

Why I gave away my company to charity - sivers
http://sivers.org/trust

======
wallflower
"At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs
his pal, Joseph Heller, that their host, a hedge fund manager, had made more
money in a single day than Heller had earned from his wildly popular novel
Catch-22 over its whole history. Heller responds, 'Yes, but I have something
he will never have enough.'"

Original source of 'enough' quote in Sivers' essay

<http://www.tompeters.com/dispatches/010754.php>

~~~
ryanwaggoner
That quote kind of loses its punch without the ellipsis:

'Yes, but I have something he will never have...enough.'

~~~
wallflower
Argh. Reminds me for some reason of the stand-up comedy formula. You are
correct. I forgot the punchline. The ellipsis.

Example from Robin Williams

"Parenting is hard" (Premise)

"Once you become a parent, you have responsibilities" (Statement/setup
building on premise)

"For example, you can't go out drinking, come home drunk, go up to Junior's
room at 3am and say 'For a change, Daddy's going to throw up on you now just
like you do" (Turn around, the twist)

------
lefstathiou
I hope I'm not being an ass but this article annoyed me a bit. This guy came
across very arrogant, self righteous and judgmental.

The following statements were just obnoxious: \- "Yes, but I have something
he'll never have: enough." \- "I live simply. I hate waste and excess. I have
a good apartment, a good laptop, and a few other basics. But the less I own,
the happier I am. The lack of possessions gives me the priceless freedom to
live anywhere anytime." \- "it throws off perspective. It makes people do
stupid things like buy “extra” cars or houses they don't use - or upgrade to
first class for “only” $10,000 so they can be a little more comfortable for a
few hours."

A) I've never met nor heard of any billionaire who got where they were because
they were chasing dollars. All of them started out by LOVING what they did and
doing it extremely well. The market rewarded them for the value they created
for society. The greater the value, the greater the reward.

B) Why is he implying that because of their success, the rich are incapable of
appreciating the simple things in life? Why does doing that require owning
just one nice apartment in NYC a nice laptop, a brand new prius

C) What business it is of his how other people live their life and how they
choose to spend their money. Everybody needs to be like him in order to be as
valiant and noble?

I dunno... maybe i'm being a bit extreme but I just cant stand it when other
people go around self righteously preaching about how other ppl should live
their lives.

~~~
dkarl
It struck me the same way. He projects a salesman's confidence and glibness,
so my knee-jerk reaction is to roll my eyes and wonder what the hell he's
selling. Well, it's obvious _what_. The entire post is plain and simple
bragging. He says himself that he didn't do it out of altruism. He did it to
maximize his happiness, which includes -- he says this explicitly -- enjoying
the fact that he made such a bright decision. And though he doesn't say it,
it's obvious that another one of the benefits he gets is the joy of telling
everyone about his enlightened, tasteful choice.

Nothing he says is new. Choosing a life of utter freedom, security, and modest
luxury over the relentless drive for more wealth and power is probably as old
as stable urban societies and has probably been admired for the same reasons
just as long. So we're not here to learn; we're just here to gawk at one of
our celebrities. If HN had channels, this would be E!

Admire the man for what he's done, but for God's sake, have the sense to roll
your eyes and stop admiring for a second when he tastelessly brags about it.
Resume admiring when this little faux pas passes out of consciousness.

~~~
sivers
I agree!

I did all this over a year ago, and didn't plan on telling anyone. I knew it
would sound like smug bragging.

But in a few entrepreneur-focused interviews since then, (VentureVoice, etc) -
the interviewers seemed particularly interested in the details on how and why
I set up the trust.

Yesterday I did another one of those interviews, and he pushed for details
again - so today I thought I should just write it down once and for all, so I
don't have to keep re-telling it.

Sorry if it sounds like bragging. Perhaps it is, a bit, but I hope that
someone somewhere in the future selling their company might be aware that this
is an option and read someone else's experience with how to structure it.

~~~
staunch
Most people aren't willing to talk about financial details _at all_. I find it
fascinating myself. Thanks a lot for sharing.

------
maddalab
Altruism aside, it is a very smart move. I grew up in India and am sparse in
my living standards and am at times amazed at the kind of affluence that
exists in America even amongst those who consider themselves less privileged.

As long as the trust grows at greater than 5% of its values you receive the
mandated annual disbursement which is this case is a fair chunk of change and
add monies to be disbursed at the end. However factoring in the rate of
inflation and "money's real value over time", the trust probably needs to be
invested wisely to grow at 5% + rate of inflation to retain its original value
over the years.

Occurs to me that setting up the trust is only half the battle, having it
deliver on its original promise is the greater half.

~~~
ido
When you reach that magnitude (many 10s of millions of dollars) getting 5% +
inflation (inflation is on average pretty low in industrialized countries)
amortized over many years is not hard.

------
michael_dorfman
Wow, talk about a classy move.

Major props to Derek.

 _"The best things in life aren't things"_

~~~
nazgulnarsil
status is a thing >_> isn't derek signaling high status by giving away
something valuable? <_<

~~~
misuba
sort of. but everything humans do can be argued as a status move, so it's
unwise to get super hung up on it. (me, i just marvel at the 1337 tax-evasion
skillz. :-)

~~~
gojomo
Let's do Sivers the favor of precision in our language: he engaged in rational
_tax avoidance_ for a good cause. When you say 'tax evasion', it generally
means the steps taken were illegal.

~~~
skorgu
Or at least focused on avoiding taxes _for personal profit_ if not outright
illegal.

------
n8agrin
Wow, this really rang true with me:

"It's not that I'm altruistic. I'm sacrificing nothing. I've just learned what
makes me happy. And doing it this way made me the happiest."

I often think about how this mentality equates to business. For example, we
generally think about business profit growth as healthy, but what if a
business is sustainable, does not grow in profits but can somehow grow
"happiness" with customers, investors, employees, etc. In a sense the business
is not necessarily being altruistic, it's just recognizing what makes people
more dedicated to the business. When thinking about Zappos I generally wonder
if this wasn't their strategy for many years.

------
quickpost
He's getting 5% of $22 million each year to cover living expenses
($1.1million)?

Doesn't exactly sound like "living simply" to me.

~~~
ryanwaggoner
He's required to receive at least 5% of the trust's value as his annuity each
year.

<http://en.wikipedia.org/wiki/Charitable_remainder_unitrust>

~~~
ajju
Does the benefactor have to pay tax on that 5%? If not, this is an amazing
deal for the benefactor!

~~~
sethg
If I am reading the Wikipedia article correctly (and if the article itself is
correct), the benefactor does pay tax on that 5%.

However, if the OP had kept his startup in his own name, then at the time he
sold it, he would have had to pay capital-gains tax on all of his profit, that
year. (And then he would have been able to spend the remainder on whatever he
wanted, that year.)

------
edw519
Thank you, Derek. One of my all time favorite hn posts. So many good quotes, I
won't cite any of them. Just read the whole thing.

We spend so much time pushing our customers to answer the question, "What's
most important to you?" that we tend to forget to ask it to ourselves. OP's
answer might not be my answer, but it's an awfully good one. Working hard is
so much easier when you're working toward such an important outcome.

Respect.

~~~
Retric
Do the math. He created a trust that pays 5% of 22 million and avoids ~5
million in taxes. That's 1.1 million a year in income and a 5 million tax
break at the cost his capital after he dies. It's less liquid right now, but
1.1 million a year is well past FU money and getting a loan with that sort of
income stream is easy. If his annual payout was less than 5% then it would
have been a sacrifice, but 5% + inflation means he might be extracting more
money in real terms than he is generating. This means over a long enough time
scale he basically skims most of his money back, and he leaves the tax break
some of it's interest to charity. Granted if he generates significantly more
than 5% + inflation he does lose some money but he does get 5% of an ever
larger pool so it's not all that much of a loss.

PS: Which is not to say it’s a bad thing, rather it’s more of a tax loophole
than you might think. Afterall his other option was to live off of ~4.5% of 17
million. (Assuming he did not want to run out of money if he lived to be 90.)

~~~
sivers
Eh. I get taxed fully for everything that gets paid to me. (That annual 5%.)
That doesn't avoid taxes at all.

Only what will never touch my hands (direct from purchase-event to charity)
avoids taxes.

So this was just a way of making sure as much of it as possible never touches
my hands.

(As compared to passing-through me: taking it as income then giving it back
out again.)

~~~
Retric
There are 2 tax advantages. You don't pay taxes on the first sale, and the
annuity does not pay taxes when it sell's it's assets.

Let's say you are a 30 years old and need to pay taxes on 14 million$ and
decide to retire. As you get the money you need to pay taxes for simplicity
let's call that 4 million$. You now have 10 million$ if you then buy stocks
with a 5% dividend that keep up with inflation your income is 500k /year(which
you do pay taxes on). However, if you ever sell those stocks you need to pay
tax on how much they appreciated.

If on the other hand you setup an annuity it does not pay that 4 million in
taxes. If it then buys those same stocks with a 5% dividend that keep up with
inflation it's paying you (10m+4m) *.05 = 700k / year (which you do pay taxes
on). And if the annuity manager want's to sell the stock and buy something
else it does not need to pay taxes on the sale.

The final question becomes can you buy a life insurance policy for less than
200k/year that pays out the value of the annuity when you die. Expect your
family does not pay death taxes on a life insurance policy so even that has
tax advantages.

PS: In the real world all those numbers are subject to change, but it was
setup by congress as a tax shelter and with proper management it can do that
vary well. I only bring this up because it may be a good idea for other people
on HN who decide to sell their company and retire when when they are young.

~~~
TheSOB88
Could you please get rid of the apostrophes in the phrase "sell's it's"?

~~~
mistermann
He wrote several paragraphs of wisdom, and you're here to correct his
spelling. Nice. Could you reallt nopt derive his meaning despite his poor
spelling?

------
phony_identity
Derek, you did great work in creating that wealth and everyone here is happy
to see you enjoying some of it. But please consider re-writing this to
something more truthful - fewer words emphasizing your altruism and spartan
lifestyle (?) and more words talking about the tax advantages and forced
spending discipline that this smart plan gives you.

The title, for example, shouldn't be "Why I gave away my company to charity".
You didn't do that. (Which is good! That would be crazy.) How about, "Why I
willed my estate to charity."

------
ivankirigin
I was thinking of a similar configuration for an investment vehicle. Make a
charity whose goal is investing in good startups. Feed the returns back into
investing. The goal is clout and influence rather than cashed out returns. I
think this would better align incentives of investors and companies. It could
also be used for "human capital" investments which are uncommon today except
for student loans.

It wouldn't need to be relinquished upon death - but the trustees would be
transferred over time.

------
Psyonic
Can we assume it actually makes more than 5% interest every year? Otherwise
he's slowly draining it of its value, and if he lives long enough may empty
it. It probably does, but it's a thought.

~~~
ryanwaggoner
Yeah, asset managers generally advise withdrawing no more than 4% annually to
preserve wealth. However, I'm guessing that this is classified similar to a
foundation, which must pay out 5% of its assets each year.

EDIT: Just read the wikipedia article he links to, and as the value of the
trust is recalculated each year, and his annuity is based on the recalculated
value (as opposed to the original value) it's effectively impossible to
deplete the value.

Also, you _can_ setup a net-income CRUT that pays out the lesser of the
annuity income percentage, or the trust's net income for the year, thus
ensuring that your annuity doesn't reduce the value of the trust from year to
year.

~~~
sivers
Exactly. I'm required to pay out 5% per year to myself, but then I don't have
to spend the whole 5%. I can reinvest it or whatever.

~~~
tsuraan
Can you re-invest it in the non-profit that you created? i.e., accept the 5%
and then just give most of it right back?

------
mattmaroon
I have to admit, I hate anyone who says something like:

"That means $5 million more going to music education instead of another tank
in Iraq or a banker's bailout bonus."

Because that is where all tax money goes. I'd say >90% of tax dollars go to
something way more important than music education, though I guess if I had
cashed out of a music startup I might be selfish enough to convince myself
that is untrue.

~~~
Tichy
Music education was important to him. For other people maybe other things are
more important. They can donate to other cause, or pay voluntary taxes.

~~~
mattmaroon
What paid for the roads he took on his way to music classes? What funded the
internet he made money off of? What paid for the tanks that kept his country
in such a state that people could spend time studying music rather than
fighting civil wars and subsistence farming? I'm sure I'm no more a fan of the
Iraq War than he is, but I'm glad we have tanks and nukes, if for no other
reason than their very existence reduces the likelihood we will need them.

If everyone gave their money to helping other people with their hobbies,
rather than paying taxes, would you want to live here?

~~~
jon_dahl
This is a strange argument. He isn't dodging taxes - the same tax code that
pays for roads and tanks also specifically encourages people to give money to
charities, by providing legal deductions. That's all he's doing.

The government has a mandate, and the power, to fund itself. The same isn't
true of charities.

~~~
mattmaroon
It's not the action I object to, it's the dismissal of what taxes do.

------
flooha
Why not use the money for music education now and be actively involved (or
not) instead of in x number of years (40?) from now?

~~~
eli
Because then you couldn't live off the interest in the mean time.

------
MikeCapone
5% * 22 million = 1.1 million

Not bad.

------
andrewcooke
just wanted to make a point that others seem to have missed. to the extent
that this is avoiding taxes so that more money can be given to a particular
charity, isn't it "robbing peter to pay paul"?

this might not make much sense to the american mindset, which seems to be
virulently anti-government, but taxes don't just vanish - they pay for vital
services. more than that, reducing how much tax someone with many millions
pays implies that others, with less money, either pay more or receive lower
quality services.

i realise this is a minor detailed compared to giving to charity or keeping it
all, and i don't mean to detract from that. i just find the "it's cool to
avoid taxes" (and instead give more to charity) assumption a bit odd.

~~~
smanek
The US government spends most of its money (roughly in order) on:

-Wall Street Bailout

-Military Spending (which, in large part, means pre-emptively attacking sovereign nations we don't like)

-Inefficient entitlement programs

-Interest on our existing debt

If memory serves, only about ~5% of our money goes to what I would consider
really worthwhile programs like NASA and education. You can up that to about
20% if you include things like roads, infrastructure maintenance, 'vital
services', and so on.

I imagine that Derek prefers to have more control over where his hard earned
money goes.

------
djm
hey derek - you mentioned that you wrote this article after being prompted to
do so and I thought I'd take the opportunity to try and prompt you to write
another one!

You briefly commented on living the (relatively) simple life - having fairly
few possessions etc. I try and live somewhat like this myself and have found
it very liberating.

If you're interested I'd much like to read an essay with your expanded
thoughts on this lifestyle decision.

cheers, david

~~~
mbrubeck
Here's one of his past essays that's relevant: <http://sivers.org/freedom>

------
auston
I once heard the word "Charitable Remainder Trust" - it was by a guy who
wanted to make sure his money could never be taken from him...

[http://www.investorwords.com/830/charitable_remainder_trust....](http://www.investorwords.com/830/charitable_remainder_trust.html)

So no cap gains + a tax deduction for making money? Doesn't seem so charitable
to me...

(someone, please correct me if I am wrong)

~~~
ryanwaggoner
There's absolutely nothing charitable about paying taxes.

~~~
auston
Sorry - my point was that the title connotes he's already completed some
charitable action, when, in actuality, he's just taken steps to preserve his
wealth until he passes - at which point a charitable action will be taken (on
his behalf).

edit: no one here likes the truth, I guess.

~~~
shaddi
He does say explicitly that he's not being altruistic.

My take is that this is a tip for startup owners who are planning to give some
of their wealth to charitable causes after their death. He suggests a way to
do this (financial hack, if you will) that improves the efficiency of the
operation, maximizing both the money that goes to the charitable cause and to
the donor.

Regarding the payout, see <http://news.ycombinator.com/item?id=976759>.

------
vaksel
wouldn't it make more sense to invest that money into a few hundred startups
instead?

At $50K a pop, that's 340 startups that he could invest in.

Then 5 years later, when that 17 mil becomes 200 mil, he could setup that
music trust.

I mean sure, he can still invest with whatever is left over from that 1 mil
yearly cash out, but it's not going to be a game changer compared to backing
340 new startups.

~~~
seasoup
Reread the statement about "enough".

~~~
JanezStupar
Plus if we assume that he does recieve 1.1 mil $ per year (at least for first
couple of years).

And if he is that ascetic as he claims.

Then we can safely assume that from 660k that remain (after taxes) - he can
probably live pretty lavishly on 160k per year (for an ascet !) - especially
since this amount doesn't need to be spent on making money (transport,...).

So now we can see that he can clearly invest into 10 startups per year - and
even afford to be actually involved in them. Which would probably far increase
possibility of success over just blindly dumping money in 340 startups with
total disregard for anything. And in 10 years he would be involved in 100 of
possibly pretty good startups of which I believe at least one could repeat his
success (due to selection and nurturing).

To me its clear how this "non-greedy" strategy is clearly better over long
term.

I'm really amazed how some people who claim (or act) greedy are really not
THAT greedy - solely because they act on short-term ("BIG" bonus this year! or
- steal from thy shareholders, etc, etc) over long-term. I don't call them
greedy - I just call them stupid :)

Because a true greedy person should be focused on an mid or long-term goal
(how to maximize my profit in 20 or 40 years).

