I'd love to give you my money, but how do I?
April 12, 2020 3:32 PM Subscribe
Hypothetically, if someone in the USA who's in the top 1% of net worth woke up this morning and wanted to give $500,000 to their favorite charity as soon as possible, where would they get the $ from, would they just go to their checking account?
Given that the median net worth of someone in the USA who would be the 1% to about $10,000,000
In order to answer this question, I was first wondering:
What type(s) of asset(s) do 1%'ers have their wealth in and more importantly, what percentages of their wealth/net worth are in those assets?
Asset types like:
ownership/equity of a private company (that they founded, inherited, and/or currently own or operate)
stock in a 'public' company/mutual funds
Real estate
relatively liquid things like municipal bonds, t-bills, cds, money market accounts, cash in savings accounts
retirement accounts that they couldn't access without being penalized
Intellectual Property/patents
other things that I'm surely forgetting
So if they wanted to donate that 500k today:
I assume that even if they have much in the bank as cash, they'd need to do something so they still have the $500,000 in liquid cash available (in case of emergency, etc and I understand they would have financial advisors to facilitate and advise these transactions) but what's that something?
Relatedly,
Is the asset allocation of the .1% (e.g. billionaires)'s net worth/wealth different? If so, what is it?
What would Jeff Bezos or Bloomberg have to do if they hypothetically wanted to give every American
resident a $2,000 check? Would they have to sell their stake in Amazon or Bloomberg, or do they have that much cash on hand?
Ultimately, I am trying to understand what steps those individuals (both .1% and 1%ers) would need to do if they truly wanted to give some of their net worth away right now in a timely (months, not years) fashion.
Given that the median net worth of someone in the USA who would be the 1% to about $10,000,000
In order to answer this question, I was first wondering:
What type(s) of asset(s) do 1%'ers have their wealth in and more importantly, what percentages of their wealth/net worth are in those assets?
Asset types like:
ownership/equity of a private company (that they founded, inherited, and/or currently own or operate)
stock in a 'public' company/mutual funds
Real estate
relatively liquid things like municipal bonds, t-bills, cds, money market accounts, cash in savings accounts
retirement accounts that they couldn't access without being penalized
Intellectual Property/patents
other things that I'm surely forgetting
So if they wanted to donate that 500k today:
I assume that even if they have much in the bank as cash, they'd need to do something so they still have the $500,000 in liquid cash available (in case of emergency, etc and I understand they would have financial advisors to facilitate and advise these transactions) but what's that something?
Relatedly,
Is the asset allocation of the .1% (e.g. billionaires)'s net worth/wealth different? If so, what is it?
What would Jeff Bezos or Bloomberg have to do if they hypothetically wanted to give every American
resident a $2,000 check? Would they have to sell their stake in Amazon or Bloomberg, or do they have that much cash on hand?
Ultimately, I am trying to understand what steps those individuals (both .1% and 1%ers) would need to do if they truly wanted to give some of their net worth away right now in a timely (months, not years) fashion.
Everyone is different of course, but if your assets are in cash, equities, precious metals, futures and derivatives, they are liquid within days. They you wire the money to wherever you want. Most financial instruments where there is a continuous open market are very liquid. If your net worth is tied up in real estate or in a hedge fund that has specific withdrawal provisions, either you take a loan out against the asset or wait until it is able to be sold or redeemed.
I have a friend who is worth mid 9 figures. If he wanted to give away $500,000, he would call his accountant and it would be done in a day, maybe two. He has a line of credit with several banks. Even if it was not in cash, he would write the check or wire the funds and it would become a loan until he could liquidate some assets. It turns out I have known this person since elementary school and I know his lawyer and accountant (also elementary school friends). He would call them and tell them to do it, and it would get done pretty easily. Not as easy as say you giving away $100, but without much complication. To give a check to millions of people rather than a handful of charities would be a logistical nightmare. I can only surmise that he would have to work with the government to do it. Probably through the IRS like Trump is doing.
Most people I know with your example of $10 million would have at least $500,000 to $1,000,000 in a bank and could do that soon. The more you have and the more you invest in private businesses, hedge funds, real estate, the harder it is to liquidate. I would venture to guess that most wealthy people have at least 10% of their Net Worth in very liquid assets.
Someone like Bezos, a great deal of his net worth is tied up in AMZN stock. He would likely take out a loan against it to pay us working people $2,000. ($2,000 x 300,000,000 people is 300 billion. Not even Bezos could do that.)
posted by AugustWest at 3:51 PM on April 12, 2020 [6 favorites]
I have a friend who is worth mid 9 figures. If he wanted to give away $500,000, he would call his accountant and it would be done in a day, maybe two. He has a line of credit with several banks. Even if it was not in cash, he would write the check or wire the funds and it would become a loan until he could liquidate some assets. It turns out I have known this person since elementary school and I know his lawyer and accountant (also elementary school friends). He would call them and tell them to do it, and it would get done pretty easily. Not as easy as say you giving away $100, but without much complication. To give a check to millions of people rather than a handful of charities would be a logistical nightmare. I can only surmise that he would have to work with the government to do it. Probably through the IRS like Trump is doing.
Most people I know with your example of $10 million would have at least $500,000 to $1,000,000 in a bank and could do that soon. The more you have and the more you invest in private businesses, hedge funds, real estate, the harder it is to liquidate. I would venture to guess that most wealthy people have at least 10% of their Net Worth in very liquid assets.
Someone like Bezos, a great deal of his net worth is tied up in AMZN stock. He would likely take out a loan against it to pay us working people $2,000. ($2,000 x 300,000,000 people is 300 billion. Not even Bezos could do that.)
posted by AugustWest at 3:51 PM on April 12, 2020 [6 favorites]
It's fairly easy to move money out of investment accounts as well. Larger lump sumps would require a conversation and might take a day or two but then they'd be transferred to a cash account to be drawn upon. Likely once in that cash account, an additional transfer would happen to the receiving charity.
posted by countrymod at 4:10 PM on April 12, 2020
posted by countrymod at 4:10 PM on April 12, 2020
Of the people I know that have that kind of money (and especially those with more), they would just wire that kind of money immediately or, at worst, need a day or so to move some stuff around. They have immediate access to funds of that magnitude.
posted by Brockles at 4:10 PM on April 12, 2020
posted by Brockles at 4:10 PM on April 12, 2020
I would add one thing that may or may not be relevant. My friend does give away a lot of his money.Generous with friends too. He has a charitable trust set up that is some amount that is there to be given to charity. I would guess that that money is very liquid and very conservative investments like US Tresasuries.
He has a rule when he gives money away. He does not give money to things that would reduce the taxpayer obligation. For example, he would not give money to a high school, but he would give the money to students directly as a scholarship to college. Rather than build a new building at State U, he would set up a scholarship fund for needy students or he would pay down someone's student loans. He tries to give money as directly as possible to people that need it without involving a bureaucracy. He is very aware of the ratio of expenses that charities have versus what they give to recipients.
Giving your money away can be done in different forms. He has invested in environmental businesses that he knew would not yield profits, but he supported the research to improve the technology.
posted by AugustWest at 4:10 PM on April 12, 2020 [3 favorites]
He has a rule when he gives money away. He does not give money to things that would reduce the taxpayer obligation. For example, he would not give money to a high school, but he would give the money to students directly as a scholarship to college. Rather than build a new building at State U, he would set up a scholarship fund for needy students or he would pay down someone's student loans. He tries to give money as directly as possible to people that need it without involving a bureaucracy. He is very aware of the ratio of expenses that charities have versus what they give to recipients.
Giving your money away can be done in different forms. He has invested in environmental businesses that he knew would not yield profits, but he supported the research to improve the technology.
posted by AugustWest at 4:10 PM on April 12, 2020 [3 favorites]
Those assets are probably in Donor Advised Funds, especially now.
posted by fingersandtoes at 4:19 PM on April 12, 2020 [3 favorites]
posted by fingersandtoes at 4:19 PM on April 12, 2020 [3 favorites]
Best answer: I work at a not for profit that occasionally receives huge donations from high net worth individuals. They almost always come in the form of stock transfers, not checks.
posted by saladin at 4:21 PM on April 12, 2020 [15 favorites]
posted by saladin at 4:21 PM on April 12, 2020 [15 favorites]
Yes, they would donate stock. That way they get a tax write-off that rolls over for multiple years by doing so, they don't have to pay the capital gains tax on the growth of said stock, and the charity gets a potentially better deal too, as they can choose when to sell the stock and potentially get more than its value at the time of transfer.
posted by limeonaire at 4:29 PM on April 12, 2020 [4 favorites]
posted by limeonaire at 4:29 PM on April 12, 2020 [4 favorites]
Yup, stock transfers are pretty convenient. The non-profit I work for liquidates immediately and assesses the tax donation value based on that; we don't try to hold stock and play the market.
It's also true that most high-wealth people who are charitably minded will usually take advantage of a donor-advised fund (assuming they don't have an actual foundation) to separate the tax donation from the charitable disbursement.
What would Jeff Bezos or Bloomberg have to do if they hypothetically wanted to give every American resident a $2,000 check? Would they have to sell their stake in Amazon or Bloomberg, or do they have that much cash on hand?
Checks written directly to individuals would not actually be considered charitable donations for tax purposes, legally speaking, but maybe our hypothetical benefactor doesn't care. Though in that case they wouldn't be able to tap into money already in a donor-advised fund.
posted by Pryde at 4:50 PM on April 12, 2020
It's also true that most high-wealth people who are charitably minded will usually take advantage of a donor-advised fund (assuming they don't have an actual foundation) to separate the tax donation from the charitable disbursement.
What would Jeff Bezos or Bloomberg have to do if they hypothetically wanted to give every American resident a $2,000 check? Would they have to sell their stake in Amazon or Bloomberg, or do they have that much cash on hand?
Checks written directly to individuals would not actually be considered charitable donations for tax purposes, legally speaking, but maybe our hypothetical benefactor doesn't care. Though in that case they wouldn't be able to tap into money already in a donor-advised fund.
posted by Pryde at 4:50 PM on April 12, 2020
Best answer: I think “as soon as possible” is a key phrase here.
Most such wealthy folks could do this fastest by wiring money from an investment account. They’d have margin available, and this would let them borrow against that margin facility with no paperwork or overhead. Then they’d figure how to pay themselves back in the following day or two to keep the interest expense low.
That said, if the charity could wait a week to get actual cash, they could transfer appreciated stocks and then after the transfer settles the charity could sell them for cash.
posted by whisk(e)y neat at 5:16 PM on April 12, 2020
Most such wealthy folks could do this fastest by wiring money from an investment account. They’d have margin available, and this would let them borrow against that margin facility with no paperwork or overhead. Then they’d figure how to pay themselves back in the following day or two to keep the interest expense low.
That said, if the charity could wait a week to get actual cash, they could transfer appreciated stocks and then after the transfer settles the charity could sell them for cash.
posted by whisk(e)y neat at 5:16 PM on April 12, 2020
Best answer: Cash from an Donor Advised Fund if they already have a DAF funded. (The DAF may be invested in mutual funds or something, but those can be liquidated in a day). Otherwise a transfer of an appreciated asset like stocks, like limeonaire says. That probably takes a few days at most. Worst case they'd just sell off a bond or two or some shares in a mutual fund and transfer the cash. Again, a few days.
To answer your question directly; it only takes 5 minutes to a few days to liquidate a small part of a typical $10M investment portfolio. And many people of that wealth already have some system in place for donating to charities.
posted by Nelson at 5:59 PM on April 12, 2020
To answer your question directly; it only takes 5 minutes to a few days to liquidate a small part of a typical $10M investment portfolio. And many people of that wealth already have some system in place for donating to charities.
posted by Nelson at 5:59 PM on April 12, 2020
I used to work at a non-profit org (just last year, in fact) where one particular donor would write us checks for large amounts like that. Regularly. From their personal checking account.
posted by cooker girl at 7:01 PM on April 12, 2020
posted by cooker girl at 7:01 PM on April 12, 2020
What would Jeff Bezos or Bloomberg have to do if they hypothetically wanted to give every American
resident a $2,000 check? Would they have to sell their stake in Amazon or Bloomberg, or do they have that much cash on hand?
They don't have that much cash on hand because they don't have nearly enough money. Just to do the math here, if Bezos and Bloomberg teamed up and both sold everything they had to do this, they would leave on the order of 3/4ths of the US population without a check, and that's ignoring taxes. These are staggering amounts of money, but there are also a lot of people in the country. And there are practical problems too: they both own a lot of things that can't be readily sold, like investments in hedge funds with restrictions, and trying to sell other things in a hurry would result in a much lower price for them.
posted by zachlipton at 7:02 PM on April 12, 2020
resident a $2,000 check? Would they have to sell their stake in Amazon or Bloomberg, or do they have that much cash on hand?
They don't have that much cash on hand because they don't have nearly enough money. Just to do the math here, if Bezos and Bloomberg teamed up and both sold everything they had to do this, they would leave on the order of 3/4ths of the US population without a check, and that's ignoring taxes. These are staggering amounts of money, but there are also a lot of people in the country. And there are practical problems too: they both own a lot of things that can't be readily sold, like investments in hedge funds with restrictions, and trying to sell other things in a hurry would result in a much lower price for them.
posted by zachlipton at 7:02 PM on April 12, 2020
What would Jeff Bezos or Bloomberg have to do if they hypothetically wanted to give every American resident a $2,000 check?
Beyond the obvious considerations here (Bezos and Bloomberg don't have that much money), Bezos/Bloomberg also do not have the ability to print money. Hence, even if they could liquidate their assets - enough for about $550 for each American resident - they need someone to buy their assets. Given that Amazon is mostly owned by mutual funds and Bloomberg, L.P. is partially owed by Merrill Lynch, a lot of that money to give Bezos/Bloomberg their cash would come right from Americans "paying" for their own check.
(caveat - I don't know the percentage ownership American residents have in those mutual funds to determine how much the ~$550 check would cost each American).
posted by saeculorum at 7:44 PM on April 12, 2020 [1 favorite]
Beyond the obvious considerations here (Bezos and Bloomberg don't have that much money), Bezos/Bloomberg also do not have the ability to print money. Hence, even if they could liquidate their assets - enough for about $550 for each American resident - they need someone to buy their assets. Given that Amazon is mostly owned by mutual funds and Bloomberg, L.P. is partially owed by Merrill Lynch, a lot of that money to give Bezos/Bloomberg their cash would come right from Americans "paying" for their own check.
(caveat - I don't know the percentage ownership American residents have in those mutual funds to determine how much the ~$550 check would cost each American).
posted by saeculorum at 7:44 PM on April 12, 2020 [1 favorite]
True story:
I have a friend who worked for a household name charitable organization, in charge of their online presence including fundraising. One year I saw him on New Years Day and he explained he'd had an unusual New Years Eve. It turned out the night before, starting around 10:00 PM, he started getting alerts that their online donation system was repeatedly rejecting a $500,000 credit card donation. Apparently there was an arbitrary limit at some point in their online donation system of $250,000. From the alerts he knew that the credit card was good, and that the holder had made several attempts to get the contribution processed before midnight. (Remember, this is December 31st, the end of the tax year.)
I don't recall the details, but he did manage to arrange for the contribution to go through. So he was happy.
posted by Winnie the Proust at 8:44 PM on April 12, 2020 [2 favorites]
I have a friend who worked for a household name charitable organization, in charge of their online presence including fundraising. One year I saw him on New Years Day and he explained he'd had an unusual New Years Eve. It turned out the night before, starting around 10:00 PM, he started getting alerts that their online donation system was repeatedly rejecting a $500,000 credit card donation. Apparently there was an arbitrary limit at some point in their online donation system of $250,000. From the alerts he knew that the credit card was good, and that the holder had made several attempts to get the contribution processed before midnight. (Remember, this is December 31st, the end of the tax year.)
I don't recall the details, but he did manage to arrange for the contribution to go through. So he was happy.
posted by Winnie the Proust at 8:44 PM on April 12, 2020 [2 favorites]
One factor that has been overlooked so far is how liquid and how healthy the donor’s portfolio is. Consider the possibility that your hypothetical donor has someone competent handling their portfolio who has already transferred the wealth into a variety of index funds. This is a portfolio set up for maximum reasonable growth; it will be easy and rapid to swap some of it for cash and wire the cash out in a day or two. Also consider the possibility that the portfolio is on the other end of the spectrum (it’s shares in a family business, an undervalued asset, or stocks that cannot be sold until 5 years from now without penalty); changing such assets into cash will be slow and arduous.
There are a lot of people who are capable financially, or who have capable financial advisors, with the first kind of portfolio. There are a lot of people with big portfolios who don’t have the slightest idea of the challenges they’re facing or how to fix them (although by and large these are great problems to have); they have the second kind of portfolio.
posted by PaulVario at 1:23 PM on April 13, 2020
There are a lot of people who are capable financially, or who have capable financial advisors, with the first kind of portfolio. There are a lot of people with big portfolios who don’t have the slightest idea of the challenges they’re facing or how to fix them (although by and large these are great problems to have); they have the second kind of portfolio.
posted by PaulVario at 1:23 PM on April 13, 2020
Response by poster: I totally erred on my math with billionaires, rendering that part of the question moot.
Thanks for the responses; I learned that the stock is relatively more liquid than I assumed and that they would have that much in accounts that's practically cash on hand.
posted by fizzix at 12:22 PM on April 17, 2020
Thanks for the responses; I learned that the stock is relatively more liquid than I assumed and that they would have that much in accounts that's practically cash on hand.
posted by fizzix at 12:22 PM on April 17, 2020
This thread is closed to new comments.
posted by SemiSalt at 3:50 PM on April 12, 2020