Is there a mechanism by which you can put aside a lump sum of money (before or after your passing) wherein the money can just sit and earn interest in a safe investment in perpetuity and disbursements to charities of your choosing can be made (also in perpetuity) at regular interval? We're talking a relatively small sum of money - say $100k for example.

I guess it's probably too good to be true.

If it doesn't exist, which of the above mechanisms would come closest with the least hassle and fewest fees?

  • Is there a reason one would not trust the charity with the sum of the money in the first place for them to wisely invest and grow and use? And if not, I wonder why someone would donate to them in the first place. I feel like I am missing something... – R. Hamilton Aug 16 '19 at 16:30
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    More control over how the principal (not the part going to charity) is invested and flexibility about changing the beneficiary of the interest earnings at some point down the road would be two reasons. – OzarkNathan Aug 16 '19 at 17:03
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    Questions relating to law ought to have a country tag. – Chris W. Rea Aug 17 '19 at 0:02

In the United States, no. There's a law called "the law of perplexities" that says that a trust fund cannot last longer than a specified amount of time after the death of someone living at the time you create the trust. The length of times varies from state to state. In my home state of Michigan, it's 21 years. I haven't checked the laws of every state but I think 21 years or so is common. I was just checking up other states and I find that in Alaska it's 1000 years! That might be close enough to "forever" for your purposes.

I think the reason for these laws is that the government doesn't want to allow a situation where huge amounts of money are tied up in trust funds created generations ago, and where the present population is bound by the terms of a trust that may be totally outdated. Or that were foolish when the trust was set up, that lots of people could have told the person creating the trust were foolish, but he did it anyway and now we are stuck with them forever. Like suppose some very rich person 200 years ago was concerned about the plight of escaped slaves. So he left his multi-million dollar to a trust that will pay out money to help escaped slaves. Well now it's been 150 years since was abolished 150 years ago, but the terms of the trust don't consider that possibility, and so there's this fund that's grown to billions of dollars and the only people benefiting from it are the people who run the fund.

If every generation keeps putting money into trusts, and there's no way to end them, then we could get to a point where 90% of the wealth of the country is in trusts, and our economy is ruled by trust documents written hundreds of years ago and that there's no way to change.

Why not just donate the money to the charity? If you don't trust them to manage a one-time donation wisely, why would you trust them to manage money spread out over time? (Or maybe that's not the issue.)

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    It is the rule against perpetuities and it doesn't apply to foundations. Otherwise, organizations such as the Ford Foundation wouldn't exist. – Dave Harris Aug 17 '19 at 22:28
  • @DaveHarris Yes, I guess my answer was incomplete. There's a vast practical difference here between a trust and a foundation. A trust is (normally) governed by strict rules about how it disburses money, while a foundation is not. The point of a trust is to take decision-making power away from people that you don't think are responsible, like young children or heirs who you know waste their money. The point of a foundation is to give decision-making power to a board that you trust. – Jay Aug 19 '19 at 17:05

You can create a foundation. The law will depend upon the state you are in and your ability to convince people to sit on a board of directors for the rest of their lives.

It can be done, but the number of foundations out there is astounding. In some cases, you can donate money to them.

Also note, that if you donate money today in a properly set up foundation, then you may be entitled to a tax deduction. The recent change the tax law eliminates most charitable donations from deductibility. Still, if you do it correctly, you may be eligible to reduce your income taxes as well.

One thing to consider is that inflation will make $100K a smaller and smaller amount of money. It could become so small, or the interest could become so small, that it does not do anyone any good.

Yes, it can be done. Seek out local attorneys with experience in this and maybe a certified public accountant or enrolled agent, assuming you are in the US.

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