They are forgoing vacation homes, early retirement and college saving plans. Sally Beatty on the increasing number of ‘stretch’ givers who donate out of proportion to their wealth.
By SALLY BEATTY
July 6, 2007; Page W1
For 37 years, Nobuko Kajitani worked as a textile conservator at New York’s Metropolitan Museum of Art. She lived modestly, shunning restaurants, walking to work and recycling shopping bags and wrapping paper.
James Doty gave $29 million to charity, about 99% of his net worth.
Ms. Kajitani retired in 2003. Two years later, she stunned Manhattan’s Asian Cultural Council by pledging a $1 million gift to the nonprofit arts group, which decades earlier had aided her textile-preservation work with $8,000 in grants. Her gift represents the bulk of the 72-year-old’s net worth.
Big gifts by big donors get the most attention. Led by Warren Buffett’s $31 billion pledge to the foundation of his friend Bill Gates, last year American billionaires and multimillionaires made 21 gifts of $100 million or more. While extraordinarily generous, most of these gifts hardly dented their donors’ lifestyles. But nonprofits say they are receiving an increasing number of “stretch” gifts, donations seemingly out of proportion to the givers’ resources. To the shock or chagrin of friends and family, these gifts often require donors to make sacrifices or at least live more modestly than their income would allow.
There have always been examples of exceptional gifts by supposedly ordinary people — such as Oseola McCarty, the elderly washerwoman who in 1995 gave $150,000 to the University of Southern Mississippi for scholarships. But now, according to nonprofits, such donors are getting younger, their gifts seem to be occurring more frequently and the dollars involved are growing exponentially.
CARE USA, the humanitarian relief group, now gets more than 10 gifts a year from donors who are “stretching,” up from around five annually a decade ago, says Deb Neuman, senior vice president of external relations. (CARE and other organizations say they categorize people as stretch givers based on financial discussions with them.) Such gifts to the American Baptist Foundation in Valley Forge, Pa., roughly doubled last year over the prior year, says foundation president John Jacobs. The United Way of Greater Kansas City received more than five stretch gifts last year, up from one or two a year four years ago, says Beth Burkes, vice president of major gifts and planned giving. “Years ago we didn’t see so much of this kind of thing, but that may be because we weren’t asking people to stretch so hard,” Ms. Burkes says. “Now we are more open to asking.”
‘I Don’t Need More Stuff’
One factor boosting these gifts: The Pension Protection Act of 2006 allows people 70½ years of age and older to make tax-free donations of up to $100,000 directly from Individual Retirement Accounts, opening up a new pool of funds to be donated. Another factor is the runup in stock and real-estate prices in recent years, which has left many people with more wealth than they had expected. (Ms. Kajitani plans to sell her Manhattan apartment to help make her gift possible.) Other stretch givers are self-made businesspeople. Few inherited their wealth.
Joyce Hergenhan, 65, recently gave $1 million to convert an old firehouse in her hometown of Armonk, N.Y., into a community recreation center named after her parents. The retired General Electric executive lives alone in a modest ranch house in Fairfield, Conn. Her greatest extravagance is courtside season tickets to basketball games at her alma mater, Syracuse University. Her simple tastes have allowed her to give or pledge more than $3 million to Syracuse, including $2 million to build a new basketball gym. In all, Ms. Hergenhan has made gifts and pledges of $8 million to various charities with which she has a close relationship.
Joyce Hergenhan gave $1 million to turn a firehouse into a community center.
Ms. Hergenhan, whose father earned about $6,500 a year as the Armonk police chief, made her money by exercising hundreds of thousands of stock options issued to her by GE, where she ran corporate public relations before retiring in 2004 after 22 years with the company. Careful retirement planning, including socking away the maximum allowed under GE’s company-matching plans and deferring compensation, means she will have enough to cover her retirement needs. While she declines to disclose her net worth she says, “Let’s just say I won’t be eating dog food.”
Friends with second homes in Florida and the Carolinas urged her to use her wealth to buy a vacation spread, but Ms. Hergenhan says she’s not interested. “I tell them, ‘Look, if I want to spend a week down there I’ll come and visit you,’ ” she says. “I just don’t want to be worrying about a piece of property 1,200 miles away that I might use two or three times a year. I don’t need more stuff.”
People who follow philanthropy say donors like Ms. Hergenhan and Ms. Kajitani set examples that extend far beyond the gifts they make, simply by causing those around them, including children, family members and friends, to at least reconsider how much they give and how they might feel if they gave more.
“Most people give what they can give without it affecting them,” says Jim Boeheim, head basketball coach at Syracuse. “I am probably very guilty of that myself. The significance of Joyce’s gift is that it is definitely something that she will feel the impact of.”
Academics who study wealth say more aging Baby Boomers are choosing charity to add meaning to their lives — and to get a buzz that lasts longer than the kick that comes from splurging on a designer watch or expensive car.
Arthur C. Brooks argues in his book “Who Really Cares,” which identifies the forces behind American charity, that people who give in a way that pinches are happier and, surprisingly, end up wealthier. According to Mr. Brooks’s analysis, a dollar donated to charity led to $3.75 in extra income for the donor in 2000. “They often create great discomfort among their families, but when people give there is substantial personal transformation,” says Mr. Brooks, an economist and professor of public administration at Syracuse University’s Maxwell School. “They tend to work harder,” leading to greater prosperity, and in the long run, he says, “this leads to more success, both financial and nonfinancial.”
The changed rules about donating from IRAs provided by the Pension Protection Act of 2006 also helped. Over the last eight months, Save the Children has received half a dozen of what it calls “dramatically increased gifts” that it credits to the legislation, including $10,000 from a donor who had previously given an average of $1,000 annually. The tax-code provision is set to expire in December, though charities are pushing proposals to extend it.
Financial planners are also promoting other ways for donors to leverage their philanthropy. Clinton Schroeder, a lawyer with Gray Plant Mooty in Minneapolis, recalls one client, a schoolteacher, who used charitable gift annuities to donate roughly $350,000 to a Catholic college. Over 20 years she purchased up to 15 annuities in amounts ranging from $10,000 to $40,000. “She took a great deal of satisfaction from it,” he says.
Joe Engle grew up in a small Ohio town and went to Ohio State University because his family couldn’t afford to send him anywhere else. After college, Mr. Engle founded a manufacturers’ representative firm, and later co-founded a manufacturing company. But he made much of his money in what he calls “lucky” real estate and investment calls.
Mr. Engle, now 85, and his wife, Elizabeth, say their will dictates that nearly all their assets be given to charity. So far, they have given roughly $25 million in cash and pledges, including $8.7 million to the Princeton Theological Seminary and $10 million to help needy students attend his alma mater.
Early on, they let their only offspring — Mrs. Engle’s son from her first marriage — know that they don’t believe in inherited wealth. “We’ve seen it ruin so many nice families,” says Mrs. Engle. Mrs. Engle’s son, Graham Barr, says that was never a problem for him. “I’ve never been particularly interested in or involved with their financial situation,” says Dr. Barr, a medical researcher and father of two. “If you start thinking about that when you are 5 or 10 or 15 or 20,” he adds, “you’ll probably end up having a pretty unhappy or unfulfilling life.”
Today, the Engles say their biggest extravagance is their sole residence, a four-bedroom condominium in a prime Manhattan neighborhood. “There is no such thing as a self-made man,” says Mr. Engle. “You are given certain talents, a good memory or ambition or perseverance, and it behooves you to pay it back.”
Childhood Influences
Stretch donors often are influenced by the giving and spending patterns they witnessed when younger, says Patrick Rooney, director of research at the Center on Philanthropy at Indiana University. Mr. Engle, for instance, says he learned about 35 years ago that his father, then retired, was giving his church an amount that seemed surprisingly high given his income. Ms. Kajatani grew up in wartime Japan, where thrift was required by circumstance as well as custom. Ms. Hergenhan’s mother, a daughter of Hungarian immigrants whose family picked sugar beets in rural Michigan, had little money but gave generously of her time, including volunteer work for the Girl Scouts, the Methodist church and the local library and historical society. Well into her 80s, Ms. Hergenhan recalls, her mother used to take elderly friends who lacked drivers licenses grocery shopping.
James Doty is giving to an HIV/AIDS program named for his brother, who died of AIDS.
Not all family members are thrilled by these stretch gifts, however. Neurosurgeon James Doty recently gave stock currently valued at about $28 million to charity — a gift that represents about 99% of his net worth. As a result, instead of retiring early Dr. Doty will have to save money to put his 3-year-old son, Sebastian, through college, and to fund retirement.
“I would have kept at least some of it for us,” says Dr. Doty’s wife, Masha Zhdanovich Doty. Though she sends money every month to relatives in the former Soviet Union — “I believe in charity, especially in helping people directly” — she wasn’t completely supportive of her husband’s giving. At ages 39 and 51 respectively, she and Dr. Doty need to plan carefully for the future of their young family, she says.
Dr. Doty, who lives in Pass Christian, Miss., didn’t set out to make such a large gift. In 2000, investments he’d made in several medical-technology companies looked like they were about to pay off, and on paper, Dr. Doty says, he was about to be worth close to $75 million. An accountant advised him to create an irrevocable charitable trust, earmarking certain holdings for charity to reduce his taxes. So he allocated 1,295,200 shares in Accuray, a medical technology company he once ran, to the trust and informed a group of charities — including Stanford University’s neurosurgery department, Family Children Services of San Jose, Calif., and the relief organization Global Healing — that they would get the gifts.
But shortly after drawing up the paperwork, the dot-com boom went bust. Dr. Doty’s paper riches vanished and he was left with just one viable investment: Accuray. In Feburary, Accuray went public, and Dr. Doty’s holdings were suddenly worth $37.5 million. (The stock price has since fallen.)
Before he committed to making the gifts Dr. Doty surveyed his friends and family. “The vast, vast majority said I was an idiot” to give away so much, he says. But in the end, “I just felt I had a moral obligation to do it.”
His gift of shares to Family Children Services will help pay for an HIV/AIDS program named after his brother, R. Edward Doty, who died of AIDS in 1993. “I am the luckiest guy in the world,” says Dr. Doty. “I have a very good profession, and I do something that is honorable.” Of his gifts he says, “I’m just thankful I had the opportunity to do it.”
Write to Sally Beatty at [email protected]1