Wealthy Americans Are Putting More and More Money Into Foundations

Gifts to philanthropic foundations rose by 8 percent last year — a bigger percentage gain than any

other type of nonprofit group experienced, according to estimates released last week by “Giving USA,” an annual report on the state of philanthropy.

Philanthropic advisers and nonprofit observers say several factors contributed to the rise in gifts to foundations. Among reasons for the increase:

• The stock market made gains for the second consecutive year, giving people enough confidence in the economy to set aside money for charitable purposes.
• Many Depression-era Americans died, leaving large sums to their heirs and to family foundations.
• A spate of corporate mergers and acquisitions and public stock offerings that intensified in 2004 left many people with large amounts of cash or stock that they put into private foundations because they were not sure which charities should get the money.

People often make gifts to foundations when they get large infusions of cash or stock from the sale of a business.

At the end of last year, billions of dollars changed hands as many corporations went public, merged, or were acquired, says Milledge A. Hart, president of Pagemill Partners, in Palo Alto, Calif., a company that has handled about $1-billion in mergers and acquisitions.

Mr. Hart says that mergers and acquisitions have continued to occur at a rapid pace this year, across a range of industries — from telecommunications to high technology to retail.

Those transactions have sparked a renewed interest in foundation giving, he says, as people who have sold their companies often see foundations as an ideal way to get a charitable tax deduction while still overseeing how their money gets distributed.

“People don’t want to just stroke a check to their university or favorite charity anymore — they want more control,” Mr. Hart says. “Moving money from a sale of their business into a foundation helps facilitate that.”

$1-Billion in Assets

Foundation Source, a company in Fairfield, Conn., that helps donors establish and manage foundations, says its business has grown fast in the past two years in part because of the pace of corporate mergers and acquisitions.

At the end of 2003, the 50 private foundations the company oversaw had $20-million in assets; by this spring, Foundation Source’s 350 clients had about $1-billion in assets, according to Douglas K. Mellinger, the company’s vice chairman.

About 80 percent of the money that is put into foundations his company oversees comes when people sell their businesses or a large stake in a company — or when someone dies.

As people from the Depression era died last year, many of them made sizable gifts to their foundations, says Melissa A. Berman, president of Rockefeller Philanthropy Advisors, in New York, which helps foundations manage their grant making.

“People from the World War II generation were great savers and very conservative asset builders,” she says. “Many of them are leaving significant money behind, and that is helping to enlarge the family foundation beyond something that might just handle personal philanthropic commitments to something involving the whole family.”

One thing that might also help more money get directed into private foundations in coming years: parents’ changing attitudes about how much of their wealth they want to pass down to their children and grandchildren, says Al Mueller, president of Excellence in Giving, a philanthropic advisory company in Colorado Springs that works with about a dozen families.

“There has been a lot of rethinking in the past few years about how much of an inheritance kids are going to get,” Mr. Mueller says. “A lot of my clients are saying that kids should have enough to do something but not enough to do nothing.”

Adds Mr. Mueller: “If you rule out giving most of your money to your kids, as many people are, then foundations and community foundations and donor-advised funds are the beneficiaries of that thinking.”