Just a few ideas, but note I don’t have enough knowledge to identify all options, or the best option.
Obviously the goal is to maximise the amount Givewell is able to deploy, out of the amount your parents don’t need for themselves. Fees reduce this, but so do taxes.
It sounds like a DAF is not subject to tax at all. If your parents hold shares themselves, they will presumably still be subject to tax on dividends, and on any realised capital gains from trading. I feel like this could be above $5k/year, but it’s worth checking.
It sounds like your idea is for them to invest directly in stocks, rather than using an index fund. (Hence your idea of the in specie transfer of stocks to GiveWell.) This approach is likely to lower fees, but produce a less diversified portfolio with more risk, compared to an index fund. To compare apples with apples, subtract from the DAF fee the equivalent non-DAF index fund fee. By the way, that post you linked mentions an approximate fee of 0.05%, which would be $500 on $1m, not $5k? I am probably missing some detail or other.
If they are set on investing in individual shares and avoiding fund management fees, could they still avoid taxes by creating their own personal DAF vehicle, like a self managed super fund (SMSF) in Australia?
If they are agnostic about when to give, then why use a DAF at all? They can’t take money out of the DAF, so anything they put in there will eventually go to GiveWell. They could instead just donate those amounts to GiveWell. I suppose you mean they want their total donation amount to be as high as possible, regardless of when the amounts are given, so they are not indifferent in a discounted value sense.
Thank you for the thoughtful answer! My parents are based in the US and their investments are all in index funds and ETFs. I had forgotten that index funds in DAFs aren’t subject to portfolio turnover capital gains taxes, which seems like that would be the reason it’s worth switching the appreciated stocks to DAFs.
I think my parents’ idea is that by having the money they expect to be able to donate in a DAF or other investment account instead of just giving it now, they protect themself from a horrible health shock or market crash by having the money available to withdraw. Their ideal situation would be “pay as little tax and management fees on their investments as possible, donate in the most taxed-advantage way possible, probably giving more and more as they got older and were more sure they won’t need a big safety net”
Given this as what they’re optimizing for, do you think biting the bullet on the ~$5k/year vanguard management fee is their best option?
Just a few ideas, but note I don’t have enough knowledge to identify all options, or the best option.
Obviously the goal is to maximise the amount Givewell is able to deploy, out of the amount your parents don’t need for themselves. Fees reduce this, but so do taxes.
It sounds like a DAF is not subject to tax at all. If your parents hold shares themselves, they will presumably still be subject to tax on dividends, and on any realised capital gains from trading. I feel like this could be above $5k/year, but it’s worth checking.
It sounds like your idea is for them to invest directly in stocks, rather than using an index fund. (Hence your idea of the in specie transfer of stocks to GiveWell.) This approach is likely to lower fees, but produce a less diversified portfolio with more risk, compared to an index fund. To compare apples with apples, subtract from the DAF fee the equivalent non-DAF index fund fee. By the way, that post you linked mentions an approximate fee of 0.05%, which would be $500 on $1m, not $5k? I am probably missing some detail or other.
If they are set on investing in individual shares and avoiding fund management fees, could they still avoid taxes by creating their own personal DAF vehicle, like a self managed super fund (SMSF) in Australia?
If they are agnostic about when to give, then why use a DAF at all? They can’t take money out of the DAF, so anything they put in there will eventually go to GiveWell. They could instead just donate those amounts to GiveWell. I suppose you mean they want their total donation amount to be as high as possible, regardless of when the amounts are given, so they are not indifferent in a discounted value sense.
Thank you for the thoughtful answer! My parents are based in the US and their investments are all in index funds and ETFs. I had forgotten that index funds in DAFs aren’t subject to portfolio turnover capital gains taxes, which seems like that would be the reason it’s worth switching the appreciated stocks to DAFs.
I think my parents’ idea is that by having the money they expect to be able to donate in a DAF or other investment account instead of just giving it now, they protect themself from a horrible health shock or market crash by having the money available to withdraw. Their ideal situation would be “pay as little tax and management fees on their investments as possible, donate in the most taxed-advantage way possible, probably giving more and more as they got older and were more sure they won’t need a big safety net”
Given this as what they’re optimizing for, do you think biting the bullet on the ~$5k/year vanguard management fee is their best option?