An Interesting Take On Donating
December 28, 2012 2 Comments
Would you donate your last penny?
I can honestly say that I would not …
Which brings me to a related topic: it seems that many people who come into money take a chunk of it to donate. Perhaps to have the wing of a school named after them, or to do some other ‘good works’.
Whether the sum is $1,000,000 or $100,000 or $10,000, when donating what you consider to be a large sum, think about what you are really donating; you are not merely donating $1,000,000 (or $100,000 or $10,000), you are donating the future value of $1,000,000:
Let’s say that you plan on living for another 40 years, and you can invest your money at 5% above inflation, then the real value of your donation is not $1,000,000 but more than $6.7 million!
When thinking about donating that $1 million [AJC: The Cartwood Family Wing does sound tempting], I’m not really thinking too much about that $6.7 million [AJC: or, $28.8 million ... ounch!], I’m actually asking myself:
Would I donate my last $1 million?
You already know the answer to that
If all goes belly-up in my financial life, I really may have just given away my last $1 million … in other words: if I lose $6 million, I am now broke (since I already gave away the 7th million of my 7m7y).
That’s why I would never donate a lump sum … instead, I would invest that $1 million for the benefit of charity. Further, I would not even pledge the capital or the income stream in advance, I would simply make the requisite donations annually and anonymously.
It may not get my name ‘in lights’ [boo hoo]; it may not help the charity with capital acquisitions; and, it may not be the most tax-effective method of donation (compared to, say, charitable trusts and the like), but it will help both the charity and me, long-term:
1. The chances are that I can invest $1 million far better than the people running the charity can [AJC: after all, I've made 7m7y]
2. It’s likely that the charity – or, some other equally worthy casue - can use $6.7 million more than they can use $1 million, albeit spread over 40 years; but, I admit that I’m just making a wild guess that the world will need philanthropy for at least the next 40 years.
3. If all goes belly up, and I end up becoming the one in urgent need of ‘charity’, I can ‘donate’ my last million (at least the income thereof) to myself and my family.
4. When I die, if I feel so inclined, I can finally donate either the asset or the income stream (or both) to the charity as I will no longer require it as insurance for myself. On the other hand, I may choose to pass it on to my family and let them decide.
I guess nobody will be talking about “AJ Cartwood, the great AustraloAmerican investor, raconteur, and philanthropist” … at least, not during my lifetime