One of the key hopes for most people setting up an estate plan is to leave a legacy behind. It is embarrassing and hurtful for people to see that legacy sullied by a charitable organization that squanders or misuses the gifts left to it. Too many charities these days pay themselves or their executives much more than they give to their purported beneficiaries — if they benefit the people they claim to help at all.
Earlier this month, the Tampa Bay Times, in conjunction with the Center for Investigative Reporting, produced a list of America's 50 worst charities. The report provides a lot of insight into the tricks some charities play to hide their true nature, and what to look for in a charity to make sure it's reputable.
Here are some of the tricks these charities use:
- Much of their money goes to huge salaries for their executives or other insiders. The report cited one cancer charity that paid its CEO an annual salary of $18 million a year. Another medical charity issued its biggest grant to a company owned by the charity's president.
- Others earmark just a tiny portion of their proceeds to the charities they support. Among the 50 bottom charities the report cited, just 4 percent of their donated money, on average, was devoted to direct cash aid. One charity, the Committee for Missing Children, paid 90 percent of the $27 million it's raised over the past decade to telemarketers raising money for the charity; it paid out just $21,000 a year.
- They try to imitate other, better-known charities in the hopes of confusing people. A charity called Kids Wish claims to provide similar services to the Make-a-Wish Foundation, which grants wishes for terminally ill children. Kids Wish raised $18.6 million last year, much of it through telemarketing, and spent just $240,000 on the kids it was supposed to help. Make-a-Wish — which never uses telemarketers — raised just $3.1 million last year, but spent $1.8 million on helping children.
Nonprofit organizations need to be transparent about how they raise and spend their money, so it's not hard to find out on your clients' behalf how their legacy will be spent. Any charity your clients are considering for a donation should be willing to provide you with a detailed breakdown of spending and tell you how much of the donation will go to fundraisers as opposed to beneficiaries.
Most charities will have goals that are concrete and measurable. Vague promises like "raising awareness" could mean just about anything and cost next to nothing. If your clients want to give generous gifts, you should be able to determine exactly what they're getting for that money. If a charity claims to raise money for a local children's hospital, for example, you could call up the hospital and verify how much it's been getting from that charity.
There are several online resources for vetting charities. Guidestar.org can be exceptionally valuable from a financial standpoint because it houses IRS Form 990s for thousands of charities. It also offers tips for investigating charitable organizations on your own.
Another valuable resource is Charitywatch.org. This website reports on the amounts that hundreds of charities spend on their flagship programs as well as how they raise their money. It might be worth investing in a $50 membership to receive the site's rating guide, which is published three times a year and contains much more information than is available on the site.
