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Thursday, September 06, 2007

Leona Helmsley's Legacy

She died last month, a woman of mystery and legend. Unfortunately, those were not positives for her. Her mystery was really about the truth that most suspected was ugly ... and never known. Her legend was of mean, and greed. Again, not really honorable words for someone. When Leona Helmsley died, estimates of her net worth range from US$4 billion to US$8 billion. It's a sizable sum of money.

The news reports caught us all aghast as Mrs. Helmsley left $12 million to her dog. Our hearts broke when we found she left nothing to two of her grandchildren, supposedly because they refused to name their own children after her late husband. Again, a thirst for the truth starts to arouse in us. But that truth will be elusive. We may never really know what kind of person Leona Helmsley really was.

News reports in the philanthropic world are talking about what a generous gal she was. Her will bequeaths the bulk of her estate, nearly $8 billion, to a philanthropic trust named after she and her late husband, Harry. A couple of hospitals have volunteered that she gave them generous donations. They call her generous because she gave $10 million to one hospital. Is that what generous looks like when one has $8 billion? Again, a thirst for the truth starts to arouse in us. But that truth will also be elusive, at least for a while. It will take time to ever find out how truly generous Mrs. Helmsley was.

According to the New York Daily News, Helmsley's bequest to the trust named after she and her husband will bring the trust into the ranks of the top ten in the world. ( The Helmsley Trust will rank 7th, sharing the limelight with the likes names like Gates, Getty, Carnegie, Hewlett, Packard, Mellon and Ford.

But we need to clarify what Leona has done here. The Helmsley Trust will be in this good company when it comes to asset size. It noticeably lacks the intent and presence that these other foundations have. For example, among these top ten, the Helmsley Trust is the only one not to have a web site.

So I'd like to tap into Mrs. Helmsley's generosity, by applying for a grant from her philanthropic trust. Does anyone know how to do that? Actually, no. There are no published grant guidelines from this organization. It has no published agenda. It has no declared interests or causes to support. In fact, it has yet to accomplish much at all. For the record, we know that Leona actually gave more money privately than she did through the Helmsley Trust. So what were her intentions? How will all this money be disbursed?

One thing to consider when looking at what wealthy people do with their money is the IRS guidelines. Non-profit foundations and trusts have a tax exempt status. That means that funds can be dumped into these organizations tax free. They are charitable tax deductions. So often rich people have a tax incentive to put money there, even if they don't yet know what to do with it. In fact, they do. Billions of dollars have been pouring into private foundations (usually named after their founder) and charitable trusts (often known as "donor advised funds").

The problem with all this charity is that the money sits in these organizations without actually helping anybody. So just because a rich person gave a billion dollars to his charitable foundation doesn't mean that anybody actually benefited from that charity. Here's where the stated intent, the declared causes, the grant guidelines and other matters become important. The IRS guidelines require that such organizations, in order to maintain their tax-exempt status, disburse at least 5% of their total assets each year.

So that billion dollars that was donated to charity? Only 5% of it has to go to any charitable cause this year. The rest will sit in the bank or other investments, earning interest as an endowment. It can grow year by year, and the same 5% rule applies every year. So next year, it might earn 12%, and only disburse 5% to the needy, to the arts, to whatever. Do you think that makes the original donor generous?

Because Leona Helmsley dumped all of her money into the Helmsley Trust, and didn't provide a stated intent in her will, it is legally up to the trustees to decide how --- and when to disburse this money to charitable causes. So who are these people? Perhaps if we can get a look at them it will help us understand Leona's heart and what she intended. Oh dear though, look at the IRS Form 990 that non-profits are required to file every year. It indicates that Leona herself is the only officer of the organization!
( It appears that the courts will have to appoint new trustees or officers to take over the Helmsley wealth.

I will never purport to judge Leona Helmsley, or her late husband, Harry. I don't know their hearts. But it seems to me that if they were truly generous people, they might have been more intentional about donating to charity. Naming a trust after themselves with no stated causes or purpose, pretty much ensures that it will operate by what's required --- and nothing more. The court-appointed trustee(s) will invest the funds as judiciously as possible. With any luck, they will easily earn more than 5% annually. The IRS will require that a minimum of 5% of the assets of the trust be disbursed each year. So the trustees will do that.

Theoretically, this trust, in the name of Leona and Harry, could live forever. In fact, 100 years from now, it could easily grow to more than twice its current size. And because it has no defined mission to "save the world," it might easily hold onto its cash forever, and thereby outlast its peers, the Gates', Hewletts, Packards, Fords, Mellons, Kelloggs, and others.

Leona Helmsley, somehow, I wonder if you may have mistaken a massive amount of wealth sitting here on earth in your name for a legacy. So while children are starving in Africa, and global warming is destroying us, and diseases cannot be cured, and children have no homes, and the world is lost --- your legacy will live on --- a giant bank account that does little to benefit anyone but yourself. I can only hope that the world has misunderstood you and that the best is yet to come of your legacy.

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