You Can't Take It With You? Says Who?

You Can't Take It With You?  Says who?

One sad day, Emma Jones passed away in the small town where she was born, raised and lived her entire life. She was 92.

The local newspaper, being obliged to print her obituary, was in a fix. The usual reporter, who was counted on to make up the most kind and respectful words, was on vacation. So, the editor gave the task to the sports reporter.

Here’s the thing. The sports reporter knew nothing about dear Emma and he couldn’t find anything about her either. Nobody seemed to remember her.

Emma had never married. No family relations could be found. No one knew where she had worked, or whether she worked any place before her retirement age. All was a mystery. But for the sparest of evidence found in the public records and the insistent presence of her mortal remains, Emma never existed.

Undeterred, the intrepid sports reporter dug as deep as he could into his own reporting experience and wrote a fitting obituary. The next day, the town folk interested in such things, opened their newspapers and read Emma’s obituary. Most agreed with the tombstone inscription it later inspired:

Emma Jones

1920-2012

Here lie the bones of Emma Jones.

She lived an old maid; she died an old maid.

No hits, no runs, no errors.   

 

Many financial advisors serve clients like Emma, who own significant investments under the advisor’s management. These are the clients who have no heirs (or they are already cared for). These clients have planned no charitable bequests either. The advisor is understandably concerned that when their client passes away, so will the assets under management. The heirs who were already provided for, or taxes, or the intestacy laws (if there is no Will) will force this migration of assets.

A common solution is to suggest that the client leave their estate to a private foundation that the advisor will manage and operate, with CTAC’s help. What’s foremost in the advisor’s mind is that the foundation is the obvious solution to protecting and keeping the assets under management. But by taking this approach, sooner or later life for the advisor gets very complicated.

How? Grant requests will begin to pour in from seemingly everywhere and foundation grants will need to be made. Whew! All this, plus the additional expenses, just so that the advisor can continue to manage assets.

However, few alternatives seem to be available to the advisor in this situation. Even financial institutions, that offer advisor-managed donor advised funds, require grant making decisions and charge fees in addition to the advisor’s compensation for investment transactions and administration. 

At least two innovative charities I know of have come up with another creative solution for financial advisors: advisor-managed permanent endowment funds. One of the charities also offers advisor-managed donor advised funds.

To do this, both charities use a Permanent Endowment Fund Investment Management Memorandum of Understanding (MOU). This MOU serves as the cornerstone agreement between the advisor and the charity.

The MOU’s most notable provisions require the Registered Investment Advisor (RIA) to have clients, with donative intent, who intend to give a total of $50,000 in charitable gifts of cash and property to the Permanent Endowment Fund. Afterwards, the RIA is expected to grow the endowment fund assets under his or her management to $1,000,000 within 3 years (through a combination of additional charitable gifts and investment performance).

The charities offering this kind of advisor managed endowment fund could very well end up creating hundreds of endowment investment accounts with many different advisors nationwide. How could they efficiently administer and support these relationships and accounts within the framework of their governing policies? By outsourcing these administrative tasks to CTAC.

In a nutshell, CTAC provides the following endowment fund administration services to charities and advisors, regardless of the number of participating advisors and investment accounts:

Compliance

Review all transactions for accuracy and compliance

  • Monitor cash positions to meet obligations
  • Coordinate all aspects of required distributions
  • Calculate fair market value of each account
  • Determine tax character of each transaction
  • Calculate gains/losses and unrealized appreciation
  • Monitor entity’s document requirements
  • Prepare IRS, State and Attorney General reporting services
  • Summarize grant reports, gift reports, income statements, and balance sheets

Reporting

Streamlined reporting

  • Portfolio value on both aggregate and unitized basis
  • Income statements, and balance sheets
  • Tracking and processing required for distributions for each entity

If you would like more information about the charities that offer these advisor-managed endowment funds (or donor advised funds), please let us know. We would be happy to give you their contact information.

For more information, contact Kristen Schmidt at (800) 562-2045 or via email at kschmidt@ctacadmin.com. 

By: Dan Rice, Co-founder of CTAC

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