Charitable Trusts About Power and Control, not Charity

by James on October 28, 2013 · 4 comments

Hi All,

The world is full of misconceptions about money and class.  One particular misconception that a lot of people don’t understand is the role of charitable trusts in maintaining wealth and power.

Charitable trusts are basically a way for the wealthy to retain control of business ownership without the tax man getting involved. When a large fortune is made, such as the Ford, Walton or Buffet dynasties, founding members often create charitable trusts and place their heirs in trustee other controlling positions on the charity to keep an eye on voting and dividend allocations.  This is key because large corporations pretty much own the economy by holding controlling interests in other corporations.  Once you’ve got that controlling position, you’re not going to want to give it up to the tax man when you pass away.  You’re going to keep it in the family by having your lawyers start a trust, transferring your shares into the trust and then assigning your heirs to watch the cash.

Don’t believe me? Think about it.  Relative to the amount of wealth controlled by these organizations the amount paid out by many major trusts is very, very low. Why? If the organization is devoted to helping poor people or doing good, why don’t they give away all their money?

gates-buffett-charity

The answer is primarily because they’re not about helping poor people. Charitable trusts really aren’t about charity, that’s just a public relations cover. Charitable trusts are about control of major blocks of stock ownership and efficient tax avoidance.  In short, their primary purpose is power and control. Any charitable activity that happens is often a second thought.



{ 4 comments… read them below or add one }

1 Dillon October 29, 2013 at 10:43 am

So do they still get income off the trusts? and if so is it taxed at the capital gains rate instead of income tax rate? And if it is taxed at the capital gains rate, how can I get paid through a trust instead of payroll?

2 dojo October 29, 2013 at 1:55 pm

I always thought that most of the time, if I really want to help a cause, I can do it without the ‘middleman’. I’m sure we can all find some poor people or sick people to help, we don’t need to just ‘feed’ these trusts

3 James October 29, 2013 at 9:01 pm

Dillon,

Yes. Income can be paid out of a charitable trust to whoever the trust designates to receive the funds. Otherwise, just based on my quick scan of the internet, it looks like the tax laws surrounding trusts are very complicated. That said, I was able to find one resource that might be a good first starting place

http://www.heritagewealthmgrs.com/wp/Income%20Taxation%20of%20Trusts%20&%20Estates.pdf

Good luck!

4 James October 29, 2013 at 9:11 pm

Dojo,

Thanks again for stopping by. In general, I think its important that people realize how wealth is attained and managed in the U.S. If the public wants financial security, or a fair and equitable financial system its important for the public to understand how these things work.

Thanks,

James

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