Facebook (News - Alert) founder Mark Zuckerberg has pledged to donate 99 percent of his Facebook shares – currently worth $45 billion – before his death. The generous announcement comes immediately after the birth of his first daughter, Max.
Both Zuckerberg and his wife Priscilla Chan have signed ‘The Giving Pledge,’ an initiative spearheaded by Bill Gates (News - Alert) and Warren Buffet. The Giving Pledge asks the world’s wealthiest individuals to pledge at least half of their wealth (although the portion is usually 99 percent) to philanthropy after their death. Most members give to the Bill and Melinda Gates Foundation, although Zuckerberg and Chan have incorporated their own LLC through which to funnel donations.
Zuckerberg has explained his generosity as an investment in both the future and his daughter. In an open letter to his daughter, Zuckerberg wrote, “As you begin the next generation of the Chan Zuckerberg family, we also begin the Chan Zuckerberg Initiative to join people across the world to advance human potential and promote equality for all children in the next generation. Our initial areas of focus will be personalized learning, curing disease, connecting people and building strong communities.”
Not to look a gift stock in the mouth, but you may wonder why Zuckerberg is donating shares of his company, rather than cash. You’ll find the answer in our enormously complicated tax code. Most of Zuckerberg’s wealth is in stock, so if he were to sell the stock and then donate the cash, he’d pay a significant tax in the initial sale. By donating the stock to a tax-exempt charity organization, the charity won’t have to pay that sales tax. So the stock will essentially be stewarded by Zuckerberg until it’s gifted to a charitable organization, only ever taxed as part of Zuckerberg’s capital gains.
Furthermore, the donations Zuckerberg makes can then be used as deductions on his yearly taxes. By donating shares of stock, rather than cash, Zuckerberg can file a tax deduction based on the fair market value of the donated stock, rather than his initial investment or a sale. That deduction can then float other income Zuckerberg reports in the year of the donation.
Now, that doesn’t mean Zuckerberg is donating this enormous amount of wealth for tax purposes. Those tax benefits exist to incentivize giving. It’s just an interesting, shrewd facet of overwhelming altruism.