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By now you must have heard that Mark Zuckerberg along with his wife Priscilla Chan has pledged to give away 99% of his estimated USD45 billion in Facebook stock to charity. Basically, Mark is giving away enough money to fund one of the world’s biggest charities for the next 45 years. Instead, he is funding his own. Here’s how:
The vehicle for his beneficence will be the Chan Zuckerberg Initiative LLC, a family-run foundation that he controls and through which he will maintain control of Facebook for “the foreseeable future.
Which basically means:
Mark Zuckerberg will transfer ownership of his Facebook stock without paying capital gains taxes. He will also benefit from the possibility that his foundation will live beyond him, with his heirs and their heirs at the helm, untouched by estate taxes.
A Facebook PR, while confirming to BuzzFeed News, said that the initiative is structured as an LLC, and not as a charitable trust
Which means that unlike a charitable trust, which is compelled to spend its money on charity, Chan Zuckerberg Initiative, LLC will be able to spend its money on whatever it wants, including private, profit-generating investment.
While charity will certainly be one of the money’s destinations, it will be far from the only one. The money, according to a Facebook SEC filing, will go to “philanthropic, public advocacy, and other activities for the public good.”
One such activity: private investment. A Facebook release this afternoon stated as much.
“The Chan Zuckerberg Initiative will pursue its mission by funding non-profit organizations, making private investments and participating in policy debates, in each case with the goal of generating positive impact in areas of great need,” it said. “Any profits from investments in companies will be used to fund additional work to advance the mission.
One more thing about his pledge:
The Facebook founder is not giving away 99% of his Facebook shares all at once. He will be doing it over the course of the rest of his life.
Also, Michael Maiello points out in this Daily Beast piece:
Mark will deduct the fair value of his gift to his foundation from his taxable income in the year he makes the donation. A donor like Mark could realize a tax benefit equal to about one-third of the value of his gift. In this case, he stands to benefit as much as USD333 million, based on the USD1 billion he plans as his first transfer.
Rather than give to existing nonprofits, Mark is doing what other business leaders have recently done. Increasingly siphoning their fortune into their own organisations and this can be problematic.
Alexander C. Kaufman of The Huffington Post explains how:
The desire for control leaves the massive pool of money set aside for charities — about $358 billion in the U.S. last year — divvied between the roughly 1.5 million nonprofits registered in this country. Creating a new organization every time a company or wealthy individual wants to foster change only shrinks the available slices of that pie.
“Just because you were successful in the for-profit world doesn’t mean that nonprofits are a bunch of bleeding-heart idiots that need you to come in and show them how it’s done,” Ken Berger, the managing director of the social-good data service Algorhythm, told The Huffington Post in October. He previously ran the nonprofit watchdog Charity Navigator. “We have one of the most complex and sophisticated nonprofit sectors ever seen. Partnering with others is the best approach.”
To sum up, his money is not going to a charity, but to his own LLC, which will let him evade tax by moving his private assets into a foundation. See, Zuckerberg doesn’t need massive tax benefits to do whatever he wants. He can just do whatever he wants.
But he will get those tax benefits and estate planning benefits and he will be able to give up his stock while holding onto power over his company.
As Michael Maiello in his Daily Beast piece reveals, “when we pay people like Zuckerberg to fund their own foundations, we are really helping the rich and coddled few even as we thank and honor them for their charity.”
Additionally, as Anil Dash writes in his Medium piece, it’s necessary to be critical of Mark’s philanthropic efforts, both past and present, to ensure that this pledge of USD45 billion is put to good use.
That is because the default dispensation of the money will be to waste it.
For example, Zuckerberg donated $100 million to Newark schools to almost no effect, in a gift that was revealed to have been explicitly managed by Sheryl Sandberg to be timed to offset the negative publicity surrounding the release of the movie The Social Network.
Given that track record, our default assumption should be that this is a similar move, though obviously this announcement being coupled to the birth of their daughter makes such assumptions seem churlish or rude.