There is undoubtedly a strong emotional desire to, in some way, exist forever. Whether it through an incision in an old tree, memorial park bench, or a fund or trust that looks after your family, friends, or even better, your community into perpetuity, we are clearly strongly drawn toward the idea of existing beyond our lifespan.
The data shows this loudly and clearly. Charitable trusts that distribute donations perpetually are being set up at a rapid pace, increasing by 14.3 percent in the last recorded period, as shown in the chart below.
Financial planners and fund managers help us justify setting up these funds or trusts. A fund accumulates wealth, so over time more money can be earned and distributed than was initially invested. For example, if you invest $200,000 into a fund that earns 5% interest, you can distribute $10,000 for the rest of time. After 20 years, you will have distributed more than your initial outlay, without any deterioration to the value of the initial outlay.
However, there are many assumptions underpinning this story that financial planners don't like to explain. It is, after all, in their interest to manage as much of your money as possible, to ensure your fund grows large, and to still manage that fund after you're gone. The larger the value of the fund they manage, the larger their income. Here's what they assume:
- That a financial investment delivers a greater return than a social investment (or investment in people, family and friends), which is not necessarily true. Sure, investing $200,000 will allow you to distribute $10,000 on an annual basis, but donating that same $200,000 to an important social problem as a lump sum might be what’s needed to properly tackle the problem, the value of which far exceeds a $10,000 annual return. For example, getting someone out of homelessness is an expensive upfront cost, but far better than providing them with a small annual stipend.
- That funds will be distributed in a way that reflects our values for the rest of time. This is naive. A perpetual trust is set up to distribute funds indefinitely. That means the majority of the distributions will occur beyond our lifetime – beyond the point of predictability. There is no way we can have any certainty of the way money is distributed or used so far in the future.
- That the more money we give, the better our legacy and the more meaningful our impact. However, making an impact is more than just giving away money. You can create a much more meaningful impact by participating fully in the act of giving and receiving, rather than delegating that decision to an unknown person in an unknown future.
So if you want to create a great impact, should you set up a perpetual trust? Probably not. Instead, you should aim to have your money distributed as far out as you have comfortable certainty over the outcome. For most people, that would mean a complete distribution of funds in your lifetime. Most importantly, you should think about the personal satisfaction you can gain by being involved in the process and personally distributing money to charity. This will undoubtedly be more challenging and confronting, but will leave you far more fulfilled than if you left those gifting decisions to future generations.