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Royal Law Firm PLLC

Royal Law Firm PLLC

The Tried and True Strategy of Musk Foundation: This Is No Tesla

The Tried and True Strategy of Musk Foundation: This Is No Tesla

The last quarter of the year usually shows an uptick in charitable giving – one of the reasons being the need to maximize the deductions for the tax year before it ends. When it comes to the wealthy, more sophisticated strategies show similar focus on tax savings through philanthropy. Even a little giving goes a long way for the donor and the charities.

The Musk Foundation has been spotlighted in the news lately as Elon Musk’s tax haven. “Tax haven,” especially in the charitable arena, is not a sour term. Foundations and Donor Advised Funds, as well as charitable trusts are oftentimes an incentive for the wealthy to be generous where they may not have been otherwise. The Musk Foundation certain seems to fit the profile nicely – it fosters giving to organizations and causes that would benefit Musk’s for-profit businesses strategically and also provides a significant offset on taxable income.

The Musk Foundation’s sole founder is Elon Musk. As is required by most state laws, someone other than him – in this case, his brother, is the Foundation’s secretary, treasurer, and board director. To further prevent IRS scrutiny, neither of them collect a salary from the Foundation. To date, the Musk Foundation has donated over $260 Million – most of it attributed to Tesla stock donated by Elon Musk. In other words, Elon Musk has legally and presumably, gladly, reduced his taxable income/assets by over $200 million. In addition to the tax savings, many of the grants given by the Musk Foundation have been through or to financial institutions managing the Foundation. The Foundation has given away over $65 Million in grants, or a little over the 5% required to stay under the IRS radar and prevent the 30% excise tax on undistributed income (see IRC 4942). The amount of charity in any given year may seem small to most who do not engage in sophisticated charitable planning – but even at the under 5% distributions, $65 Million is vastly more than most would contribute in their lifetimes to any single cause – here the Musk Foundation has focused on contributing to established programs in Education, Healthcare, Space, and Environment Primarily.

To most tax advisors’ relief, the Foundation appears to be a classic structure – operating well within legal parameters while offering significant tax savings to its founder, Elon Musk. Seems when it comes to tax strategy, Musk does not seek to innovate. Philanthropy through charitable planning has long been the primary giving vehicle for the wealthy because it fosters charitable endeavors, whether for the sake of giving, or for tax savings.

Some of the most common vehicles used for giving are Foundations and Donor Advised Funds (DAF). Both have their benefits and detriments. DAFs tends to offer more privacy allowing for anonymous grants and confidential donors, whereas Foundation information is more transparent. Depending on the strategic goals desired, the selection of the correct structure will vary. Additionally, a Foundation can also provide funds to or through DAFs incorporating elements of both, as the Musk Foundation does. A classic way to preserve inter-generational wealth incorporates the use of charitable trusts, Private Foundations, and DAFs with varying relationships between all of them. Private Foundations are allowed to fund through DAFs and Charitable Remainder Trusts can leave remainders to Private Foundations (although tax benefits may be reduced due to allocation limitations). Regardless, for the philanthropically inclined, charitable donations, especially those structured effectively through one or more of these vehicles can be an excellent strategy to achieve charitable goals while reducing the donor’s individual tax burden and preserve inter-generational wealth.

To learn more about effective strategies for giving and also reduce your tax burden, through income and estate tax planning, contact the Royal Law Firm PLLC.