By now you’ve heard that Mark Zuckerberg and Priscilla Chan are donating 99 percent of their Facebook shares — currently worth more than $45 billion — to charity, or at least that’s how the story has been reported. Yet that is not what they did at all. (And it’s quite surprising that respected publications like the New York Times and Forbes would get it so wrong with both publications touting Zuckerberg and Chan for their hefty “donation to charity.”)
There’s no charity happening here. And there’s nothing that says Mark and Priscilla are donating 99% of their Facebook stock to charity, ever. To a mission, yes. But to a charity? No.
In an open letter to their daughter, Mark and Priscilla said they would give away 99% of their FB stock over their lifetime to advance the mission of the Chan Zuckerberg Initiative LLC.
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.
An SEC filing on the same day said that Zuckerberg would sell or gift no more than $1B of FB stock each year for the next three years.
On December 1, 2015, our Founder, Chairman and CEO, Mark Zuckerberg, announced that, during his lifetime, he will gift or otherwise direct substantially all of his shares of Facebook stock, or the net after-tax proceeds from sales of such shares, to further the mission of advancing human potential and promoting equality by means of philanthropic, public advocacy, and other activities for the public good. For this purpose, Mr. Zuckerberg has established a new entity, the Chan Zuckerberg Initiative, LLC, and he will control the voting and disposition of any shares held by such entity. He has informed us that he plans to sell or gift no more than $1 billion of Facebook stock each year for the next three years and that he intends to retain his majority voting position in our stock for the foreseeable future.
Somehow, the media read these two events as Zuckerberg giving 99% of his FB stock to charity, but that’s not what’s happening. Still, It does appear that Mark and Priscilla have the best intentions, even if they are not receiving the best advice. They want to put their Facebook fortune to work solving the two world problems they deem most important — advancing human potential and promoting equality.
But they have not given away their money at this time; they “might” sell or gift up to $3 billion of Facebook stock over the next three years to do it. But they have not legally obligated themselves to do that.
Many have claimed that they did it for tax purposes, but the reality is that the structure Zuckerberg and Chan used won’t provide any tax benefits at all, unless and until the LLC donates Facebook shares to charity later on.
So, what could Mark and Priscilla have done instead?
According to nationally-known estate and asset protection attorney, Steve Oshins:
“They should create different types of asset protection trusts. What if there was a class action against them for violating a billion people’s privacy rights, for example?”
In a case like that, Zuckerberg and Chan could lose everything, including the assets of the Chan Zuckerberg Initiative, which do not appear to have been structured with any asset protection in mind.
Or, what if Mark and Priscilla die young, unexpectedly and everything goes outright to their child? Once she turns 18, the initiative and all the money in it plus all of their other assets would be hers, without restriction, and would not be protected from lawsuits, divorce or a future bankruptcy. Everything they’ve worked so hard to create could be lost.
Ideally, Zuckerberg and Chan would have a trusted adviser to guide them in understanding how best to structure their resources for maximum impact as well as to educate future generations to keep growing the assets and maintain their positive contribution to the world, rather than squandering them as many children of the ultra-wealthy do. Every culture has the saying akin to “shirtsleeves to shirtsleeves in three generations”, or “clogs to clogs in three generations”, and so on .. ” and there’s a good reason why.
Oshins said “Many of these young billionaires don’t have top estate planning and creditor protection attorneys. That is why we often see them lacking these types of vehicles.” i.e. vehicles that maximize asset protection and the wise stewardship of money. While the young wealth creators of Silicon Valley clearly desire to make an impact on global issues, they may not be thinking long term enough. Using business lawyers to structure matters of family wealth is a common error and may mean their resources are not used in a wise manner to achieve their mission beyond their lifetimes.
While Mark and Priscilla can use the Chan Zuckerberg Initiative as a vehicle for educating their daughter about how best to use the resources that will be at her disposal, the questions becomes whether they themselves will they get the guidance they need to do that?
With proper insight Mark and Priscilla have the potential to structure their assets in trusts that can educate not just their daughter, but future generations as well, to not only preserve the family wealth, but to also invest it in the future Mark and Priscilla aspire to create. If not, there’s a chance that their wealth could ultimately go the way of the Vanderbilt family fortune, gone within 200 years, lost to poor investments, weak philanthropy, and aggressive partying.
Two hundred years may seem like too long of a game to consider, but in the context of our lives on this planet, it’s the blink of an eye. Would Cornelius and Billy Vanderbilt, the first two generations who created the Vanderbilt fortune, have done something different had they known how much would be wasted by their progeny?
For many people, it makes sense to consider the long term effects of your wealth and resources. While Zuckerberg and Chan talk in their letter to their daughter about making long term investments over 25, 50 or 100 years, they might consider looking even farther out to 200, 500 or even 1,000 years. It would be catastrophic to have $45 billion squandered in this generation or two simply as a result of poor planning, management and education. If this wealth or any amount of wealth is to have a lasting influence then people must actively plan now to ensure an edifying future.