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Wednesday, February 25, 2009

Helmsley's Dogs

I know I shouldn't keep slinging mud at the dead, but sometimes the dead have done something so remarkable that they leave their legacy --- be it good or bad --- for all the world to see well beyond their time on this earth. Such is the case of Leona Helmsley. She was dubbed "the queen of mean" for the way she treated her staff. She spent time in jail for tax evasion, and became noted for her quote, "Only the little people pay taxes." By all measures, the woman was a wretched example of mankind. This was true even in her death as her will was read and she inflicted more pain on her grandchildren for their failures to meet her expectations of them.

But I think most of the world has missed what may be one of Mrs. Helmsley's most remarkable feats in her death. That would be the money for her dogs. Leona's will had a few curious provisions. One was money to insure that her mausoleum would be power washed every year. Another was "child support" for her dog to the tune of several million per year. But her final provision --- for the bulk of her financial estate --- was to benefit dogs in general.

Leona Helmsley left the bulk of her estate, about US$ 8 Billion, to her personal foundation for the benefit of dogs. That's right. She directed her attorneys to spend, after her death, $8 Billion for the benefit of dogs everywhere. Today, I'd like to help you understand what that really looks like. After all, $8 Billion is a lot of money!

The U.S. federal government has some rules for charitable foundations. One of the key rules is that, in order to maintain their tax exempt status, they must disburse a certain percentage of their financial assets each year. It has been 5%, and is expected to rise to 7%. So that would mean that Mrs. Helmsley's foundation must disburse this percentage of its total net worth each year in order to avoid having any of it or the money it earns taxed.

So I built a simple spreadsheet. I started with the $8 Billion, and assumed that it will earn a flat 5% rate of interest for as long as it lasts. Then I added the interest income each year to allow the endowment to grow. Finally, I figured annual disbursements from the endowment at 7% of each year's endowment balance --- and subtracted that from the endowment to shrink it. Of course, over time, the endowment shrinks because each year it is spending more on dogs than it earns in interest income. Let's see how that looks.

In the first year (2008) the foundation would have disbursed $588 Million for the benefit of dogs everywhere. The annual amount starts to decline, of course, and it declines every year. However, by the year 2262 ... over 250 years later, it still disburses $1.4 Million for the benefit of dogs everywhere. In fact, a foundation set up with these metrics would not be completely paid out until the year 2772 --- more than 700 years after good ole Leona's death! During that time, it will have earned hundreds of million in interest ... all of it tax free.

Of course, the Helmsley foundation could disburse the money faster. But at current IRS guidelines, it would be allowed to take more than 700 years to spend this money --- on dogs.

We could spend at least one other blog talking about how the money will be spent. There are some worthwhile ways to spend this money that could benefit society in general. For example, the Helmsley foundation could build dog parks all over the world. Or they could pay for spay and neuter clinics in cities around the world where dog populations have produced a dearth of uncared for dogs (which would include every major city in America). The Helmsley money could raise and train seeing eye dogs for use by blind people. They could pay for rescue shelters and the workers that work to rescue dogs and find them good homes. They could provide free health care for the pets of the poor and elderly.

On the other hand, the Helmsley foundation could pay for all the poodles in America to get their nails done and painted bright red every week. Or they could build for-profit doggie spas. They could build an airline for dogs to be flown around the world when their owners travel. You get the point here? Under current IRS regulations, there is little to ensure that the money is spent on anything worthwhile. Indeed, all of the Helmsley billions could in fact be squandered.

Only time will tell whether or not the Helmsley money will actually benefit society in general and make the world a better place. But if I ever decide to leave billions to the dogs (literally), I think I shall stipulate how that money should be spent. After all, I'd like my legacy beyond the grave to benefit all of mankind. It's a pity that Leona wasn't more like me!

1 comment:

  1. It sure is a pity that she wasn't more like you or she would have truely made this world an even better place than you already Do, Dad!