• Cam Anderson

Solving a donor dilemma - one couple's story

Updated: May 15, 2021

“The rich get richer,” Tom said as he put down the newspaper.

“With the stock market moves since COVID 19, those one percent billionaires are sure making big bucks! I wish we had that kind of money so our legacy donations could do that.”

“No kidding!” Sue replied, “Let’s ask our financial advisor.”

Today was a big day for the married couple. They had been preparing for several weeks to meet with Fred, their financial advisor, about their charitable legacy.

Tom and Sue were conflicted. They had each chosen specific charities within various sectors based on the impact on their personal lives: communities, the arts, education, and health care. The list grew further when they selected causes in memory of struggles family and friends had suffered. Finally, each added more charities that champion the environment and fairness and justice aligned to their values. When they tallied up the total list, there were fifty charities that they wanted to help.

Like Tom and Sue’s parents had done, the bulk of the estate must support the family. Of their estimated five hundred-thousand-dollar estate, eighty percent was the minimum they felt must go to the kids.

Twenty percent for charity means giving a generous one-hundred thousand dollars. Yet for Tom and Sue, that translates to only two-thousand dollars for each of their fifty charities. Two-thousand dollars each is nice but not nearly the amount of money they’d imagined giving as a legacy.

They were thinking more like twenty-thousand dollars per charity, which would make a significant difference and help them feel they had paid back debts of gratitude. Cutting ninety percent off the list seemed the only option. They felt sick at the thought of removing even one and needed some guidance.

Fred met Tom and Sue on his ZOOM service. “Good morning! Are you guys doing well despite these COVID days?”

“Doing fine, staying safe, Fred, but my hair needs help!” said Sue.

“Luckily, I don’t have enough hair to worry about!” said Tom.

“Last time we met, you decided to work up your list of charities for a gift from your estate. How did you make out?”

“Oh, it was a great exercise, but it has taken an awful turn!” said Tom. “We came up with fifty charities that are incredibly meaningful to us both. That was the great part. The awful part is we don’t have the money to make much difference to each one. To give a meaningful gift, we have to cut back to giving to only five charities.”

“Removing even one charity is a heartbreaker,” sighed Sue. “How can we ever eliminate forty-five?”

Fred said, “Hmm, that is a tough situation. Let me ask you, does each charity have the same urgency? If you could give now to a few and much later to the rest, would you consider doing so? By giving much later, I am thinking many years after your estate is settled.”

“Well, there are a lot of years after we are gone, like forever! Just what are you getting at, Fred?” asked Tom.

“I have a solution that considers your wishes and could let you give to all fifty by incorporating the ‘forever’ that happens after you are gone. We call this plan a ‘Super Legacy.’” said Fred.

“You were planning to give one-hundred thousand dollars, right? So, with a Super Legacy, you donate eighty percent now or eighty-thousand dollars. The other twenty-thousand dollars we put into a ‘seed fund’ we manage.

“The seed fund essentially grows forever. It pays out twenty-five percent every twenty-five years to your charities, and after one-hundred and fifty years, the payouts are so huge we switch to fifty percent every fifteen years. The payouts calculated are here on this table.” Fred shared the table on his ZOOM screen. “All the dollar amounts have taken inflation into account, so this is what the funds would be worth today. I’ll email this to you after we finish our chat.”

Tom said, “Let me get this straight, you are telling me to delay giving twenty thousand, and your Super Legacy will give our charities millions? These amounts are incredible!”

“That’s the power of compounding over long periods. Benjamin Franklin did this when he died, and we are inspired to offer our clients the same opportunity,” said Fred. “All it takes is time, but you will have forever after you die.

“Your perpetual giving level starts at year one-hundred and fifty at a gift level of nearly ten million, or just under two hundred thousand dollars to each of your fifty charities every fifteen years. The fund first gives half, then doubles over the next fifteen years, then half is donated again. This doubling and giving repeats every fifteen years.”

“This sounds too good to be true,” said Sue, “and that usually spells trouble,”

“Of course, you are right Sue, reality has to be faced,” said Fred. “I think I can answer the questions you may have.

“First, let me explain that we can’t guarantee results, which depend on the stock market moves. But these calculations reflect the performance of the stock market over the entire time it has existed. And the numbers are net of inflation, fees, and taxes.

“As you can see, after the first twenty-five-year period, it is then as if you gave the one-hundred thousand dollars all at once. The difference is that by waiting and investing over the twenty-five years, you now have set in motion significant contributions to follow.

“One hundred and fifty years from now may seem like a long time, but is it? The older I get, the shorter it sounds. My grandmother was born in the year 1900 and would do anything for me. I know she would do the same for my granddaughter, who was born in 2016. Their two lives easily could range over a two-hundred-year period, connected through me. Think of your grandchildren’s grandchildren having a great society thanks to your super legacy.

“And further, to protect your money,” Fred continued, “we have checks and balances based on contract law. The bottom line is that our company enters into a contract, enforceable by law, to deliver to your charities via your chosen foundation. That foundation has the right to sue us in court if we do not uphold our end of the contract.

“Over long periods, needs can change, but values rarely do. Your values will be what the foundation uses to guide future donations. The fact that you have chosen fifty charities helps guide future contributions by defining your values and areas of focus. As charities come and go, and needs change, the basic human need would be the guidepost to point the continuing donations.”

“OK, but what is the real catch?” asked Sue.

“The biggest catch is the tax receipt is only on the first eighty-thousand dollars. The seed fund of twenty-thousand dollars does not generate an official tax receipt. The reason is that you are not giving the twenty-thousand directly to a charity. You are contracting a service from us,” said Fred.

“However, when you look at the fantastic future donations, missing a portion of your tax deduction seems a small price to pay. Perhaps you know already that most donors are not motivated by tax savings. They feel driven to give by the difference it makes. Your enormous impact more than makes up your missed tax deduction.

“But here’s the thing, these same charities want legacy gifts. However, after arranging a legacy gift, most people live for several more years. When you factor in the weighted average wait time, it is as if the charity got the entire original legacy five years later.”

“How do you figure this is like having only a five-year delay?” asked Tom.

“I’ll get to that, but first, consider that this is all about balancing today’s needs with the needs of tomorrow. Today is important because the life you change helps lives downstream. Never forget that is your true legacy. And by the way, don’t forget the tax deduction reduces the cost of what you donate today on your estate, your children’s portion.

“But if you did postpone all your money, one hundred percent to the future, it would add twenty-five years delay, right? Under our case, only twenty percent is delayed twenty-five years after the passing of the donor. Since the seed fund is only twenty percent, we take that percentage of the twenty-five years, which equals five years effective delay in weighted average time to receive the full one hundred percent.

“This effective delay is constant at five years whether the client lives five, fifteen or another thirty years because eighty percent is immediate. To me, such a slight overall delay seems worth the wait to gain infinite returns. But remember, the delay is small only if most of your donations, the eighty percent, are for today.

“Also, you may not be aware that typically charities don’t know ahead of time about two-thirds of the legacy gifts they receive. With your Super Legacy, your chosen charities will be delighted by the first gift and amazed every twenty-five years after that.”

“You asked if each charity has the same urgency,” said Tom. “Could we select some charities for early donations and leave many others to begin later?”

“I don’t see why not. Your foundation has your personalized Donor Advised Fund designed to follow your wishes. As the money begins to get larger, you set your DAF to donate to more charities.”

“Yes,” said Sue, “We know some of our charities need the maximum help right now, while others we want to help could wait. Tom, after this call, let’s rank our list with these impressive numbers in mind.”

“Excellent idea, Sue! If you and Tom devise which charities get which percentages in the first century, we can make sure the donations go out accordingly. Does this Super Legacy idea suit you both?”

“I think so,” said Sue. “I feel like a weight is lifting off my shoulders. Having to choose some charities over others was such an awful feeling. But before we say yes, we may have more questions after we think about this.”

“Absolutely,” said Fred, “that’s what I am here for, call me anytime. I will leave you to it then, bye!”

“Bye, and thanks!” said Tom.

Tom signed off ZOOM and turned to Sue. “Remember how I said the rich get richer?” asked Tom. “I feel like we just struck it rich for our charities!”

Tom and Sue decided to order in lunch and look over their list of charities with renewed optimism.

Better Dwelling reported in February 2021 on the net worth by age group. By combining that data with Statistics Canada 2019 population data, we can estimate one and one-half million families over 65 have $543,000 in net median worth.

Imagine if just two percent of these families over five hundred thousand in net worth did the above scenario creating seed money of twenty thousand dollars each.

One hundred and fifty to two hundred years later, about three hundred billion dollars in donations would commence repeating every fifteen years.

Something to consider.

Photo by krakenimages on Unsplash

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