The Anonymous Donor

This is part 1 in a 3 part series, read part 2 Anonymous trader and part 3 Keep your client’s will out of the spotlight

You’ve heard of the Bill and Melinda Gates Foundation. But what about the Chuck Feeney Foundation? No? That’s because there isn’t one.

Yet between 1982 and 1997, the founder of Duty Free Shoppers gave away billions without anyone knowing, using Bermuda-based intermediaries so he wouldn’t have to follow U.S. foundation disclosure rules. In doing so, he forfeited the tax benefits—the anonymity of his gifts was worth that trade-off. Feeney only went public because a lawsuit against his company threatened to reveal his philanthropy. Since the suit, he’s pledged to spend down his entire fortune by 2020.

Some rich clients would rather be a Feeney than a Gates, Schulich or Bronfman. Especially in down markets, clients don’t always want to flaunt their wealth by affixing their names to bird sanctuaries or hospital wings.

During the 2008-2009 recession, the Chronicle of Philanthropy found anonymous gifts jumped to 19% from the usual 3%-to-5% in the prior decade.

Why the secrecy?

“They don’t want to be deluged with other requests,” says Jane Barry, past executive director of the Greater Saint John Community Foundation in New Brunswick. “Or they may want to do it without fanfare. [In the case of one donor] there had been a personal loss involved, and it was rather painful for the person [to go public].”

4 REASONS CHARITABLE DONORS GO ANONYMOUS

• • Fear of being asked for multiple donations
  • Flexibility to give without scrutiny
  • Privacy
  • Religious beliefs dictate donor cannot receive anything in return, including praise

Source: “The Sound of One Hand Clapping: The Case For and Against Anonymous Giving,” Paul G. Schervish

Others hide their identities because they’d feel embarrassed by adulation, or to keep themselves humble.

“There’s [sometimes] deep discomfort among inheritors of wealth,” says Malcolm Burrows, Head of Philanthropic Advisory Services at Scotia Private Client Group. “Builders of wealth are often comfortable, because they’ve grown into it. [Inheritors] are unaccustomed to the spotlight.” Many want to lead a simple lifestyle despite the new money.

Plus, there are privacy concerns. “If you Google most prominent people, some of the best information will be from charity articles and charity donor lists,” he says.

And sometimes asking for names to be removed isn’t enough. There’s nothing stopping charities to which they’ve donated from continuing to contact them, and something as simple as a staff changeover can accidentally move a donor off a do-not-contact list.

Also, “once you get pulled into the tax receipting system, you can’t keep your information private,” Burrows says. The CRA is cracking down on donation tax shelters and has been known to go after charities’ donor lists via court order.

HELPING CLIENTS GO PRIVATE

When a client confides his desire to give anonymously, you know you’ve built a strong relationship. It then becomes your job to find out the reasons behind that desire so you can choose the best method of giving.

Barry knows a family that went semi-anonymous by only allowing their generic-sounding surname to be published. They didn’t need to set up a formal private structure.

J. Denise Castonguay, executive director of national foundation Canada Gives, knows a donor who gave to 34 charities each year. To simplify the process of gifting with securities and avoid having the charities call him directly, he set up a donor-advised fund , and insisted on anonymity with all beneficiaries.

Somehow, one charity discovered the donor’s identity and contacted him. He valued his privacy so much, “he stopped giving to them on the spot,” she says.

Other times, anonymity drives the entire arrangement of the gift. “One client of ours was active as a volunteer in a small charity, and knew they needed a significant amount of money to keep the doors open,” says Burrows.

To avoid changing the charity’s working dynamic, she used a donor-advised fund based in another part of the country to donate $200,000. “Nobody knew where [the money] came from, and the donor just continued to interact with her fellow volunteers without changing her life.”

OPTIONS

ONLINE

CanadaHelps.org facilitates online donations to all registered charities in Canada. While the website must provide a donor’s information to the CRA for tax receipting, a client can hide her identity from the chosen charity.

THE DOWNSIDE

Some clients won’t use credit cards online, or may want a more formal structure when giving large amounts.

PRIVATE AND PUBLIC FOUNDATIONS

Foundations are popular for their prestige and boast professional management.

THE DOWNSIDE

Foundations are required to annually submit report T3010A to CRA. It outlines activities and disbursements made in the previous fiscal year, as well as assets, grants and the names of directors. Information contained in this report is available on the CRA’s website. There are also tools that map out charity directorships based on public information. “That information is highly sought-after and available,” says Castonguay.

CHARITABLE TRUSTS

Since trusts don’t have to file anything other than tax returns, they’re a relatively anonymous method of giving. If created during a client’s lifetime, he or she can create a residual interest trust by transferring a home, cottage or other property into a trust with a charity as beneficiary, while retaining use of the property until death.

Another option is a spousal charitable trust, which lets your client’s spouse be the beneficiary of the income from an asset, while the charity is the beneficiary of the asset itself. In Castonguay’s experience, privacy isn’t the primary motivator for these trusts; rather, it’s been to enable philanthropists to retain an income stream while living, but ensure the remaining proceeds go to charity upon death.

THE DOWNSIDE

Trusts require specialized help to implement.

DONOR-ADVISED FUNDS

Donor-advised funds aren’t required to publish information about the donor because a community foundation or financial institution administers them.

“Clients can make gifts and only use the name of the public foundation,” says Castonguay. “They can choose whether the recipient charities know who they are or not.”

THE DOWNSIDE

Some community foundations or institutions impose minimum donation requirements.

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.