The proper thing to do with old flags is keep them for historic purposes. Do not shorten an old flag or burn it. It is even better to take them to the archives and museums so that it serves a historical value. That is going to give you fame as well.
Don't shorten it - someone would probably raise hell. I was under the impression that they were burnt once they got frayed, the the VFW idea is great - they could send it off in ceremony if that's necessary.
Depending where you live,... there are plenty of services that PROPERLY dispose of old, damaged, frayed, faded flags. I take mine to the local American Legion office. All of the above-listed advice is correct; the VFW, Boy Scouts... also check with your city hall / police department if you have further question.