Adam Lambert and Danny Gokey Aren’t Just Entertainers—They’re Also Philanthropists!

This past Spring, I became engrossed in American Idol. I admit, it was a bit of a guilty pleasure, but the show does have a way of drawing you in because you start to feel like you know the performers as real people - not just as entertainers. Once I was invested in the show, it was hard to stay away. I wanted to see how the competition would play out and find out if my favorite would win - alas, he did not!
 
 During the summer tour, two of the top four contestants, Adam Lambert and Danny Gokey are involved in charitable endeavors while singing to packed stadiums across the country. Adam lent his name to DonorsChoose and asked his fans to stop buying gifts for him, and instead, make gifts to DonorsChoose.org in support of music education programs for children. So far, Adam's fans have contributed almost $100,000. The fan group that contributes the most will be able to participate in a live chat with Adam once the DonorsChoose competition is complete.
 
 At the same time, Danny Gokey continued work on Sophia's Heart Foundation, which was inspired by the untimely death of his wife last summer. Sophia's Heart was created to provide "restoration" to children in need.
 
 Both Adam and Danny are off to a great start with respect to charitable planning. Although neither of them has accumulated substantial wealth yet, it's likely that they both will do so over time - particularly if their albums are successful. They deserve it. When Adam was an unknown in Hollywood, his mother used to send him gift cards so he would have enough money to buy groceries. Talk about "starving artist!"
 
 I'm confident that neither of them is currently thinking about estate tax and transitioning wealth to the next generation in a tax efficient manner, but, at some point, they will need to address these issues.
 
 Because they are charitably inclined, both Adam and Danny will have some great options when it comes to being a force for good in the world and minimizing taxes.
 
 Danny will be able to use his foundation as a means of supporting the kinds of charitable activities he believes in.  Plus, he will be able to make tax-free gifts to the foundation during his life. Adam hasn't created a foundation yet, but he should consider it once he starts to accumulate wealth (and buys that house he wants!). He can use the foundation to support a broad range of music education efforts while enjoying the involvement of his friends and family.
 
 Here are some of the issues you should consider if you would like to establish a private foundation:
 
 1) What is a private foundation?
 
 A private foundation is a distinct legal entity that is created by you and privately funded by you. Other people can also make tax deductible contributions to your foundation. Foundations are created for the specific purpose of contributing to various charitable causes (educational, religious, scientific, etc..) The foundation can be created with a specific purpose in mind (e.g. musical education for underprivileged kids) or it can be used to support a range of charitable activities (e.g. children who need "restoration" in various areas of their lives).
 
 2) What are the tax advantages of setting up a private foundation?
 
 Contributions are tax deductible, not subject to estate tax, and you can avoid capital gains tax on the sale of appreciated property. Neither Adam nor Danny likely has much appreciated property now, but over time, they will and can take advantage of these tax benefits.
 
 3) How can you involve your family?
 
 You can provide continuing employment and activity for your family members while preserving your family name for years to come. Perhaps Leila Lambert, Adam's mother, and Neil Lambert, Adam's brother, could participate? Family members can even serve as employees of the foundation.
 
 4) Who is in control of a private foundation?
 
 Foundations are managed by a trustee or executive directly who oversees the investments and makes charitable distributions. You can even appoint yourself as the trustee of our own foundation. This is a great way to maintain control over assets that would otherwise disappear into a public charity.
 
 5) How much must be distributed from the foundation each year?
 
 Your foundation must distribute at least five percent of its assets each year to public charities. With the current recession, foundations are likely to make only the minimum required distribution each year, but they are free to distribute more than five percent in good years.
 
 6) When is it cost feasible to set up and run a private foundation?
 
 You want to make sure that the foundation is sufficiently funded so that it can cover its operating expenses and can make yearly distributions while growing in value. You will need a lawyer to set up the foundation properly (and apply for non profit status). Fees range from a minimum of $ 7,500 and up depending on complexity (and it can be complex!). Once the foundation is set up, you will need an attorney to provide ongoing legal advice and a CPA to deal with tax issues. In some cases, there might be an employee who works on behalf of the foundation, which will add additional expense. You should be able to fund the foundation with at least several hundred thousand dollars, but over time, it's better if at least several million is available to fund the foundation's activities and expenses.
 
 The most enjoyable part of setting up a family foundation is working with an individual or family as they discern how to use their wealth to make the world a better place and bring their family together. The process makes it all worthwhile, and it doesn't necessarily require a lot of money. Some of my favorite clients run a very modest foundation that makes less than $ 10,000 in distributions each year, but they take their young children out in the community to visit various organizations and, together, they decide who will get checks this year. The kids help make the decision! What a great project to do together as a family.
 
 Even though we live in Chicago, we're going to the American Idol concert in Indianapolis, and we're looking forward to it.
 
 I'm sure I won't have a chance to talk directly with Adam (my favorite of Season 8), but I'd sure be willing to assist him when it comes time to set up his foundation.
 
 Just give me a call!