselves technically cuz it'd be difficult to sell those billions of dollars in stocks at once. And we never know how it's used and if even used at all since they own the charity themselves. How can a charity liquidate 36 bn dollars for eg donated by someone like Bill gates even over a long period of time. And if it was possible then elon musk wouldn't have to take loans and investments from others to buy twitter.

[u/CitizenDain → u/Sea_Background_9507]

Not true that "we never know how it's used". If is donated to a 501c3 charity they are required to make documentation annually that is publicly available that says where the organization issued grants to.

[u/scientooligist → u/Sea_Background_9507]

Check the 990s of the foundations and you can see exactly where the dollars go. They are also required to pay out a specific percentage each year to charitable causes

[u/jcravens42 → u/Sea_Background_9507]

"but most of the time most big donations in billions are donated to the foundation belonging to the person donating it "

No, this isn't true. Not true of Mackenzie Scott, for instance.

And the Bill and Melinda Gates foundation does amazing work - and none of that money goes back to Bill nor Melinda.

[u/Sea_Background_9507 → u/jcravens42]

Ok we don't know for sure but still assuming it's used for good purpose. But what about them and most other philanthropists donating in stocks instead of cash.

[u/MorePizza_Please → u/Sea_Background_9507]

We do know for sure. The financials of foundations are required to be made public. And there is a lot of regulation surrounding spending.

[u/CitizenDain]

You are absolutely right that the tax advantages are one of the motivations for some people to make philanthropic gifts. And transferring the money from their own assets to the assets of a foundation that they set up is definitely used as a means to still control the funds to some extent while giving themselves a giant tax break.

That said, there are lots of legal requirements once the money is moved to a foundation. The money can only be distributed to registered non-profits that have some kind of legitimate purpose. (The exception, as far as I am concerned, is religious organizations, which get the equivalent of non-profit status without needing to demonstrate that their assets are used for the greater good.)

I'm sure people get away with things, but the risk of audit is always there.

As someone else said, most of the time when gifts are made via appreciated stock, the stocks are instantly sold at whatever the current market price is, and the donor gets a tax receipt for the average value of the stock on the day that the transfer was made.

[u/Hot_Cartographer9939]

I’m also a bit confused with the question. It would help if you can clarify what you mean by it since it might need many different angles to answer.

For illustration—there are also different type of agreements for donations. Some times an organization A is holding funds in the name of another one B, for a period of time. For example “until X dies” and then when X dies the funds are fully transferred from A to B.

[u/sweetpotatopietime]

What?

[u/Sea_Background_9507 → u/sweetpotatopietime]

Yeah that's what I think acc to MY knowledge about stocks but I could be wrong.. so was trying to get an explanation if any expert is willing to..

[u/jcravens42]

"usually to their own charitable foundation"

No, this isn't true of most donations. Not true of Mackenzie Scott, for instance. And the Bill and Melinda Gates foundation does amazing work - and none of that money goes back to Bill nor Melinda.

If you are talking Musk and Trump (not a billionaire), however - yes, they "give" to their own charities and there are very few nonprofits that receive any support.

[u/jtmarlinintern]

Even if the tax advantage they gain from giving away stocks in the companies they founded , the money is real if they choose the correct charities . Look at Mackenzie Scott

[u/Moonstruck1766]

Charities liquidate the stocks upon receipt. There are absolutely a legit gift.

[u/GreySoulx]

One of the specific tax benefits is the estate tax. The problem with these billionaires is most of them hold most of their wealth in a singular stock, typically their own corporation. When they die and that money is passed to their next of kin or into an irrevocable trust it is recorded as a gift against their lifetime exemption (currently around 13 million and change) anything over that amount is taxed at 45%. This is before the inheritors get their "step up in basis", And since the basis is often as close to zero as you can get, they can be saddled with a multibillion dollar tax bill. The only way to pay that would be a massive liquidation of that stock which would crash the value of the company.

The work around is to put most of the stock and other assets into a proper nonprofit foundation, where the grantor can typically stipulate rules around its use at the time of the donation. Once it's gone it's gone, but they can certainly structure it so that, for example, the receiving foundation can't just liquidate billions of dollars worth of stock in one go - nor would they want to, they would much rather keep the appreciated stock and sell it off as needed, benefit from dividends, borrow against it (maybe?), or sell it in small amounts to fund their operation/mission.

It wouldn't be an appropriate for a family member to maybe sit on the board of such a foundation, but it would generally be distasteful, although probably not illegal, for them to be in complete control of the foundation. It would certainly cause problems convincing other people to donate to their cause.

[u/Tainogoddess]

This is a very complex question. In private family foundations the trustees within the family are making the decisions of where the money goes as well as the decision to pay themselves amongst many other things. There is a lot of room to benefit from the funds even if they do not have complete control.