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Why have endowments outperformed traditional investments?

The alternatives effect By investing in less liquid alternatives, endowments are typically able to construct a higher yielding portfolio with less correlation to the broader markets. The quality of the manager Illiquid, alternative investments are more difficult to evaluate than publicly traded securities. Skilled managers that are adept at taking advantage of pricing inefficiencies in illiquid securities will have a greater impact on returns than skilled managers operating in the public markets, where price inefficiencies are fewer in number and there is generally less return potential.

A charitable trust is a set of assets -- usually liquid -- that a donor signs over or uses to create a charitable foundation. The assets are held and managed by the charity for a specified period of time, with some or all interest that the assets produce going to the charity.

Bill and Melinda Gates Foundation Trust

J. Paul Getty Trust

It is for this reason that well-performing securities that have been held for over a year are the preferred gift to a pooled charitable trust.

Because there is no tax to pay, that means a larger investment into the trust, which means more income for you!

Because they still own the assets, there is no protection from creditors and no charitable income tax deduction is available.

If they transfer the stock to a CRT instead, the Brodys can take an immediate charitable income tax deduction of $90,357. Because they are in a 35% tax bracket, this will reduce their current federal income taxes by $31,625.

That’s $78,000 more in income than if the Brodys had sold the stock themselves. And because the assets are in an irrevocable trust, they are protected from creditors.