Please help my parents give away $3 million

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tpn
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Please help my parents give away $3 million

Post by tpn »

I would really appreciate the hive mind of the Boglehead community in thinking about the best way to approach this. My 90-year old parents have an estate of about $3 million, all non-retirement accounts, which they would like to leave to a charitable family trust to be managed by my siblings and me, and then by our descendants. We are considering setting up a donor-advised fund through Vanguard or Fidelity for this.

Our initial thought was to make the DAF the beneficiary of their accounts, nice and straight forward. However, this would seem to give up potentially significant tax benefits. An alternate plan would be to name the three children as beneficiaries, with the understanding that we would then donate the proceeds to the DAF, perhaps over ~10 years or so, providing us with a substantial income tax deduction.

I’m interested in hearing about potential downsides to this arrangement, as well as any suggestions for an alternative plan. Obviously, it would require trust on my parents’ part that we would follow through. There would likely be differences in how much this would benefit each sibling. And there could be tax consequences of holding these funds until they were donated. What else?
Gill
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Re: Please help my parents give away $3 million

Post by Gill »

I like your "initial thought" of making the DAF beneficiary of their accounts with perhaps lifetime gifts to the DAF to the extent they wish to do so. Your "alternate plan" is full of risks and, quite frankly, a terrible idea. Their are too many obstacles to be sure the funds eventually end up in the DAF such as death, divorce or simply a desire to hang on to the $1 million rather than give it to charity.
Gill
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Dottie57
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Re: Please help my parents give away $3 million

Post by Dottie57 »

As a recipient of $1mm destined for charity - it would be hard to give it ALL away. Greed can get in the way.
prd1982
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Re: Please help my parents give away $3 million

Post by prd1982 »

I know it wasn't one of the options but i would suggest recommending that your parents make charities the beneficiaries rather than a DAF. A DAF is great for bunching deductions and other tax reduction strategies. However death provides the max deduction. i can envision a slow drain from the DAF and the heirs considering the gifts as their own charitable deduction. Each generation should hopefully learn to give their own money. Just my opinion.

And tell your parents thanks for being so charitable
Cm_hd1
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Re: Please help my parents give away $3 million

Post by Cm_hd1 »

Instead of your parents "giving" you a future tax deduction, they could just give you a similar amount in present value dollars directly, and give the rest to the DAF. As others have said, the alternate plan has multiple ways of going wrong.
TurtleBeatsHare
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Re: Please help my parents give away $3 million

Post by TurtleBeatsHare »

If the purpose of the donation is to advance the cause of charity—as opposed to transfer wealth in a tax advantage manner—you parents would be far better served by finding a charity where a high percentage of funds go to the intended purpose instead of overhead or fundraising or bonuses for charity executives. Don’t reinvent a worse wheel.
Gill
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Re: Please help my parents give away $3 million

Post by Gill »

TurtleBeatsHare wrote: Thu Sep 23, 2021 3:38 pm If the purpose of the donation is to advance the cause of charity—as opposed to transfer wealth in a tax advantage manner—you parents would be far better served by finding a charity where a high percentage of funds go to the intended purpose instead of overhead or fundraising or bonuses for charity executives. Don’t reinvent a worse wheel.
I'm not clear what you are describing. The expenses of a DAF are minimal and about 99.4% of its funds go to your designated charities.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
TN_Boy
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Re: Please help my parents give away $3 million

Post by TN_Boy »

TurtleBeatsHare wrote: Thu Sep 23, 2021 3:38 pm If the purpose of the donation is to advance the cause of charity—as opposed to transfer wealth in a tax advantage manner—you parents would be far better served by finding a charity where a high percentage of funds go to the intended purpose instead of overhead or fundraising or bonuses for charity executives. Don’t reinvent a worse wheel.
I agree, what is the real goal here?

Put another way, is there a reason your parents cannot identify the charities they wish to help now, and then simply have the funds go to those charities when they die?

Or, and I don't think this is a crazy idea myself, do they sort of like the idea of setting up a mini charitable foundation (sort of like the Gates Foundation, only a lot smaller ....) with the children doling out money to worthy causes over the next few years?

I personally don't think the modest cost of a DAF is a problem. I definitely think the funds should go directly into a DAF if the intention is to create a family foundation.
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tpn
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Re: Please help my parents give away $3 million

Post by tpn »

Thanks for the replies and perspectives so far. One motivation for my parents in wanting to set up a DAF or charitable trust is that they like the idea of having their savings continue to help others after they are gone. I also think they've seen public television shows sponsored by the XYZ Family Charitable Trust, and like the sound of that. Perhaps some ego is involved, as well as lots of good will. In any case, they like this idea better than leaving it all to a few charities chosen now.

I appreciate the warnings about the risks due to greed, marital issues, etc. I've been less concerned about this type of problem, knowing my family, but perhaps am too optimistic about human nature.

I agree that DAFs are most useful as tax reduction strategies, and that my parents wouldn't be getting that benefit for the most part (although as Gill suggests, we are planning to have our parents set up and partially fund the DAF now, to give us all a chance to participate together in making granting decisions). That's why I had the idea of basically channeling the estate through us kids, to capture some of that tax benefit that would otherwise be wasted. I worry about later regretting that we set this up unthoughtfully, tax-inefficiently, etc. It's interesting to hear from some of you that concerns about human foibles trump such issues.
Last edited by tpn on Thu Sep 23, 2021 4:44 pm, edited 1 time in total.
Topic Author
tpn
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Re: Please help my parents give away $3 million

Post by tpn »

TN_Boy wrote: Thu Sep 23, 2021 4:34 pm
Or, and I don't think this is a crazy idea myself, do they sort of like the idea of setting up a mini charitable foundation (sort of like the Gates Foundation, only a lot smaller ....) with the children doling out money to worthy causes over the next few years?
Yes, this is exactly what they're thinking. Except it's for the next few generations, not years...
aristotelian
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Re: Please help my parents give away $3 million

Post by aristotelian »

DAFs charge annual fees. Their best use case is to bundle donations for itemizing deductions and then spending down every few years. I think the beneficiary charities would be better off if you set up up a small private foundation or just donate the funds upon death and be done with it.
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Lee_WSP
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Re: Please help my parents give away $3 million

Post by Lee_WSP »

tpn wrote: Thu Sep 23, 2021 4:40 pm
TN_Boy wrote: Thu Sep 23, 2021 4:34 pm
Or, and I don't think this is a crazy idea myself, do they sort of like the idea of setting up a mini charitable foundation (sort of like the Gates Foundation, only a lot smaller ....) with the children doling out money to worthy causes over the next few years?
Yes, this is exactly what they're thinking. Except it's for the next few generations, not years...
Then they need to set it up while alive or in their will. I'm not an expert in this field (charitable giving), but that's how it's done; not leaving it to the children and expecting them to carry out some plan they may or may not agree with.
Gill
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Re: Please help my parents give away $3 million

Post by Gill »

aristotelian wrote: Thu Sep 23, 2021 4:42 pm DAFs charge annual fees. Their best use case is to bundle donations for itemizing deductions and then spending down every few years. I think the beneficiary charities would be better off if you set up up a small private foundation or just donate the funds upon death and be done with it.
The fees for a DAF would be minimal compared to the cost of a private foundation.
Gill
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LFS1234
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Re: Please help my parents give away $3 million

Post by LFS1234 »

tpn wrote: Thu Sep 23, 2021 2:27 pm My 90-year old parents have an estate of about $3 million, all non-retirement accounts, which they would like to leave to a charitable family trust to be managed by my siblings and me, and then by our descendants.
Are your parents charitable now? How much have they given away over the past five years?

I think it is quite unreasonable for parents to burden their children with giving away their (parents') money. At the very least, the parents should lay their charitable groundwork and make detailed instructions regarding giving away a good chunk of it, and get the ball rolling immediately. If the parents cannot find the time or inclination to make these decisions, how can it possibly be reasonable for them to expect their children to do what they refuse to do themselves?

Some of the most astute charitable donors have made plans to complete their donations within 10-15 years of passing. The world changes a lot and tomorrow's problems will be different from today's. And there will be a new set of rich donors to tackle them. Ruling from the grave is passé.

Having a family foundation in which family input is required for all decisions is even more absurd. If the parents must go down this ill-advised path, at least they could have the decency to give each descendant their own DAF, so that each descendant could fund their own pet causes rather than trying to compromise with a bunch of relatives with totally different priorities, wasting time and sowing family strife.

Just a terrible idea IMO. Do your parents have a trusted, sophisticated friend who could get them away from this line of thinking?

If not, I'd just insist that they make specific instructions now regarding giving away half the money themselves, and split the rest into one DAF per child.
renter
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Re: Please help my parents give away $3 million

Post by renter »

Why don't they pick the charities now, and set up estate plan to give it all at death free and clear? I am not sure why it has to be more complicated than that.
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retired@50
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Re: Please help my parents give away $3 million

Post by retired@50 »

Gill wrote: Thu Sep 23, 2021 4:30 pm
TurtleBeatsHare wrote: Thu Sep 23, 2021 3:38 pm If the purpose of the donation is to advance the cause of charity—as opposed to transfer wealth in a tax advantage manner—you parents would be far better served by finding a charity where a high percentage of funds go to the intended purpose instead of overhead or fundraising or bonuses for charity executives. Don’t reinvent a worse wheel.
I'm not clear what you are describing. The expenses of a DAF are minimal and about 99.4% of its funds go to your designated charities.
Gill
If I understand TurtleBeatsHare correctly, the reference is to giving the money to a charitable organization that actually spends the money on the target cause, say cancer research and cures, instead of using the donated money for TV advertisements to raise even more donations for cancer research.

I don't have any particular knowledge about how efficient or effective different charities are at accomplishing their stated goals, but certainly, some must be better at it than others.

I think the most cynical view is that some charities have no real desire to eliminate a particular disease, because it would put the charitable organization (and all its employees) out of business.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
fourwheelcycle
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Re: Please help my parents give away $3 million

Post by fourwheelcycle »

Your parents, and you, will never find a more effective or efficient way to give their assets to charity than using a DAF like Fidelity or Vanguard. I agree with others that giving the money to their children on the honor system that each child will give their share to the selected DAF is fraught with problems and should not be pursued. If your parents are prepared to give $3M to a DAF, I assume they are giving sufficient inheritances to each child that you really do not need the extra charitable donations.

If your parents want to realize some charitable deduction tax benefits now, they can contribute up to 30% of their annual IRS adjusted gross income to their DAF account each year, for as long as either of them survives. Then they could donate the balance of the $3M to the DAF upon their deaths.

I disagree with other posters who suggest giving the funds directly to various charities rather than to a DAF. Many small charities are not equipped to manage large one-time donations. There is a risk small charities may spend the money in just a few years, or start new programs they cannot support over the long term. A DAF can give out your parents' $3M at the rate of 5% of principal each year. If the account's market value plus dividends increase by more than 5.006% per year (based on a total expense of perhaps 60 basis points per year charged to the account by the DAF) your parents' charitable donations could very possibly continue in perpetuity. Also, I suspect one of your parents' goals is to allow their children, and their children's children, to have the experience of selecting their own charities to receive future gifts from the DAF.

I am using Vanguard's DAF, so that is the DAF I know the most about. Your parents can set up a Vanguard Charitable DAF now, to be funded as a beneficiary of their accounts when they die, or they can partially fund it now, which would give them annual charitable tax deductions as I described above, and fund the balance upon their deaths. They could name themselves as the account advisors now (two advisors are allowed), or they could name one of themselves and and one child (perhaps their executor, if one of their children is their executor). After they die, up to two children could serve as the next generation of DAF advisors, with those advisors having the right to name successors. One idea would be to informally set up a committee representing each child's branch of the family, with each branch having the right to name charities each year to receive one-third of the 5% of principal to be distributed by the DAF account. Of course, the DAF could be directed to give out more than 5% each year, but then the principal would not last as long. The DAF advisors would then be expected to honor the recipient charities and amounts submitted by each branch of the family.
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celia
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Re: Please help my parents give away $3 million

Post by celia »

I like the ‘charities as beneficiary’ idea with a caveat. That is that they should already be supporting some charities and reading their annual reports to see how past money was spent. That way they can still change their charities if they feel some are not spending current income as they would want their own income to be spent.

The original post sounds like they are forcing their kids to do the ‘research’ they should be doing. Is this meant to be a learning experience for their kids? Do the kids want to do that?
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Re: Please help my parents give away $3 million

Post by aristotelian »

Gill wrote: Thu Sep 23, 2021 5:43 pm
aristotelian wrote: Thu Sep 23, 2021 4:42 pm DAFs charge annual fees. Their best use case is to bundle donations for itemizing deductions and then spending down every few years. I think the beneficiary charities would be better off if you set up up a small private foundation or just donate the funds upon death and be done with it.
The fees for a DAF would be minimal compared to the cost of a private foundation.
Gill
That's what I thought too but someone on a previous thread but the breakeven right around $3M. That said I would lean toward direct gifts. viewtopic.php?t=330877
fposte
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Re: Please help my parents give away $3 million

Post by fposte »

If getting their name on something is important, you can get a lot of naming rights for $3 million in much of academia. If they endow a scholarship or center or chair, it’s likely to last quite a while but without burdening the kids with managing it.
TurtleBeatsHare
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Re: Please help my parents give away $3 million

Post by TurtleBeatsHare »

Gill wrote: Thu Sep 23, 2021 4:30 pm
TurtleBeatsHare wrote: Thu Sep 23, 2021 3:38 pm If the purpose of the donation is to advance the cause of charity—as opposed to transfer wealth in a tax advantage manner—you parents would be far better served by finding a charity where a high percentage of funds go to the intended purpose instead of overhead or fundraising or bonuses for charity executives. Don’t reinvent a worse wheel.
I'm not clear what you are describing. The expenses of a DAF are minimal and about 99.4% of its funds go to your designated charities.
Gill
This is my third time retyping this after two attempted posts, so I’ll be briefer than normal. I was referring to the family trust part. Giving assets to a family trust is a well known tax planning tool for avoiding capital gains on appreciation while maintaining control over and use of the assets. It’s also a way to funnel that money to your kids by paying them a salary and or bonuses for managing the assets and for throwing social event fundraiser with your family’s last name attached and that coincidentally involve all of your family friends. And for political factions, it’s a great way to funnel assets to all your political allies when they are out of power—take a look at the overlap between the Clinton foundation and the people who ran the Clinton campaign. I’m not charitably minded myself and don’t cast aspersions on those who want to keep their assets and not pay taxes, but advancing the goals I outlined above is not the same as advancing charitable goals. If you want to advance a cause, there are resources that report on the percentage of charity assets actually spent on charity, as opposed to overhead or these other goals. If charity is the goal, there’s no reason to create a family trust; just give the appreciated assets to charity. This can even be tax beneficial relative to stepped up basis through inheritance in some circumstances, although I don’t think it will matter at this estate size (but I’m not an accountant and don’t know this area extremely well). Why not pick a charity and give the assets to that charity? It seems simpler than forming a trust and deciding which kid will run the trust. I’m sure the charity would like to get the money now. As far as the expense point, you should research which charities redirect funds to non charity purposes; a good rule of thumb is that the non transparent organizations have a list of waste/hands in the cookie jar and organizations that are still closely held by a family tend to be inefficient.
Last edited by TurtleBeatsHare on Fri Sep 24, 2021 12:57 am, edited 2 times in total.
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Lee_WSP
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Re: Please help my parents give away $3 million

Post by Lee_WSP »

celia wrote: Thu Sep 23, 2021 7:15 pm I like the ‘charities as beneficiary’ idea with a caveat. That is that they should already be supporting some charities and reading their annual reports to see how past money was spent. That way they can still change their charities if they feel some are not spending current income as they would want their own income to be spent.

The original post sounds like they are forcing their kids to do the ‘research’ they should be doing. Is this meant to be a learning experience for their kids? Do the kids want to do that?
The children can always decline to serve as advisors or successor advisors. The parents should have a backup plan in case the children don't wish to serve.

This sort of plan works best when the whole family buys into the idea.

I can see and argue for both sides on this one. Spreading out donations over decades has benefits as does lump summing it into a charity you like today. They both have cons as well.
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Re: Please help my parents give away $3 million

Post by TurtleBeatsHare »

retired@50 wrote: Thu Sep 23, 2021 7:02 pm
Gill wrote: Thu Sep 23, 2021 4:30 pm
TurtleBeatsHare wrote: Thu Sep 23, 2021 3:38 pm If the purpose of the donation is to advance the cause of charity—as opposed to transfer wealth in a tax advantage manner—you parents would be far better served by finding a charity where a high percentage of funds go to the intended purpose instead of overhead or fundraising or bonuses for charity executives. Don’t reinvent a worse wheel.
I'm not clear what you are describing. The expenses of a DAF are minimal and about 99.4% of its funds go to your designated charities.
Gill
If I understand TurtleBeatsHare correctly, the reference is to giving the money to a charitable organization that actually spends the money on the target cause, say cancer research and cures, instead of using the donated money for TV advertisements to raise even more donations for cancer research.

I don't have any particular knowledge about how efficient or effective different charities are at accomplishing their stated goals, but certainly, some must be better at it than others.

I think the most cynical view is that some charities have no real desire to eliminate a particular disease, because it would put the charitable organization (and all its employees) out of business.

Regards,
Yes. Some charity’s are extremely wasteful. I’ll give you one example: universities oftentimes have a charity or non profit classification, but a lot of administrators get rich off of donations. Other charities are little more than a way to promote the name of the family that created them and siphon resources to friends and family without paying taxes. And some charities—particularly small ones—are good ideas that make people feel good but are highly inefficient. For example—a polio vaccine costs less than one dollar. Does it make sense to spend $20 per meal on wheels or buy 20 vaccines that will save lives. Good charities report information on their costs, overhead, and effectiveness/results. Bad ones don’t. Find a good one. There are reporting sources with this information publicly available on Google--namely Charity Watch, Charity Navigator and...the BBB one.
Last edited by TurtleBeatsHare on Fri Sep 24, 2021 12:59 am, edited 1 time in total.
Retired Bill
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Re: Please help my parents give away $3 million

Post by Retired Bill »

Depending on how much your parents at their age are dependent on the $3 million to cover their annual needs, it appears they probably have plenty of room to fund a DAF now, for the tax benefits as well as knowing their goal to support charitable work now has been put in motion. I'm assuming they are not dependent on the $3 million in any material amount. They may well be in a position to make charitable contributions to reduce their personal income tax burden to zero for the rest of their lives. The information provided does not indicate if your parents have already gifted to family members all they desire, but going on the assumption that has been done to extent desired. They appear to understand they can't take it with them, and know they have more than enough to cover their needs the rest of their lives. I feel your parents may well be opening the door to wonderful conversations with their children/grandchildren of their values and what is important to them. Do document their desires as to the charity or charities they would like to support. Encourage them not to pick too many that would dilute the amount of the gifts. Don't let this opportunity past you by to see some of your parents dreams a bit more clearly.
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GerryL
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Re: Please help my parents give away $3 million

Post by GerryL »

Gill wrote: Thu Sep 23, 2021 2:35 pm I like your "initial thought" of making the DAF beneficiary of their accounts with perhaps lifetime gifts to the DAF to the extent they wish to do so. Your "alternate plan" is full of risks and, quite frankly, a terrible idea. Their are too many obstacles to be sure the funds eventually end up in the DAF such as death, divorce or simply a desire to hang on to the $1 million rather than give it to charity.
Gill
When our mom died she had a little money left, much of it from the VA who finally started paying her Aid & Attendance benefit 2 years after the application -- and just a few months before her death. My brother and I agreed we would donate half of the VA $$ to charity. He suggested that we split the money between us and then each make the donations in her memory, thereby getting the tax benefit ourselves.

I, on the other hand, am doing what is in your "initial thought." I currently use my stash of company stock to periodically refill my DAF. In my estate plan I am having any stock that remains left to my DAF. I will leave instructions for my nephew (my successor advisor) to empty the DAF in no more than 10 years using my previous gifting pattern as guidance. If he wants to use the DAF as his own and contribute his own funds, that would be fine, but I will make it clear that I don't want my bequest to just sit tucked away for a long time not helping any charities.

Are your parents interested in creating a giving mechanism that will continue to be added to by their descendants? Or just to dispose of their initial bequest?
Joey Jo Jo Jr
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Re: Please help my parents give away $3 million

Post by Joey Jo Jo Jr »

I like DAFs a lot myself. Easy, low cost, can spread donations over long periods, can donate anonymously so you don’t get on mailing lists, etc. One thing I don’t know is whether a DAF platform can allow the 3 kids to “vote” for a donation, or if perhaps 3 separate DAFs need to be set up to avoid potential conflicts, which is still not a big deal.

Obviously one could name the DAF as beneficiary, though as others have said there is likely an income tax benefit by donating during life, and leaving it up to the kids to donate after death could literally ruin your family from resentment if one child doesn’t follow through.

But another variation I didn’t see mentioned to accomplish a similar tax objective for the kids is that father could go ahead and gift high tax basis property to the children now, and the children could then donate their own, preferably low basis, assets to the DAF. This would still be voluntary, but there is much less chance for non compliance while the father is still around to alter the estate plan as to those who don’t comply.
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Re: Please help my parents give away $3 million

Post by bsteiner »

At $3 million the cost of a foundation will be less than the cost of a DAF.

Of course, if they have particular charities in mind, they could simply leave their IRAs to their favorite charities.

Another possibility, if the grandchildren are relatively young but at least 28 is a charitable remainder trust. They could create a charitable remainder trust for each grandchild with each grandchild receiving a percentage (at least 5%) of the value of the trust each year, with the balance going to charity upon the grandchild's death.
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celia
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Re: Please help my parents give away $3 million

Post by celia »

TurtleBeatsHare wrote: Thu Sep 23, 2021 8:10 pm Yes. Some charity’s are extremely wasteful. I’ll give you one example: universities oftentimes have a charity or non profit classification, but a lot of administrators get rich off of donations. Other charities are little more than a way to promote the name of the family that created them and siphoned resources to friends and family without paying taxes. And some charities—particularly small ones—are good ideas that make people feel good but are highly inefficient.
Oh, my.
TurtleBeatsHare, do you have proof for any of these claims? Do you really know how charities work and that the officers have a fiduciary duty to follow their charter, which was filed and approved by both the state and IRS? Have you ever been a board member for a charity or met someone who was?

In our state, non-profits have to file a yearly form that inquires about these and other potential problems. And the state attorney general can prosecute those that are self-serving.
For example—a polio vaccine costs less than one dollar. Does it make sense to spend $20 per meal on wheels or buy 20 vaccine stuat will save lives.
Sure, the vaccine itself is cheap, but the cost to transport it safely and administer it has significant costs. One shot can cost many times what a Thanksgiving meal on skid row costs because it is local and there are savings in buying in bulk. (We get flyers in early November that a meal for a homeless person costs about a $1.50. Please consider feeding 10 people this year…)
Good charities report information on their costs, overhead, and effectiveness/results. Bad ones don’t. Find a good one. There are reporting sources with this information.
How do YOU separate the good from the bad? What reports do you look at?

Small charities (those with yearly income under $50K) have minimal filing requirements, else they could use up their yearly budget for meeting the reporting requirements. Examples of these are local groups that do after-school tutoring or reading programs, clean-the-beach (or park) programs, bird census programs, and church-affiliated service groups.
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gobel
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Re: Please help my parents give away $3 million

Post by gobel »

tpn wrote: Thu Sep 23, 2021 2:27 pm An alternate plan would be to name the three children as beneficiaries, with the understanding that we would then donate the proceeds to the DAF, perhaps over ~10 years or so, providing us with a substantial income tax deduction.
This seems like too good of an idea to pass up. You should find a way to work it out with your siblings to guarantee everyone follows thru. Assuming everyone has plenty of very appreciated taxable holdings, there's a triple tax advantage here:
  1. parents avoid LTCG tax on the profit in their 3m
  2. each child avoids LTCG tax on the profit in 1m of their own stocks (ie. don't donate the inherited stock to the DAF, which has a stepped up basis, donate your own highly appreciated stock)
  3. each child gets 1m itemized deduction to take off their regular income
Each sibling might save 500k+ in taxes this way, which even though is not 1m, maybe is enough to prevent any sibling from reneging on the parents' wishes.
Saving$
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Re: Please help my parents give away $3 million

Post by Saving$ »

LFS1234 wrote: Thu Sep 23, 2021 5:55 pm
tpn wrote: Thu Sep 23, 2021 2:27 pm My 90-year old parents have an estate of about $3 million, all non-retirement accounts, which they would like to leave to a charitable family trust to be managed by my siblings and me, and then by our descendants.
Are your parents charitable now? How much have they given away over the past five years?

I think it is quite unreasonable for parents to burden their children with giving away their (parents') money. At the very least, the parents should lay their charitable groundwork and make detailed instructions regarding giving away a good chunk of it, and get the ball rolling immediately. If the parents cannot find the time or inclination to make these decisions, how can it possibly be reasonable for them to expect their children to do what they refuse to do themselves?

Some of the most astute charitable donors have made plans to complete their donations within 10-15 years of passing. The world changes a lot and tomorrow's problems will be different from today's. And there will be a new set of rich donors to tackle them. Ruling from the grave is passé.

Having a family foundation in which family input is required for all decisions is even more absurd. If the parents must go down this ill-advised path, at least they could have the decency to give each descendant their own DAF, so that each descendant could fund their own pet causes rather than trying to compromise with a bunch of relatives with totally different priorities, wasting time and sowing family strife.

Just a terrible idea IMO. Do your parents have a trusted, sophisticated friend who could get them away from this line of thinking?

If not, I'd just insist that they make specific instructions now regarding giving away half the money themselves, and split the rest into one DAF per child.
Interesting perspective. A few months ago a couple I know tangentially was discussing some kind of charitable fund a grandparent of theirs set up that requires all the grandkids to meet at least once a year to determine how to disburse the charitable funds. They elect a new leader every two years. Different leaders handle the disbursements differently. Some divide the total disbursement by the number of voting grandkids and each decides on a charity and it is done. Some do a variant on this where everyone in the group has to agree on all the other selections - ie anyone can object to and effectively veto a cause they disagree with. Some want the entire group to agree on one or two charities and let the cousins who are so inclined make a presentation for their preferred charity.
They were talking about how this charitable fund kept family members/cousins who otherwise would not stay in touch communicating due to the annual meetings. During Covid they had the meetings online, and the group decided to go forward with online meetings. They were concerned this would change the family dynamic.
The entire idea intrigued me; had been meaning to post here to ask about what type of structure this might be, and was reminded of it in OP's post. Seems like a great way to encourage ongoing relationships among your descendants, working together for good causes, after you are gone. It also empowers those who don't have similar means to support charities. Your perspective is certainly the opposite, and interesting.
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Re: Please help my parents give away $3 million

Post by Patzer »

tpn wrote: Thu Sep 23, 2021 4:37 pm I appreciate the warnings about the risks due to greed, marital issues, etc. I've been less concerned about this type of problem, knowing my family, but perhaps am too optimistic about human nature.
Human nature is a strange thing, especially about money that "wasn't earned".

I have told friends about bonuses I got in the 10s of thousands, and they were just excited for me.
But, when I won $100 in the lotto once, 3 friends and 2 coworkers asked me to buy them lunch.
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Re: Please help my parents give away $3 million

Post by TurtleBeatsHare »

celia wrote: Thu Sep 23, 2021 10:01 pm
TurtleBeatsHare wrote: Thu Sep 23, 2021 8:10 pm Yes. Some charity’s are extremely wasteful. I’ll give you one example: universities oftentimes have a charity or non profit classification, but a lot of administrators get rich off of donations. Other charities are little more than a way to promote the name of the family that created them and siphoned resources to friends and family without paying taxes. And some charities—particularly small ones—are good ideas that make people feel good but are highly inefficient.
Oh, my.
TurtleBeatsHare, do you have proof for any of these claims? Do you really know how charities work and that the officers have a fiduciary duty to follow their charter, which was filed and approved by both the state and IRS? Have you ever been a board member for a charity or met someone who was?

In our state, non-profits have to file a yearly form that inquires about these and other potential problems. And the state attorney general can prosecute those that are self-serving.
Good charities report information on their costs, overhead, and effectiveness/results. Bad ones don’t. Find a good one. There are reporting sources with this information.
How do YOU separate the good from the bad? What reports do you look at?

Small charities (those with yearly income under $50K) have minimal filing requirements, else they could use up their yearly budget for meeting the reporting requirements. Examples of these are local groups that do after-school tutoring or reading programs, clean-the-beach (or park) programs, bird census programs, and church-affiliated service groups.
There are several centers that track the effectiveness (or wastefulness) of charities. The leading ones are Charity Watch, Charity Navigator, and BBB Wise Giving Alliance. Depending upon the watchdog, they will report on the effectiveness of the underlying program (i.e., how much does it cost to save a life, if you buy malaria nets vs. vitamin A supplements vs. direct cash payments), the percentage of funds that go to the charity's intended purposes vs. fundraising or overhead, and various other QC policies (like independent oversight board, financial disclosures, outside auditors, etc.). At least one--BBB Wise Giving Alliance--accredits charities using something like twenty requirements, including conflict of interest policies, independent oversight boards, and limiting fundraising expenses to no more than 35% of revenues (or conversely, requiring 65% on expense be on charitable programs). Charity Watch uses letter grading, and an A rating will typically mean that 75% of expenses are on a charity purpose. You can find each website with a quick google search. You'll see there are VERY large differences between the effectiveness of the charitable purpose and the percentage of every donated dollar that actually goes to that purpose. Consumer Reports wrote an article about this a few years back, and as a few examples, they point out the Disabled Veterans National Foundation (which spent only 4% of its funds on charity) vs the National Military Family Association, which spent 82%. Charity Watch gave the former an F and the latter an A. Moreover, I can think of at least one example off the top of my head--the charity organization by former FL Congresswoman Brown for education scholarships for underprivileged children--that she and her campaign manager raided for personal expenses, vacations, etc. You can read about the prosecution online; it was out of the US Attorney's Office in Jacksonville, FL in 2018/2019. And at least two major foundations--the Clinton Foundation and the Trump Foundation--were regularly used to provide salaries to family members or allies. I'm not criticizing their effectiveness (and indeed, I have a reasonably positive view of the Clinton Foundation's work) but its indisputable that it was also used as a way to keep friends, family and allies employed during the interregnum.

Frankly, I'm stunned that you'd think there wouldn't be differences and that all charities are well-intentioned and effective, especially when (as you point out) small charities have limited disclosure requirements. And I haven't even mentioned the possibility for outright fraud (as the Brown example shows can occur). You can read this about Kids Wish Network and 50 other charities that spend less than 4% of their funds on their supposedly charitable purpose and mislead or outright lie to donors about their spending activities or conceal conflicts of interest. https://www.cnn.com/2013/06/13/us/worst ... index.html. You have a stunning amount of faith that someone reads some bare bones filings with a state agency or that, if read, someone would detect problems or have legal authority to do much about it--being wasteful isn't exactly illegal and, if I recall correctly, the IRS requirement for tax-exempt status is spending 5% on the charity's purposes--a very minimal requirement. And do you really think that those prosecutors will have a lot of spare time for their white collar work vs. violent criminal offenders. That would be a nice world to live in, but it's not realistic and is pretty much putting on willful blinders. OP should be very careful about reviewing and selecting charities.

Finally, as to my point about family foundations being used as tax shelters and a tax planning/wealth transfer tools, here's an investopedia article that list IRS red flags for foundations. https://www.investopedia.com/articles/m ... ations.asp It cites various IRS publications about various issues, like self-dealing, paying family members, related-person transactions, etc.. I would suggest that the reason that the IRS has published various documents about red flags is because the IRS has concluded there these foundations presented a very real risk of abuse for several of the reasons I outlined and that there is an underlying problem that they are trying to prevent.
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Re: Please help my parents give away $3 million

Post by celia »

retired@50 wrote: Thu Sep 23, 2021 7:02 pm I don't have any particular knowledge about how efficient or effective different charities are at accomplishing their stated goals, but certainly, some must be better at it than others.
I took a class that covered how to evaluate non-profits. Here is a post from back then (and a whole thread about philanthropy):

viewtopic.php?f=11&t=150985&p=2264031

CharityNavigator.org has basic evaluations of the bigger charities. But you should compare charities that have similar goals. Of course, a charity that researches a medical issue will have higher costs than one who gives turkey dinners to the poor.

One thing to look for is if they use some kind of metrics to see if they are doing better than in the past (for example there were fewer deaths caused by the illness that is being researched or more turkey dinners were served). A good website would likely tell how they spend their money and if/how they are doing better than the previous year. They should also talk about their challenges.

If they have over $50k in income, they need to file a tax return (which becomes public) to show how much their officers were paid, among other things.

I worked for the Red Cross as a volunteer for several years. When there was a big disaster one year (I think Katrina), a lot of donations started pouring in. About 95% of their work is done by unpaid, but trained volunteers with the core 5% employees always there to organize the work to be done and send volunteers (trained for certain tasks) to the appropriate places. Someone found out that not all donations were used to pass out to those in need of shelter and clothing, but some of the money was being used for phone service and travel expenses, so they started complaining on social media that they were mis-using donations. But if you stop and think, how would you mobilize and get the appropriate volunteers to where they were needed (to screen people before passing out aid/supplies) if you didn’t use phone service and paid for airfare for the volunteers?
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Re: Please help my parents give away $3 million

Post by minimalistmarc »

I don’t understand the point in all the hassle. If your parents want to donate 3 million why not just do it today?
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Re: Please help my parents give away $3 million

Post by afan »

I would not form a plan that imposed burdens on my heirs. It is fine if the parents set it up to encourage future generations to stay in touch and perhaps coordinate their giving. However, creating a situation where they are forced to do so could backfire. Lives get complicated. Goals change. Needing to agree on how much to give to which charities could cause conflict where none is needed. Forcing all the kids to gather in person each year simply would not work. If people are too busy, then they will not do it. There is no need to have an in-person meeting to make a donation once the money is in a DAF. Even if one wanted to coordinate giving, that could be handled with a few emails. No travel costs. No extra time wasted.

Three DAFs with each next generation member responsible for their own is the simplest solution. They can coordinate their donations if they want, but the would not have to.

As noted above, if the parents want to extract more income tax savings, they can make some donations now, reducing their income taxes. To the extent that they are leaving some of their money to the kids, the kids benefit from larger bequests due to the parents' tax savings.

Even if the direct costs of a private foundation are lower than those of a DAF at that asset level, there is more to do. With a DAF, ALL one has to do is make the gifts. With a private foundation, someone has to do the other work. Either the kids have to do it themselves or they have to hire someone to do it.

Another reason not to give the money to the kids with an expectation that they will give to charity- estate taxes. If the parents are in estate tax territory, then money left directly to charity will escape taxation. Money left to the kids will be subject to estate taxes.
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Re: Please help my parents give away $3 million

Post by Gill »

minimalistmarc wrote: Fri Sep 24, 2021 3:47 am I don’t understand the point in all the hassle. If your parents want to donate 3 million why not just do it today?
Possibly because they’d like to eat and have a roof over their heads.
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Re: Please help my parents give away $3 million

Post by TN_Boy »

gobel wrote: Thu Sep 23, 2021 10:37 pm
tpn wrote: Thu Sep 23, 2021 2:27 pm An alternate plan would be to name the three children as beneficiaries, with the understanding that we would then donate the proceeds to the DAF, perhaps over ~10 years or so, providing us with a substantial income tax deduction.
This seems like too good of an idea to pass up. You should find a way to work it out with your siblings to guarantee everyone follows thru. Assuming everyone has plenty of very appreciated taxable holdings, there's a triple tax advantage here:
  1. parents avoid LTCG tax on the profit in their 3m
  2. each child avoids LTCG tax on the profit in 1m of their own stocks (ie. don't donate the inherited stock to the DAF, which has a stepped up basis, donate your own highly appreciated stock)
  3. each child gets 1m itemized deduction to take off their regular income
Each sibling might save 500k+ in taxes this way, which even though is not 1m, maybe is enough to prevent any sibling from reneging on the parents' wishes.
But this just amounts to giving the children money, albeit via tax deductions over the years rather than directly. It seems to vastly complicate the actual goal, getting money to worthy causes.
You should find a way to work it out with your siblings to guarantee everyone follows thru.
The enforcer role is not one I would relish.

It strikes me as an outstanding way to create friction between the children ("Jim hasn't donated any money to charity in two years ....and he's driving around a new Bimmer").
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Re: Please help my parents give away $3 million

Post by TN_Boy »

Gill wrote: Fri Sep 24, 2021 6:35 am
minimalistmarc wrote: Fri Sep 24, 2021 3:47 am I don’t understand the point in all the hassle. If your parents want to donate 3 million why not just do it today?
Possibly because they’d like to eat and have a roof over their heads.
Gill
Radical concern, continuing to have shelter and three square meals a day :-)

There seem to be several issues floating around in this thread.

1) Does the family as a whole (parents and children) want to set up a charitable foundation-like thing that continues on for a while. Is it true that all the children would rather the money go to charity rather than say, themselves??

2) Some charities are not good. This seems like a side issue...... obviously there are worthy causes.

3) If 1) is the case, then what are the best mechanics to do that. There will be some work involved, although it does not seem like that much of a burden if the children are interested. Some people enjoying giving to charity.
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slow n steady
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Re: Please help my parents give away $3 million

Post by slow n steady »

I'm sorry, but that amount of money just doesn't equate to multi-generational wealth to me. Sounds like to much work.

I'm also not a big fan of passing on jobs to heirs. I can totally understand were this is thought to be a blessing but it could easily turn into a chore or year the family apart.

Good luck!
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Re: Please help my parents give away $3 million

Post by dodecahedron »

TN_Boy wrote: Thu Sep 23, 2021 4:34 pm
TurtleBeatsHare wrote: Thu Sep 23, 2021 3:38 pm If the purpose of the donation is to advance the cause of charity—as opposed to transfer wealth in a tax advantage manner—you parents would be far better served by finding a charity where a high percentage of funds go to the intended purpose instead of overhead or fundraising or bonuses for charity executives. Don’t reinvent a worse wheel.
I agree, what is the real goal here?

Put another way, is there a reason your parents cannot identify the charities they wish to help now, and then simply have the funds go to those charities when they die?
The charities someone supports at the time they make out the will/estate plan may be very different than the ones they would want to see supported after their death at some unknown point in the future.

E.g., suppose that right now, my biggest priority is curing cancer (or saving the whales or ... you choose.) But I live for a few more years/decades and perhaps that goal is eventually achieved (cancer has been cured, the whales have been saved, or whatever.) Or (more dramatically) suppose it turns out that the leadership of the designated charity changes and there is some sort of scandal that makes me no longer want to support that organization. Or the charity (sadly) goes bankrupt and dissolves.

If I stay mentally competent between now and time of my death, I can certainly change the designation of my charities in my will/estate plan. But if I undergo some period of incompetence prior to death, I would prefer to allow my DAF successor advisors (my daughters, who share my general values and worldview) to direct the use of the funds as they see fit in the light of the circumstances that exist at the time of my passing.

I have no desire to set up a permanent foundation that lasts indefinitely after my death (and burdens my heirs with paperwork). I will leave my successor advisors a general non-binding letter of guidance, and they will have access to the complete records of the charities I have chosen to support with the DAF during my lifetime, but I trust and respect their judgment. They can take as much or as little time as they want to disburse the funds as they see fit. The paperwork burdens upon them will be minimal (compared to a foundation.)
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Re: Please help my parents give away $3 million

Post by dodecahedron »

Gill wrote: Thu Sep 23, 2021 2:35 pm I like your "initial thought" of making the DAF beneficiary of their accounts with perhaps lifetime gifts to the DAF to the extent they wish to do so. Your "alternate plan" is full of risks and, quite frankly, a terrible idea. Their are too many obstacles to be sure the funds eventually end up in the DAF such as death, divorce or simply a desire to hang on to the $1 million rather than give it to charity.
Gill
I agree that the alternate plan sounds like a terrible idea. So much can go wrong. In addition to what Gill listed, suppose one of the designated temporary fundholders in the alternate plan goes bankrupt due to a business failure, liability lawsuit as a result of an accident or professional malpractice suit, etc.
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Re: Please help my parents give away $3 million

Post by cbs2002 »

I won't comment on the DAF idea vs. others, because that's really a question of your goals and motivation on the fiscal side. I'd just do my research over a year or two and then give it away in six-figure gifts that have a game-changing effect on the charity I'm giving to. But that's a personal choice.

When it comes to the giving, a few things:

-Read the tax returns and review the past few years of organizational newsletters/web posts, etc, together they should give you a very clear idea of where the charity's money is going and whether the group has the capacity to do what it says it will do. A few years of balance sheets provides some of the most essential info. I would pay less attention to things like vision and mission statements, which are necessarily broad and long-term but light on specifics.

-Find orgs where you believe not just in the work, but in the people doing the work

-Give with trust and don't demand handholding especially for smaller contributions. For charities, raising money and communicating to supporters is hard work, all while trying to mostly spend on the actual charitable programs.

Lastly I'll just note on some of the comments here about things like staff pay and administrative costs. Jobs at charities, especially at higher levels, are often highly stressful, highly skilled positions similar to running a for-profit company. I want charities I give to to be able to hire the best and brightest people they can reasonably afford. I want them to have efficient IT and reliable accounting. I want them to be better at what they do than others, and that costs money. I'm not talking about college football coaches here.
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Re: Please help my parents give away $3 million

Post by aristotelian »

gobel wrote: Thu Sep 23, 2021 10:37 pm
tpn wrote: Thu Sep 23, 2021 2:27 pm An alternate plan would be to name the three children as beneficiaries, with the understanding that we would then donate the proceeds to the DAF, perhaps over ~10 years or so, providing us with a substantial income tax deduction.
This seems like too good of an idea to pass up. You should find a way to work it out with your siblings to guarantee everyone follows thru. Assuming everyone has plenty of very appreciated taxable holdings, there's a triple tax advantage here:
  1. parents avoid LTCG tax on the profit in their 3m
  2. each child avoids LTCG tax on the profit in 1m of their own stocks (ie. don't donate the inherited stock to the DAF, which has a stepped up basis, donate your own highly appreciated stock)
    [*]each child gets 1m itemized deduction to take off their regular income
Each sibling might save 500k+ in taxes this way, which even though is not 1m, maybe is enough to prevent any sibling from reneging on the parents' wishes.
Interesting idea. One constraint is you are limited to deducting 60% of your AGI so unless they are very high income they would have to do the donations over time, possibly in perpetuity. However, they could probably pay extremely low income taxes as a result of having to pay on only 40% of their AGI. Of course, you would be depending on the goodwill of your heirs to follow through.
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Re: Please help my parents give away $3 million

Post by dodecahedron »

aristotelian wrote: Fri Sep 24, 2021 2:56 pm
gobel wrote: Thu Sep 23, 2021 10:37 pm
tpn wrote: Thu Sep 23, 2021 2:27 pm An alternate plan would be to name the three children as beneficiaries, with the understanding that we would then donate the proceeds to the DAF, perhaps over ~10 years or so, providing us with a substantial income tax deduction.
This seems like too good of an idea to pass up. You should find a way to work it out with your siblings to guarantee everyone follows thru. Assuming everyone has plenty of very appreciated taxable holdings, there's a triple tax advantage here:
  1. parents avoid LTCG tax on the profit in their 3m
  2. each child avoids LTCG tax on the profit in 1m of their own stocks (ie. don't donate the inherited stock to the DAF, which has a stepped up basis, donate your own highly appreciated stock)
    [*]each child gets 1m itemized deduction to take off their regular income
Each sibling might save 500k+ in taxes this way, which even though is not 1m, maybe is enough to prevent any sibling from reneging on the parents' wishes.
Interesting idea. One constraint is you are limited to deducting 60% of your AGI so unless they are very high income they would have to do the donations over time, possibly in perpetuity. However, they could probably pay extremely low income taxes as a result of having to pay on only 40% of their AGI.
Deductions for donations of appreciated securities (the suggestion above for heirs) are limited to 30% of AGI, though excess donations can be carried forward up to five years.
Of course, you would be depending on the goodwill of your heirs to follow through.
Indeed.

If one is bound and determined to secure tax advantages for the offspring AS WELL AS the parents' expressed desire to donate $3M to charity, I am sure that a savvy trusts & estate like bsteiner could design a CRT hybrid vehicle (CRAT or CRUT). The operative word here is Trust, which is what the "T" stands for in CRT. With a Trust, there are legal protections in place to ensure the charity gets their due, and to protect against death/divorce/bankruptcy of the other beneficiaries.

I suggest the OP read this article by bsteiner:

https://www.kkwc.com/wp-content/uploads ... 4_2020.pdf

Although it specifically addresses estate planning for retirement accounts, I am sure something tax-efficient could be designed for a taxable account, which is what the OP's parents have. There will, of course, be ongoing paperwork filings associated with the trust.
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Re: Please help my parents give away $3 million

Post by Sandtrap »

Talk to a University of their choice, or Medical or law School for various scholarship funding arrangements.

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Re: Please help my parents give away $3 million

Post by Gill »

bsteiner wrote: Thu Sep 23, 2021 9:44 pm At $3 million the cost of a foundation will be less than the cost of a DAF.
Vanguard’s fee for a $3 million DAF is $7,100. Can a private foundation be operated for less than that including the startup legal and accounting fees?
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Re: Please help my parents give away $3 million

Post by bsteiner »

Gill wrote: Fri Sep 24, 2021 8:03 pm
bsteiner wrote: Thu Sep 23, 2021 9:44 pm At $3 million the cost of a foundation will be less than the cost of a DAF.
Vanguard’s fee for a $3 million DAF is $7,100. Can a private foundation be operated for less than that including the startup legal and accounting fees?
Gill
Vanguard’s fee is every year. The startup cost for a foundation is comparable but it’s only once. The annual cost is a couple of thousand dollars for the tax return and the 1.39% excise tax on the income.
Retired Bill
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Re: Please help my parents give away $3 million

Post by Retired Bill »

I believe there is some misinformation in this blog regarding deduction limits regarding donations of highly appreciated property.

Here is the words of the IRS per Pub 526. (This Pub covers all of the various limits applied to charitable contributions in some depth if you would like to explore further))

Capital gain property exception. A 30%
limit applies to noncash contributions of capital
gain property if you figure your deduction using
fair market value without reduction for appreciation. See Certain capital gain property contributions to 50% limit organizations, later, under
Limits based on 30% of adjusted gross income,
for more information.
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Re: Please help my parents give away $3 million

Post by VanGar+Goyle »

tpn wrote: Thu Sep 23, 2021 2:27 pm My 90-year old parents have an estate of about $3 million, all non-retirement accounts, ...
This sounds better than being like John D Rockefeller, and giving thousands of people a dime each.
Of course a dime then is worth $1.37 now.
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itsf8
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Re: Please help my parents give away $3 million

Post by itsf8 »

I was informed, for 2021 (and 2020), appreciated securities/mutual fund shares are 100% federal deductable (vs 30%) if given directly to charity vs a DAF. I was told this is part of the Cares Act. Can anyone reconfirm this? For those with State taxes, I assume one still must follow ones state charitable donation guidelines.
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