What would you do with an unexpected inheritance?

Aug 06, 2019

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Saving to give means investing charitable assets so that you can give more over time. The following scenario is a common one--it shows the power and simplicity of the save to give philosophy.

When her father, Art, passed away, Virginia was surprised to receive a modest inheritance—she hadn’t known him to be much of a saver. Virginia was grateful, but she didn’t feel she needed the money. She remembered that Art, a veteran himself, had always expressed a desire to help other veterans.

But something stopped her from giving the money to charity immediately. If her father had passed on the money to his children, maybe she should follow his example.

Already an advisor of a Vanguard Charitable donor-advised fund (DAF), Virginia realized that the giving tool offered the perfect solution: A DAF would allow her to use the $50,000 in a way that would honor Art and his service. And it would also allow her to pass this legacy on to future generations.

She opened a second account with us so that she could undertake a new giving project with the inheritance. Next, she created a succession plan so that her children would become advisors of the account in the future. Finally, she made a plan to grant out 5% of its assets to veterans’ charities each year.

Virginia's Giving

Inheritance:	$50,000
Annual grant:	5% of account balance
Asset allocation:	60% stock 40% bond
Average return:*	5.83%
Dollars granted over 20 years:	$48,861.44
Balance remaining:	$49,327.09
Total charitable impact: $98,188.53

What would you do with an unexpected inheritance?

Published Date

Tue, 08/06/2019 - 12:00

After 20 years, she had granted out nearly $50,000, but still maintained nearly $50,000 in the DAF.¹ Her grants went to charities that help veterans return to school, navigate their benefits with the VA, and even attend major concerts and sporting events.

She was pleased to be able to pay forward the inheritance her father had left her. And she was thrilled that her children would have the chance to do the same.

Learn more about strategic giving.

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Footnotes

In this scenario, the following assumptions were made:

All investments are subject to risk. Past performance does not guarantee future returns. Diversification does not ensure growth or protect against a loss in a declining market.
All contributions are made as charitable donations to a philanthropic account held at Vanguard Charitable’s donor-advised fund. No startup costs are incurred, but accounts are charged an annual administrative fee based on balance: 0.60% for the first $500,000, 0.30% for the next $500,000, and 0.13% for the remaining balance. Pricing will continue to decrease as account balance increases.
All account assets are invested in a mix of underlying Vanguard^® mutual funds, which assess an expense ratio. Expense ratios are assessed by the underlying funds and may vary based on account allocation and status; Vanguard Charitable does not itself charge investment fees.
Many donors contribute to a DAF at year-end and then start recommending grants in the following year. To represent a standard accrual time in the scenarios, contributions are counted on January 1 and grants are issued on December 31 of the respective year.
Invested assets are rebalanced monthly to match recommended allocations. The allocations in the paper are suggestions, and donors are encouraged to diversify their investment recommendations to take advantage of a broad range of investment options, including international and domestic and across major asset classes.

^*Actual average return is calculated as a time-weighted return annualized over a 20-year period.

Net performance is based on actual returns of the Investor share class of Vanguard Total Stock Market Index and Vanguard Total Bond Market Index Funds from January 1999 through December 2018. Performance returns reflect market movement, reinvestment of dividends/interest and capital gains, and deduction of the underlying fund’s expenses. Vanguard Total Stock Market Index Fund benchmark: Spliced Total Stock Market Index reflects the performance of the Dow Jones Wilshire 5000 Index through April 22, 2005; MSCI US Broad Market Index through June 2, 2013; and CRSP US Total Market Index thereafter. Vanguard Total Bond Market Index Fund benchmark: Spliced Bloomberg Barclays U.S. Aggregate Float Adjusted Index reflects the performance of the Bloomberg Barclays U.S. Aggregate Bond Index through December 31, 2009, and Bloomberg Barclays U.S. Aggregate Float Adjusted Index thereafter.

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