| By Doris Rubenstein
As much as the IRS wants your clients to file their claims on time, it is not well known for the speed of its own reporting back to the public. In its latest statement on Gross Estates and Charitable Deductions, based on federal estate tax returns for 2001, there are some interesting data that relate to a new document about the social responsibilities of the wealthy.
What the IRS report tell us is that wealthy people are not taking advantage of the charitable deduction available to them for their estates, even though they are often generous donors during their lifetime. While high net-worth individuals give at the same rate as the general public – about 70% of people across socio-economic lines give to charity at some level every year – when it comes to the “ultimate gift,” big-time donors just forget about it. According to the 2001 figures of people with estates between $5-$10 million, only 7.57% made charitable bequests. The figures improve only slightly for those with estates between $10-$20 million: 9.69%. It’s only the mega-wealthy – persons with estates in excess of $20 million -- who make the figure jump into two figures, and then it’s only just barely so: 20.64% make charitable bequests.
What’s the problem here? Why aren’t wealthy Americans giving out of their estates? Is it because their advisors are delinquent in their duties to remind or suggest charitable bequests? Or is it perhaps that these individuals don’t really understand their responsibilities as trustees of wealth?
To clarify just what are those responsibilities are, the Caux Round Table has drafted Principles for the Ownership of Wealth. The Caux Round Table is an international organization of top executives of multi-national corporations who are concerned with business ethics. In 1986, they crafted a code of ethical principles for their members, and by extension, all businesses. Realizing that top managers in these companies generally benefit greatly in their financial lives due to their positions, the Caux Round Table membership devised a personal code for themselves as trustees of wealth. And, equally by extension, this code can be followed by all in a similar position.
I quote the points covered by Principles for the Ownership of
Wealth:
Fundamental Principle: The ownership of wealth entails stewardship.
The ends of holding wealth encompass more than meeting self-centered desires for dominion and indulgence. There is a fiduciary aspect to the ownership of capital. Wealth is to be consciously devoted to meeting the needs of society, of others, and the challenges of the future. Wealth should be of benefit to society.
General Principles:
1) Wealth should be used to enhance other forms of capital: finance, physical, human, reputational, and social.
First, wealth should be used to sustain and improve the institutions that permit the creation of wealth. Accumulated over time, wealth can influence the future. Wise use of wealth avoids immediate consumption and invests in the creation of better outcomes for future generations
2) The desires of owners for self-satisfaction should be balanced against society’s need for robust accumulation of new capital in all forms.
Philanthropy is incumbent upon those who possess wealth. The social function of wealth is to finance a greater good. Those who are to inherit wealth should be expected to assume the fiduciary responsibilities of stewardship that accompany the possession of wealth.
3) Wealth must support the creation of social capital.
Social capital – the reality of the social compact incubating successful wealth creation and permitting the actualization of human dignity – is created over time by governments and civil society. From the rule of law to physical infrastructures, from the quality of a society’s moral integrity and transparency of its decision-making to the depth and vitality of its culture, social capital demands investment of time, money, imagination and leadership. Wealth should pay its fair share in taxes to support public programs enhancing social capital and should invest in the private creation of social capital through philanthropy.
4) Wealth should be invested in institutions enhancing human capital.
Education and culture can be funded from public budgets on a consumption basis, but wealth should shoulder the principal responsibility in a society of providing permanent endowments for institutions of education and culture.
5) Private wealth should supplement public expenditures for the social safety net.
Private charity and philanthropy should respond to the health and human services needs of the less fortunate.
6) No one is morally entitled to the use and enjoyment of wealth procured by fraud, corruption, theft, or other abuse of power.
Those who control such wealth should make restitution of such wealth to public bodies or civil society. Use of private property rights to shelter such wealth is ethically suspect.
Your clients may or may not agree with all of these points, but you cannot go wrong by sharing them when the time is right. Whether your client chooses to address these Principles by making a direct bequest to a charity or by deferring the gift and institutionalizing their philanthropy in a family foundation, these Principles are powerful tools to help guide them as stewards of wealth. |
