The writer explains that the amount of money does not determine its worth to a man.
Instead, it is how the man makes use of the money that reveals its value. "If it is worth only selfishness, meanness, stinginess, vanity, and haughty state, a man is not rich if he own a million dollars." This first news story in Seattle history ends by declaring that if a man's money leads to generosity and public spirit, then with only a few hundred dollars a man is rich. The final sentence still rings true: "You must put your hand into a man's heart to find out how much he is worth, not into his pocket."
Outside my Seattle office window stands the Space Needle, and in its shadow is the headquarters of the Bill & Melinda Gates Foundation, the world's largest foundation with US$36 billion. Bill Gates has another US$65 billion that will nearly all pass to the foundation in the future. Gates and his friend Warren Buffet are promoting Giving Pledge, encouraging all billionaires to promise at least half of their wealth to charity. The foundation and the pledge arise from this Seattle spirit birthed more than a century ago and from a desire to do what is best for their children. Both men believe that leaving enormous riches to the next generation often causes them harm.
What is Philanthropy?
Broadly speaking, philanthropy is the voluntary allocation of private wealth for public good. Public good includes education, disaster relief, environmental protection, public health and poverty alleviation. Eventually, all personal wealth, except what is lost or consumed, will be given away.Among life's most important questions are: (1) How much should I consume? and (2) To whom shall I give the remainder? For those of us who counsel people of wealth, it is essential that we be ready to help our clients address these questions.
The number of philanthropy advisors is growing: Lawyers writing wills and trusts, tax experts navigating through laws and regulations, accountants tracking and reporting numbers, wealth managers steering investment decisions, social scientists measuring public benefit, private bankers funding social ventures, fellow philanthropists, and many others. Clive Cutbill, English lawyer and co-editor of International Charitable Giving (Oxford Univ. Press 2012), cautions that professionals who do not understand the philanthropy landscape may lose the confidence of their clients and perhaps even opportunities to serve them. The International Association of Advisors in Philanthropy seeks to help professionals avoid this danger through education and collaboration among its members.
Philanthropy Going Global.
The Information Age and instant worldwide communication have shrunk our planet and extended the reach of philanthropists. It follows that charitable giving would increasingly cross national borders in this era of globalization. The tool most often used for this giving is a private foundation (PF). In the U.S. alone in 2010 there were about 120,000 PFs that together held more than US$580 billion, according to the National Center for Charitable Statistics.
While PFs are the popular choice of the ultra-wealthy, another tool is gaining momentum globally among the rich. The Donor Advised Fund (DAF) is a relatively new strategy that already attracts 3% of all charitable giving in the U.S., reports the National Philanthropic Trust. In a DAF, gifts of money or property are made to a community foundation to be held and invested until the donor directs some portion of his charitable account to a specific charity. By use of a global network of DAFs, donors may simply and efficiently support charities in foreign jurisdictions without sacrificing domestic tax benefits or battling cross-border administrative obstacles. Charities Aid Foundation is behind one such network, and other networks are undoubtedly soon coming to the world stage.
Other trends gaining momentum and universal appeal are social ventures and venture philanthropy. A social venture is usually some form of business with a social or public benefit as its main objective. Venture philanthropy often calls for an investment of time, expertise and personal influence, together with financial capital. These ventures are frequently structured as for-profit enterprises, sometimes in connection with a nonprofit. One leader in this global movement is Seattle-based Social Venture Partners International.
Philanthropy Poised to Blossom in China.
China's potential is staggering. The world's second largest economy, China creates 165 new millionaires every day as it races toward economic supremacy. According to the Hurun Report, there are more than one million Chinese with at least RMB 10 million (US$1.6M). This is a relatively young crowd with an average age of 39. The same study reveals that China claims the second most billionaires with 260 Chinese topping RMB 10 billion (US$1.6B).
Despite this burgeoning wealth, reported charitable giving in China is quite modest in comparison to other nations. The China Charity Donation Information Center lists total giving in China for 2010 at about RMB 100 billion (US$16B), which is about five percent of U.S. charitable giving. Total assets in all of China's foundations combined amount to only one quarter of the size of the Gates Foundation and just 1.5% of the total in all U.S. foundations. On top of that, two thirds of the reported giving in China is done by corporations (not by philanthropists) compared to just 5% in the U.S.
These numbers, however, do not tell the story of the enormous growth of China's philanthropy landscape over the past decade. Nor do they limit in any way the vast potential and inevitable future rise in giving. Two factors will drive this growth: (1) China's first generational wealth transfer; and (2) the development of China's nonprofit infrastructure.
As the China Country Director of the Gates Foundation, Ray Yip has occasion to talk with many of China's wealthiest citizens about philanthropy. He finds that giving by high net worth individuals in China is a new and rare phenomenon in part because of the short history of wealth, most in the past 5 to 10 years. He adds that some of the younger ones, who are not yet meaningfully engaged in philanthropy plan to do so at a later stage in life, much like the example set by Bill Gates. This is illustrated by the Hurun Philanthropy List, whose 100 members are older than the average Chinese millionaire, with an average age of 52. More than age, it is mortality that will ultimately cause many of China's new rich to embrace charitable giving as they begin to make wills and trusts and plan their estates for the next generation. And this mortality is only a matter of time. We will see its dramatic effects within 10 to 15 years.
But even generous hearts need a healthy and robust nonprofit sector or civil society before signing big checks. While last year China was home to nearly half a million legally registered nonprofit organizations (NPOs), the number and size of those organizations should expand dramatically in the coming years. Law professor Karla Simon, in her new book, Civil Society in China (Oxford Univ. Press 2013), traces this history and provides meaningful insight on what lies ahead, especially in the legal and regulatory environment.
The roots of philanthropy are extending deeper and more broadly into China's social framework and culture: from the Hurun Philanthropy List to the China Charity Award, the government's highest accolade for philanthropists, established by the Ministry of Civil Affairs in 2005; from Jet Li and One Foundation's annual Philanthropy Forum to the launch in 2010 of the Chinese Foundation Center to promote transparency and integrity; from nonprofit incubator projects to the monthly magazine, China Philanthropist. And the award-winning work of Bright China Foundation in youth entrepreneurship education and in training China's NPO executives with the wisdom of Peter Drucker, the father of modern-day management. These are mere appetizers, giving this great nation a taste for what will surely follow.
Philanthropy Offshore.
Philanthropy advisors are wise to note - and, in some cases, to plan - the jurisdiction of a client's earnings and the jurisdiction of the recipient charity. The accompanying diagram illustrates four distinct scenarios based on the physical location of the source producing earnings and that of the recipient charity. Three of these involve offshore jurisdictions. With proper planning, wealthy Chinese may leverage the offshore world to achieve greater flexibility and efficiency in administration and taxation. An offshore DAF provides donors with a unique platform that allows for creativity and innovation in giving.
For wealthy Chinese, the one fully-domestic scenario (domestic earnings/domestic giving) may prove to be less and less attractive over time. According to the Hurun Report, one third of Chinese millionaires are now investing offshore, with many more planning to do so within three years. These investors are generally seeking wealth safety and diversification. The Wall Street Journal estimates that the total outflow of investments from China last year was US$225 billion. Assuming that these investors will eventually direct a portion of those assets or their earnings to charity, an offshore DAF (often in connection with offshore, for-profit holding companies and offshore family trusts) can be an ideal vehicle for offshore investments. The opportunity for sound and sophisticated offshore planning has never looked better.
A Dream for China.
A century and a half after The Seattle Gazette issued its prophetic word about the worth of money, a recent survey ranked Seattle as the most generous city in America. Bill Gates is not the only reason why. Thirty years ago the founder of my law firm, Chi-Dooh (Skip) Li, had a dream to alleviate poverty among the rural poor in Central America. The amazing story of Skip's life and his remarkable generosity through Agros International is told in his recent book, Buy This Land. Agros and the Gates Foundation are but two examples of the spirit heralded in that inaugural edition of the Gazette that lives on in Seattle and throughout the earth.
The 2011 Wealth Report published by China Merchants Bank and Bain & Co. says of China's millionaires: "They want a high quality of life. Material comforts and social stature no longer are satisfying. Quality means having a satisfying spiritual life. Wealthy Chinese are devoting more attention to supporting charity and social welfare issues." Philanthropy will indeed thrive in China in the days ahead. The spirit of generosity will flourish. And the hearts of one generation will embrace the next.
