Wednesday, June 4, 2014

Wherein I find myself in the awkward and unfamiliar role of apologist for the Walton family.

This article in Forbes has been getting a good deal of play in the media.  The article describes a report issued by the Walmart 1 Percent, a project of Making Change at Walmart backed by The United Food & Commercial Workers International Union.   The report states that second generation of the Walton family has not been at all generous in supporting the Walton Family Foundation.   According to the article, the first generation of the Walton family, Sam and Helen, were the initial creators of The Walton Family Foundation and accounted for the vast majority of the funding of the Foundation.   In addition, a number of charitable lead trusts (a.k.a. “tax- avoiding trusts”) set up by parents, as well as their deceased son John, pay their lead interests to the Foundation.

Trust me, I’m no fan of the Waltons or Wal-Mart.  I threw up in my mouth a little writing this.  That being said, there are a number of things that trouble me about this report that have larger implications for charitable giving, generally.

1. The limits of disclosure. The premise of the report is that “if giving to the Walton Family Foundation is their [i.e., the second generation of Waltons] primary way of practicing charity, then the Waltons are hardly philanthropists.”  The report does note that it believes that “it is reasonable to assume that the Walton Family Foundation is the primary vehicle through which the Waltons contribute to charity.  However, to the extent that the Waltons make charitable contributions to entities other than the Walton Family Foundation the findings in this report will under-estimate their total charitable giving.”

I’m not sure why the authors believe that it is reasonable to assume that the WFF is the primary vehicle through which the Waltons contribute to charity.   In my personal experience (subject to the caveat that the plural of anecdote is not data), the second generation in a family often does NOT support the parents’ private foundation.   Quite to the contrary – those second generation family members often wish to strike out and establish themselves as philanthropists in their own right (or not at all).  They will either choose not to make contributions (with the view that they already gave up part of their inheritance to charity) or make contributions in their own names to their own foundations and in furtherance of their own unbridled giving priorities and control.

The fact of the matter is that we simply don’t know the extent of the personal charitable giving of each family member.  They may be giving to their own foundations or donor advised funds or supporting organizations or program direct giving, that may or may not have “Walton” in the name.  The authors of the report can search the public records all they want – and the report discloses its methodology at the end – but much of this information is simply private, and we won’t know unless the Waltons tell us. 

If the 2G Waltons want to claim to be philanthropists and hang their hat solely on the parents’ foundation, well … that’s an entirely different question (a.k.a., what does it mean to be a philanthropist?)  On that note, they can put up or shut up, and I agree with this report only to that extent.

 2. Tax “avoidance” trusts don’t count as giving.   Look, I’m not naïve.   (Mostly.)   I’ve set up my fair share of charitable lead trusts and I know how they work.   I know that the actuarial value of the lead interest going to charity for gift tax purposes bears no relation to the amount *actually* passing to the Foundation.  And I know that there is always a transfer tax motive for setting up such a vehicle.

But does that mean we write off such things (and their cousins, the CRT and the gift annuity) as not being charitable?

I think lots of institutions that benefit from such planned giving vehicles would beg to differ.  The fact of the matter is that any individual setting up such a trust knows that at least part of the assets in that trust will be going to charity.  We can argue about whether the tax benefits to the donors derived from such trusts are not proportional to the amounts passing to charity.   We can also argue whether the tax code should incentivize charitable giving by allowing income, estate and gift tax charitable deductions for such gifts in trust.

But let’s be clear.   The current Code does allow such trusts.  Congress does incentivize charitable giving through these techniques.   And I’d bet dollars to doughnuts that the nonprofit community would be very upset if Congress wanted to do away with them – because they do result in real money going to charity.  Maybe not as much as we’d like, but they do.

And while I’m at it … these aren’t loopholes in my understanding of the term.   A loophole is an unintended tax break found when various parts of the Code don’t work together correctly (read: intentionally defective grantor trusts).   CRTs and CLTs are very much in the Code intentionally – they are tax expenditures, not tax loopholes.  Don’t like them?  Change the Code, but don’t condemn people for taking advantage of legitimate tax strategies that are in the Code very much on purpose.

 3. What is philanthropy, anyway?    The 2G Waltons clearly have a world view, if one looks at the charitable giving they have done of which we have knowledge.   I share pretty much nothing of that world view, personally.   Does that mean that what they’ve done or funded isn’t charitable?  Of course not - the question of whether or not I personally agree with the 2G Waltons’ giving priorities is irrelevant to whether or not it is charitable giving.

The notion of “charity” isn’t static – one need only to look to questions of race, religious, gender, and like restrictions in charitable gifts to know that standards change over time.   I’m not going to say that the definition of charity is entirely open-ended.   But we shouldn’t argue that the things that the Waltons support aren’t charitable just because they support things we might not like.  You may not like the fact that Alice Walton gave millions to the Crystal Bridges Museum of American Art, but it doesn’t mean that the support of the arts isn’t “charitable.”  You may not like the fact that the Waltons support the charter school movement, but that doesn’t meant that furthering educational innovation isn’t “charitable.”  

If the shoe were on the other ideological foot, would you want to go down this definitional road?

 ***

Fundamentally, the report comes down to this quote:

 “if they wanted to, the Waltons could be the most generous philanthropists in America, and probably the world.”

(Italics emphasis in the original).  If you’re reading this blog, then you probably think that philanthropy is a pretty good thing and that we’d like people to be more generous.   But nothing in our system of donor-driven philanthropy requires it - not of you, not of me, not of the Waltons.   Full stop.  

EWW (warily donning her flame-retardant pajamas....)

http://lawprofessors.typepad.com/nonprofit/2014/06/wherein-i-find-myself-in-the-awkward-and-unfamiliar-role-as-apologist-for-the-walton-family.html

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