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Charitable Rich Help Non-Profits Grow

By Harvy Lipman
STAFF WRITER

The Record, Sunday, February 18, 2007 - When the rich get richer, the non-profit world grows. And it has never before grown the way it has in the past 10 years.

The wealthiest Americans have seen their average net worth nearly double since 1995, and many have poured substantial shares of that lucre into non-profit organizations -- in particular, their own newly created family foundations through which they can better control how their charitable dollars are spent.

Overall, the number of non-profit groups in the nation has nearly doubled over the last decade, and northeastern New Jersey reflects that trend. In 1996, the region was home to 2,611 charities and foundations that had registered for a federal tax exemption. Today, it has 4,733.

There are a number of reasons for the increase, including the region's increasing ethnic diversity and the creation of non-profits geared toward new Asian and Hispanic populations.

But the leading players in the expansion have been the area's wealthy. Of the total non-profits in the region, one in six is now a family foundation.

"There's been an enormous amount of wealth created in a place like Bergen County," said Leslie Lenkowsky, a professor at the Indiana University Center on Philanthropy. "As folks get richer, they don't spend their money only on additional cars."

For the most part, affluent individuals have two choices about how to engage in philanthropy. They can simply donate to existing charities and abide by the funding decisions of others.

Or they can set up their own foundations, with a board of trustees of their own choosing -- often themselves, family members and friends. Because foundations serve basically as funding conduits and not as charities themselves, the money can then be directed to any number of purposes.

There's a cost at tax time -- donations to foundations get a significantly smaller tax break -- but experts say that's worth it to many wealthy people.
"For many people, the deciding factor is this desire to have control," said Tim Walter, chief executive officer of the Association of Small Foundations, in Washington, D.C. The association represents more than 3,000 members -- two-thirds of them family foundations. The people who create these organizations want control not only over how charities spend the money, he added, but also over how the funds are managed.

"If you donate the money, that organization's board of directors controls how it's invested, how much of a return it's going to generate on that investment, whether it's going to grow or not," Walter noted.

'A culture of giving'
North Jersey is home to many highly successful Wall Street traders and business entrepreneurs -- just the sort of affluent individuals who have been setting up family foundations. Walter added that many in his group believe they can do a better job than traditional charity managers of investing the non-profit's funds and generating more money to be used for charitable work.

"We also find that a lot of the time these are people who are trying to establish a culture of giving within their families," Walter said. "They're in the process of creating a living institution, so they can tell their kids, 'We are the board of directors. This is serious business. It is your responsibility.' "

That was also a goal of those who set up foundations in prior generations, but until the mid-1990s, the bulk were established by older people, often after they retired or in many cases as part of their wills.

"In the past you typically would have had someone in their mid to late 60s or 70s thinking about creating a private foundation," said Ira J. Kaltman, a tax lawyer in Montvale who has helped numerous clients set up foundations. "Now you see people in their 50s or even late 40s looking at it.