blog banner
Benefits of Starting a Nonprofit Organization –  Running a Nonprofit Business [NEW]

Benefits of Starting a Nonprofit Organization – Running a Nonprofit Business [NEW]


– Hi Guys, Toby Mathis here
with Anderson Business Advisors and today I want to talk
to you about non-profits. This is near and dear to my heart and I have a personal
philosophy that basically states that if you’re
good at making money, you should be very generous and make sure that you’re taking care
of those who can’t. I get this from something
called The Gospel of Wealth that was written by Andrew Carnegie more than a hundred years ago, Where he basically stated that millionaires were the
trustees of the poor. In other words, not that
you just give money away but that you do good works
with your money and help those that may be not as fortunate
as you or maybe they’re not as good at making money as you are. If you are good at making money, one of the best places to put it, is inside of your own non-profit. Now here’s the thing, a lot of people say “oh, non-profit that’s horrible. “What am I going to do with the money?” It’s an operating business. In fact, whether or not you’re around, that thing may just keep on going on. It’s a great legacy tool to make sure that your kids are taken care of because they always have a place to work. No better example than Milton Hershey, who in 1905 created the Hershey Trust, which established his charitable intent and manages his various
charitable activities. Now charitable activities
are basically falling into a few different categories. But it’s for charitable
activities, literally, they call it charitable
activities, education activities, or religious activities
all fall under 501(c)(3). Those are the ones we’re
so used to dealing with where you get a charitable
donation for putting money in. Right now if you put money
into an operating charity, even your own, you can write off up to 60% of your adjusted gross income. You did not mishear that. If you make a million dollars of adjusted gross
income, you can give away $600,000 into your own 501(c)(3). If you have equivalent
assets, like real estate, or other assets that
have fair market value, you can give those in. Those can qualify up
to that 60% threshold. There are a few rules depending
on when you purchased it, if you’ve boughten and gave it in the year that you purchased it, then you’re going to be
limited to your bases. But otherwise if you’ve held
on to a piece of property for 10 years and its
appreciated huge in value, don’t sell it and give
money, give the asset itself. If you’ve had stock that
you have very low basis in and it has run up over the years, give the stock to your charity. It doesn’t pay tax. You get a donation based
off the fair market value. So anyways, we get that
money into the charity. Milton Hershey again, great
example, he set this up in 1905. He died without children,
I think it was 1930’s. The Hershey Trust continues
to manage the museum, a hospital, it was an
orphanage and a school. It’s a tremendous school that
helps kids without parents, not just orphans but also
if they’re incarcerated, over 2,000 kids a year, continues to this day and is worth over 12.6 billion dollars ’cause its primary holding
is the Hershey company, the publicly traded
Hershey Chocolate Company. So this thing just keeps getting bigger and bigger and bigger. No family, no kids, no
descendants and it’s still growing to this day and there’s a ton
of examples just like that. That these things get set up and because they don’t pay tax, they continue to grow. Now what qualifies as charitable activity, If you don’t want to be a church, if you don’t want to be those things? Helping the poor in any
methodology could be even providing housing to them, helping
them by providing them rental housing or providing
houses for them to buy. Low to moderate income qualifies. In San Francisco, by the way, $100,000 in a family can qualify as
a moderate income family. And if you’re doing HUD houses that is where your standard comes from. You could be providing HUD housing. That qualifies as a charitable activity. You’re providing housing for Vets, you’re providing housing for single moms, you’re providing housing
for transitional housing for incarcerated women who are coming out. We actually have a great example of that where they’ve just exploded
because organizations like, “hey, yeah we need this help. “We need someone to help by housing them.” Boom, there’s the charity sitting there. Pays zero tax, doesn’t even
pay the real estate tax. It allows you to actually
increase your capita, if you know what that is. I mean, it allows you to
actually get a lot more. The difference is there are no
private owners of a charity. The great example that just popped up is the founder of IKEA did
not want IKEA to be sold by his descendants and he
knew that’s what would happen. He put the stock into
non-profits before he passed. That way there is a board
that’s watching over his baby, the IKEA. He left his descendants board seats. They still have two out of seven, I believe is what the number is. But they can never get
enough control to liquidate. Which is what his fear was, is he wanted what he started to continue to grow and that’s how he’s protecting it. And there’s a lot of people that do that. So it is a tremendous
tool to create a legacy that does not get stripped down because someone decides
to sell all your stuff. And it continues even beyond you living. It is not owned by shareholders. This is important. You do not own it, you control it, but you can give control
to future generations. Nobody gets to just take the money. If you want money out of a non-profit, you’re going to have to earn it. You’re going to have to work and get paid. So, if you leave a legacy
behind that is your non-profit, and there’s basically two flavors, there’s an operating non-profit
and there are foundations. Foundations are the ones
that we all hear about. The private foundations where
you have to give money away, 5% of the assets every year. That’s what they would have to do. But an operating non-profit
does not, it can just continue to operate and do what it’s doing. And it might be providing
low income housing, it might be providing
housing for veterans, it may be providing housing for disabled, it may be providing residential assisted living for elderly folks. It doesn’t really matter
so long as it’s falling in that category, and boom it qualifies and then your heirs can
continue to operate it but they’re not entitled to
go take all those assets. They are allowed to work for it, they’re allow to get a salary, they’re allowed to get benefits, but they’re not allowed to go in there and pillage it, doesn’t happen. And then if they ever decide to close it down, they
don’t get the money. There’s no owner the way a
traditional corporation is. All they get to do is distribute that to other qualified 501(c)(3)s. So if your kids really
aren’t getting along or if you have generations
down the, few generations down and they’re just not seeing eye to eye, they can literally break that thing down but they can’t take the money. They could set up other
501(c)(3)’s with similar purposes, and say “hey we don’t work well together “but we’re going to separate
off and we’re going to continue “going down the line that you established “of what you believed was important.” Yes, there’s huge tax
benefits to doing that. And if you want great example
of that, look at what happened with Howard Hughes and
you can Google it up. Before the government came
in they were a little worried about some erratic behavior by Mr. Hughes. He took all of his shares in
the Hughes Aviation Company and dumped it into a non-profit. Boom, story he was no
longer the shareholder. He got a massive tax deduction. In fact, a huge tax deduction, caused the government they were all upset because of how many millions of dollars they didn’t get to take. And then he received
moneys back for many years. And it just kind of sat there,
didn’t do a huge amount. Now, I believe it is
the largest bequeathment for medical research in the world and it’s one of largest top
five charities on the planet after Howard Hughes passed away. Because boom the shepherds come in, they see his vision, and they say, “Hey, we want to actually make “this vision more of a
reality” and it grows. And because it’s not taxed you have what’s called exponential growth It goes broom and just
takes off because you’re not taxing it so the growth
stays in the company. And if people are continued
to give moneys to it it just continues to snowball
and it’s a fantastic tool. One of the most under-utilized
tools that’s out there. I’m always surprised when I see somebody who’s heavy into real
estate, then they’re paying big taxes on something and
they’re looking at me saying, “what should I do?” And
I look at them and say, “You need to quit
holding all those assets, we need to start
transferring some of those out of your estate,
getting you some tax breaks for doing so, and making sure
that you are always secured. If it really comes down to it we can put a deferred compensation plan in place and make sure you get
paid until you pass away. But you’re never going to run
out of money if you do that. You want to make sure that you’re doing these things proactively though. But what a powerful tool. The rich know how to use it, the top 2% for decades have understood
the power of non-profits and they all have them put in
place cause they understand that it doesn’t matter what their kids do, who their kids marry,
whether they have mistakes, whether they have huge liabilities, whether they’re just not
good at managing money, that non-profit’s going to be safe and it’s going to be a safety net and it continues to do what you envisioned and you want to make sure that somebody doesn’t hijack your vision. This is how you do it,
is you set that thing up and just let it go, tremendous tool. Love working with ’em. Hope this was helpful.

Leave a Reply

Your email address will not be published. Required fields are marked *