The Other Newman Foundations

As I wrote on Monday, two of Paul Newman’s daughters are suing the Newman’s Own Foundation. Central to their allegations is that the Foundation was supposed to contribute at least $400,000 to each of the daughters’ own foundations, which would allow the daughters to themselves to be philanthropists.

Instead, after Paul Newman’s death, the Foundation allowed the daughters to direct $400,000 of Foundation giving (a number, they allege, that has now been cut and will be cut more in the future). The complaint illustrates one (noncharitable) goal of these types of perpetual foundations, because even without the cuts, though, the directed giving doesn’t comply with all of Paul Newman’s goals:

Rather than empowering Mr. Newman’s daughters to remain actively engaged in philanthropy, as Mr. Newman always required, including by providing for up to $100,000 of market-based compensation for each daughter’s work on behalf of her Daughters’ Foundation, the “Grant Recommendation Program” relegated the daughters to merely making recommendations and affirmatively provided that the daughters “shall not be compensated for their activities on behalf of the Foundation.”

Through helping to fund his daughters’ foundations, then, Paul Newman was inculcating philanthropic ideals in his children, but he was also engaged in estate planning and wealth transfers. While there are limitations on the amount that can be transferred to family members and other insiders through a private foundation, even insiders can be paid market compensation. But in this type of structure—deceased dad’s private foundation makes a contribution to child’s private foundation, which makes charitable distributions but also pays a salary to child.

And this whole set of transfers happens outside of the estate tax system.

Now, my impression is that the wealth transfer portion of the Newman family’s web of private foundations was, while not immaterial, not a significant focus. After all, Paul died in 2008, and, at least according to the complaint, Newman’s Own Foundation quit making distributions to the daughters’ foundations almost immediately. The daughters only objected when it became clear that the amount of control they would exercise over distributions was going to be radically cut.

And that’s further illustrated looking at the Nell Newman Foundation. (I couldn’t find a website for Susan Newman’s foundation, and I can’t find it on Guidestar or ProPublica’s Nonprofit Explorer.) According to the foundation’s Form 990 from 2020, the Nell Newman Foundation received two donations that year: $75,000 from Joanne Newman (Nell’s mother), and $25,000 from Edward Cox. It made almost $400,000 of charitable disbursements and had another $130,000 or so of various administrative and other costs. It did not, however, pay a salary to Nell or to anybody else.

Which is to say both that wealthy people can use their charitable giving as (a limited) part of their estate planning and that just because they can, doesn’t mean it always happens.

Samuel D. Brunson