Nonprofit Radio for Dec. 10, 2010: Death Won’t Stop Me & Endowment Emergency

Big Nonprofit Ideas for the Other 95%

Compliance. Board relations. Fundraising. Technology. Volunteer management. Accounting. Finance. Marketing. Social media. Investments.

Every nonprofit faces these issues and big nonprofits have experts in each. Small and medium size nonprofits have Tony Martignetti Nonprofit Radio. Trusted experts throughout the country join Tony to take on the tough issues facing your organization.

Episode 19 of Tony Martignetti Nonprofit Radio for December 10, 2010

Tony’s Guests:

Reynolds Cafferata, Esq. – Reynolds Cafferata, Esq. is an attorney with the law firm of Rodriguez, Horii, Choi & Cafferata in Los Angeles. His firm represents nonprofits and their donors.

Topic: Death Won’t Stop Me: Multigenerational Philanthropy:
Donors who don’t want to stop giving to you merely because they’ve died can use different legal structures to continue their philanthropy through generations. Reynolds Cafferata, Esq. joined me at the National Conference on Philanthropic Planning to explain.

Kathryn Miree – Kathryn W. Miree is the president and primary consultant for Kathryn W. Miree & Associates, Inc. Ms. Miree provides a full range of planned giving, endowment, and foundation management services designed to help charities build long-term financial stability through planned gifts and endowment.

Topic: Endowment Emergency:
Kathryn believes there’s a crisis swirling around how endowments are invested, allocated and spent. She joined me and Raymund Flandez of The Chronicle of Philanthropy at the National Conference on Philanthropic Planning to share solutions and best practices.

Here is the link to the podcast: 021: Death Won’t Stop Me and Endowment Emergency

When and where: Talking Alternative Radio, Friday, 1-2pm Eastern.

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Kayman welcome to tony martignetti non-profit radio, big non-profit ideas for the other ninety five percent. Amiel aptly named host your aptly named host, tony martignetti last week. We had had a career kill your career in five easy steps. That was the second half of my robert sharpen to view from the national conference on philanthropic planning, and you’ll remember that i co interviewer was raymond flandez of the chronicle of philanthropy, and we also had interviews on interview, talking about tax policy and the future of philanthropic planning. My guests for that were emily lamb and perry wasserman, also recorded at that national conference, and this week, it’s the same thing. Mohr interviews from the national conference on philanthropic planning, which was from florida this past october, and we’re going to get right into those interviews after this break. E-giving didn’t think dick tooting getting ding, ding, ding ding, you’re listening to the talking alternate network e-giving duitz dahna cubine are you suffering from aches and pains? Has traditional medicine let you down? Are you tired of taking toxic medications, then come to the double diamond wellness center and learn how our natural methods can help you to hell? Call us now at to one to seven to one eight, one eight three that’s to one to seven to one eight one eight three or find us on the web at www dot double diamond wellness dot com way. Look forward to serving you. Do you want to enhance your company’s web presence with an eye catching and unique website design? Would you like to incorporate professional video marketing mobile marketing into your organization’s marketing campaign? Mission one on one media offers a unique marketing experience that will set you apart from your competitors, magnify your brand exposure and enhance your current marketing efforts. Their services include video production and editing, web design, graphic design photography, social media management and now introducing mobile marketing. Their motto is we do whatever it takes to make our clients happy contact them today. Admission one one media dot com hey, all you crazy listeners looking to boost your business, why not advertise on talking alternative with very reasonable rates? Interested simply email at info at talking alternative dot com welcome to tony martignetti non-profit radio and the chronicle of philanthropy coverage of the national conference on philanthropic planning. We are in lake buena vista, florida, outside orlando, very close to orlando, and our guest in this segment is reynolds cafferata reynolds seminar topic is creating effective legal structures for multi generational philanthropy. That’s a lot. We’re going to dive in and sort of parts that out just by way of introduction, reynolds cafferata and his last name is spelled c a f f e r a is a partner in the law firm of rodriguez, hori, choi and cafferata and they are based in los angeles, california. That firm is a tax firm working with both non-profits and individuals who are making charitable gifts. And, uh, we’re very pleased that reynolds work brings him to our podcast coverage of the conference. Reynolds welcome. Thank you. Thanks very much for taking time. So that’s a that’s a pretty heavy title. Creating effective legal structures for multi generational philanthropy. Let’s sort of parse it out a little bit. What? What do you mean? When you say multigenerational philanthropy that would refer to families who are trying to set up a private foundation or some other charitable organization that is supposed to stand up in span more than one generation of the family. So mom and dad and the kids maybe mom, dad, the kids, the grand kids, maybe even beyond. And why would a family want tohave? Ah, multigenerational structure there’s. A lot of several reasons why families find this attractive. One of the main reasons is if the founding members think that philanthropy is an important value. This is a a mechanism to pass that value down and provide a resource for future generations to act on that value. They feel that having the structure, they’re sort of instills the value itself. There’s also just sort of benefits to the family as a whole to control a philanthropic fun through multiple generations. So those are some of the reasons people find attractive. Is this something that really is restricted to people who are way need a definition of wealthy? I don’t know, but who have income or our assets at a certain of the family has income or assets at a certain level? Or is this open also to people of more modest means? My presentation today is probably focusing on the higher end issues that come up for people who were putting in a fairly large amounts of money, millions, tens of millions, but there are structures that air available for much more modest means, you know, a family multigenerational planning could just be parents putting ten thousand dollars hours into a donor advised fund for their children or grandchildren to advise, so some of it conspire. Hanna pretty wide range of economic means excellent, ok, but your conference topic is focusing more on the strategies for the wealthier. Now on tony martignetti non-profit radio we have george in jail and you’re an attorney. I’d hate to put you in jogging, joe, because that has big implications for your career just donorsearch advised fund, you just flush that out for us, tell tell the listeners, would of donor advised fundez sure don’t advice fund is a fund maintained either it’s, something called the community foundation or some of the financial services firms also have set thes fund’s up, and basically you make a contribution to the fund. When you make the contribution, you get your charitable deduction right then and then you’re allowed to give advice, which is pretty universally followed, assuming you’re advising to legitimate charitable organizations than you can advise the community foundation and the financial services firm what charity’s you’d like it to be distributed teo and that is something that’s available to people of modest means. I mean, you could put just a couple of thousand dollars into a donor advised funds? Yes, absolutely. I think several organizations have minimums of just a few thousand summits like ten. A few, maybe twenty five thousand. Ok, so you’re commuted from drug in jail. Your career is secure. You don’t have to report anything to the bar association. Let’s. So let’s, jump, then back tio. More more concerning your your topic. What are some of the let’s start with? What is the sort of simplest strategy for this multigenerational philanthropy? Well, the starting point is figuring out what’s important to the founder and the family. There’s often a attention between a desire to let future generations have their own imprint on the family’s. Philanthropy and the founders desire too, create something that remains true to the values in causes that are important to them. So you have to start out there and figure out which you know which direction and it’s not necessarily an either or theirs. Great ations in between. But what level of flexibility do you wanna have versus what kind of assurances does the founder want tohave that the causes that they created this thing for will be the cause is that it is supporting, you know, ten, fifteen hundred years. So now and let me just say so not unlike a non-profit talking to their donor about what? What structure a gift should take, whether it’s going to be a lifetime gift or ah, state or planned gift, and whether there’s a plan gift where there’s going to be income involved or not this you need to have your you’re having the same kinds of conversations with the clients. What are what are their interest what’s what’s really important to them and their family before? Before you can decide what’s the right structure. So they go see my simple minded question what’s the simple structure with these there is no there’s, no one solution. It really depends on what’s important to the family, right? And so kind of what i’m going through is, you know, talk to the donor about the values is their emphasis on, you know, maintaining these core principles, or is their emphasis on providing flexibility on? And then we go through? Well, you know, if the desire is to keep the organization really true to its mission and minimize the ability of future generations to change that, then you look at things like trust, which tend to be a little more rigid versus if ah, you know some donors take the position that hey, after i’m gone, i’m gone it’s somebody else’s decisions to make and they want to maximize flexibility and then, you know, the corporation is probably the place to see start there, and then there are other sort of things you can add on to increase or decrease the flexibility of either of those basic starting points and you mention the corporation. What? What sort of structures are we talking about? When it’s a corporation most each state will have, they call them different things, but usually each state has adopted some version of the non-profit corporation model non-profit corporation act and so it’s a essentially a state chartered corporation that’s expressly designed to be not-for-profits we’ll have some special provisions for governance that would come up and be africa ble to nonprofit organizations, delaware, they’re called non stock corporations in california. They’re called public benefit corporations. They could be called different things in different states and these air structures that individual on a family create is that right? In my understanding? Yeah, yeah, yeah. Okay. Yeah. Who do you anticipate your audience being for this seminar? Mostly planners are they are they planners. In in the non-profits or you think they’re mohr consultants and attorneys to individuals? I’m hoping because all those folks are here and i’m hoping to have something for all of them. Obviously, for the lawyers and some of the other allied professionals, they’re going to have clients, they’re going to come to them wanting to set up these types of entities in wanting advice on how to do it. So we’re giving us some direct information about the tools available to him and what to use potential in different contacts for the representatives of charities, they will often be working with donors who are setting up thes structures in well, they may not be the first line of advice for setting up the family foundation. They will often be consulted in a year you’re in the charitable worlds. You under chan charity. You understand what i’m trying to do? Give me your thoughts on this, and so it’ll give them some background tohave samen put and depending on what the donor is trying to do there, there are roles to be played for charitable organizations within these family structures, and so we’ll be talking about you know what? Those roles are and making sure that these people were aware of the opportunities that just because the money is initially going into the family foundation doesn’t mean that the university, the hospital, whatever organization they represent, is not part of the conversation. Okay, excellent. And i do want to pick up on that just very briefly little reminder that my guest is reynolds cafferata and we’re talking about his seminar creating effective legal structures for multi generational philanthropy. You’re listening to the chronicle of philanthropy and tony martignetti non-profit radio coverage of the national conference on philanthropic planning in florida. Let’s talk about the charitable role in this i wouldn’t have i thought that it’s ah, as meaningful as it sounds like you’re suggesting it can be with i’m seeing a family creating a structure what’s, the what’s, the what’s. Certainly we know the interest what’s the role of the charities there’s a couple places where the charitable organization can play the role one of them is an issue that people struggle with is, you know, the parents have one percent set of philanthropic interests and just like your children don’t listen to the same music you listen to, they don’t dress the same way you do, they don’t decorate their house the same way you d’oh, they also don’t have the same charitable interest that you d’oh, and if you’re you know, comfortable with just letting them do their own thing with the family money, then you know, fine, but i would not say that that’s an attitude that is reflected in all or even a majority of my clients, a lot of them, you know, they want to create a philanthropic legacy. They want to create the legacy that relates to the causes that are important to them not, you know, they may be willing to have something go to their children’s causes, but there are the things that are important to them, and they want to see their legacy address. So if that’s one of the concerns than by building into your governance structure our relationship with organizations that speak to the causes that you care about having, you know, the university of the hospital, maybe appoint one of the board members of the foundation or something like that? Well, then allow the family members to be involved, but at the same time ensure that the organization stays true to the causes and interests that were important to the foundation, another roll that can be played. One of the riel difficulties in setting these things up is succession of governance. Here durney setting this up, you’re expecting future generations of family members to be your directors, but a number of problems can arise there. There may be a lack of interest you could, you know, just through sort of the sequence of deaths and births of people. I have a period of time where there is a generation in which there’s, nobody who’s, has the legal capacity to be the director’s, because you either got people who are too young or you’ve got people who, you know our having capacity issues at the other end of life. So, putting aside the fact that the air’s may just not be interested in the work of the foundation, there may be actual legal structure, legal constraints around there being a family member involved in the foundation. You’re listening to the talking alternative network. Yeah. Are you feeling overwhelmed and the current chaos of our changing times? A deeper understanding of authentic astrology can uncover solutions in every area of life. 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Police call a set two one, two nine six, four, three, five zero two for a free consultation. That’s lawrence h bloom two, one two, nine, six, four, three five zero two. We make people happy. Durney talking alternative radio twenty four hours a day. So what do we do that so, thereby having again identifying some charitable organizations who are helping oversee the sanity? If you have one of these period and it may be temporary, it may be that, you know, you had a generation die out for some reason. There’s kind of a gap everybody’s under eighteen. But within a few years, they will have legal capacity. If you’ve got a charitable organization involved with you than they could at least temporarily oversee the administration of the entity. And then when you again have family members with capacity, they can come back in and start serving again. And i have a role. Ah, the other issue where the outside organizations can help out is that why is you well know, there’s there’s a lot to know there’s. A lot of expertise to develop in terms of effectively administering a charitable organization. And every generation sort of has to recycle and relearn that knowledge is they come on and again by having some outside organizations participating in the management of your organization, they could help make sure that that continual education and reeducation process takes place. Reynolds, is there a lot of ego? Wrapped up in this i mean, we’re talking about entities that could don’t necessarily need to be last in perpetuity. That could be have it their governing documents ah termination shin or fixed period, but the ones that one last they want the entity lasting in perpetuity. Our people just really tryingto extend their lives into a corporate structure. I think there’s, multiple motivations and certainly legacy and a sense of impact is one reason that people do these things. Another reason is they again want this mechanism sort of transmit the value of giving back and philanthropy to multiple generations so that’s why they like the entity to last that long. But you do raise a good point that we do discuss with our clients, and that is the issue of does perpetual existence really make sense from the structuring standpoint, as you make the entity exists for a longer period of time than many of the challenges in terms of governance, in terms of adapting to new circumstances? The longer it goes on, the more those challenges get magnified. The other thing to think about is, you know, yes, there’s, certainly something to be said and there presumably. Will always be a need for philanthropic entities to support whatever the issues are in society, and so creating something that basically will provide funding and perpetuity has some value. On the other hand, though, you may find that you could create mohr impact with something that you care about bye spending a lot more money over a shorter period of time and really, you know, sort of trying to address an issue once and for all. So that’s part of the conversation of working with these folks is do you want to try for the perpetual duration? Or you want to set a time limit and have some mechanism by which the entities spends down over, you know, ten, fifteen, twenty years, i’m goingto switch a little bit wanna talk about your role in representing individuals who are making charitable gift, but not necessarily through one of these more sophisticated structures. And what i’m curious about is we always in my business, we represent non-profits and i’m always interested in the other side. Dahna what is sort of overreaching when when you have ah, a client come to an individual client come to you and they want to make a gift to a particular charity of some type, and i’m thinking of a circumstance where maybe you kind of feel that charity has done a little more than they should have in advising the donor. Do you do see those circumstances much? I’m tryingto give charities the boundaries, in other words, of what they’re doing, a relationship where they don’t relationship should end, and so that’s sort of the way i’m trying to get at it. Well, i guess that the one area where i’ve been somewhat out spoken about practices by charities that i don’t think necessarily serve them or the donor’s well is the whole issue of enforceable charitable pledges and partly because of accounting rules, partly because of counting rules, organizations like to get donors to sign enforceable pledge agreements, partly because of fund-raising pressures, right, fundraisers have quarters on dh marks, right? And they only want account. What they see is an enforceable pledge, and the problem with that is it from the donor’s perspective, signing the enforceable pledge whether the, you know are concerned about paying it or not, it creates significant issues for them in terms of the flexibility of satisfying the pledges. They sign an enforceable pledge agreement in their own name, and then a year later, they create a donor advice funder private foundation. They can’t use either of those vehicles too satisfied that plans well against self dealing, right? Thank you, not as common an issue, but if they ever had somebody else who decided that they wanted to satisfy part of that pledge, and it does sometimes happen in families that you know, one family member makes a pledge, and then maybe somebody else decides to finish it out. Well, again, if that’s an enforceable, pledged theirs an irs revenue ruling on point that says that the person who is helping out is not making a gift to an organization, they’re making a gift to the original maker of the pledge. And then the person who made the pledge gets the income tax deduction. I mean, if you understand tax law it’s not a counter intuitive result, but if you’re just sort of a normal person who thinks logically it’s a very counterintuitive result. So from the donor’s respect of these pledges, khun b extremely problematic and even from the charity’s respect yeah, you mentioned doesn’t serve the charity. Well, why do you say that for a couple reasons number one, if they ever get into a situation where they need to do a workout with the donor and, you know, we certainly seen through two thousand eight that there were, you know, people who with, you know, complete honest belief that they were going to be able to make a syriza payments entered into these agreements, and then circumstances changed, and at a minimum, they needed to at least pay change the payment schedule. Well, if you’ve got an enforceable pledge, that’s an asset of the organization ah, and well, not always true, but a lot of times you have these pledges from people who are your director’s, your trustees or, you know, a former officer, former trusty, very close to the organization, right? Or maybe it may even be a fiduciary to the organization have a legal obligation if they’re on the board of trustees exactly. And that leads to another set of problems that if you’re a public charity, there’s thes rules called excess benefit transaction prohibitions. And basically what? Those days, if you’ve got somebody who’s khun wield influence over the organization like a trustee. And you enter into a transaction with them. And what they provide you in terms of economic value is less than what you provide them in terms of economic value. The difference there is an excess economic benefit, and if the irs identifies it, then the person who got that benefit has to repay it. They have to pay a twenty five percent excise tax on it. And the board members who are managers who approved that transaction are also potentially subject to an excise tax. Well, good. Who are enforceable pledge the person owes you. You know, it’s called one hundred thousand dollars on their enforceable pledge. And then something happens and they come to you and say, you know, g, you know, circumstances change, you know, i can’t pay i don’t want to pay whatever, and the organization is like, okay, we understand. Well, economically, you just handed them one hundred thousand dollars, and they handed you back nothing. Um, well, that you know, arguably is one hundred thousand dollars automatic access benefit. Now, we’ve had informal conversations with the irs about this, and really, you pick up the phone and the irs answers when you call. Yeah. They actually they actually d’oh the folks back, and they basically have different people assigned a different code sections, and, you know, if you call him up, if you’ve done your homework and so it’s, not something that you know they’re like, well, did you just read, you know, publication or whatever, but if you’ve done your homework and it’s, you know, an issue that’s not obvious than they’re definitely willing to have a conversation with you and, you know, try to be helpful and really give you their thoughts. And so we had this discussion and the person i was tell him i said, well, you know, we really we weren’t even thinking about this when we wrote these regulations, they were thinking, you know, excessive compensation, you know, selling property and sweetheart deals and stuff like that, he said, well, you know, technically, i understand, you know, i see your point that, you know, basically these rules would apply. I don’t see us coming after an organization, particularly if a disinterested group of directors were approving and they had a good business reason for doing it. But of course, you know, this is just you and me talking. And, you know, none of this can be relied on because it’s not written guidance in the agency and i haven’t heard of the irs going after anybody on this but it’s just an added layer of complexity that one has to think about all because you have the enforceable pledge and all the enforceable pledge gets the organization is basically the right to sue the donor if they don’t make the pledge payment. And when i talk about this issue and i’ve gone around the country and, you know, given the presentation the number of times and i always ask, you know, how many of you are from an organization that always sees their donors when they don’t pay, you know, out of thousands of people nobody’s ever raised their hand for them, how many of you are from an organization where, you know, if it were a really important pledge on dh, you know, the person really didn’t have any good defense to not paying it, and they had adequate assets? You’d at least think about it well, a few hands will go up, and i think, you know, every so often they’re certain key pledges where and sometimes charities do go after donors, but it’s, you know the exception, not the rule, and said, how many of you from organizations that, you know, basically almost never going to see their donors and that’s, where you see all the hands and that’s for a variety of good reasons where most charities come out. But it’s, you know, i asked, then. Well, if you don’t intend to sue the donor, if you don’t intend to use this feature of this document and it creates all these problems for you, and it creates all these problems. More importantly for the donor, why are you doing these things? Why bother? So going back to this was a very long answer to your question. You know, what do i tell donors when i’m on the donor side? In the first thing i usually tell the owners is, you know, if they sent you an enforceable pledge agreement, let’s, change it to a letter of intent and here’s why? We’ve actually tried with the enforceable pledges putting in language that warns the donor, if you sign this enforcement blood, you will not be ableto pay this with your donor advised fund with your private foundation, we thought this is great problem solved, at least going forward. We’ve warmed people we do that they signed him a week later, we get a check from their donor advised funds so it’s just sort of too much minutiae think for some of them to follow, and i think the advice sort of takeaway for for non-profits is you’re getting into on area that has a lot of legal implications that are maybe my new show, but could be significant when you’re getting into the legally enforceable pledge and sort of doing it really for no good reason, right? And now the you know, virtually all the community foundations when they send you your organization a check, they will be sending you a letter, and it will be asking you to confirm that it’s not satisfying and enforceable pledge and that it’s not, you know, tickets to the gala or anything that has any, you know, benefit going back to the donors, so you’ll end up in a bind. If you’ve written one of these things up, you know we have to leave it there. Reynolds. Thank you very much for joining us. Duvette my guest has been reynolds cafferata. His topic at the national conference on philanthropic planning is creating effective legal structures for multi generational philanthropy, and reynolds is a partner in the los angeles law firm rodriguez, hori, choi and cafferata. This is tony martignetti non-profit radio and the chronicle of philanthropy. Coverage of the. Non-profit s the national conference on philanthropic planning. We will have of future interviews and other recordings, and, again, thank you, thank you very much, reynolds for your time e-giving ending the ending, the ending din din din. You’re listening to the talking alternate network, get in. E-giving cubine are you feeling overwhelmed in the current chaos of our changing times? A deeper understanding of authentic astrology can uncover solutions in every area of life. After all, metaphysics is just quantum physics, politically expressed hi and montgomery taylor and i offer lectures, seminars and private consultations. For more information, contact me at monte m o nt y at r l j media. Dot com talking alternative radio twenty four hours a day. Oh, this is tony martignetti aptly named host of tony martignetti non-profit radio big non-profit ideas for the other ninety five percent technology fund-raising compliance, social media, small and medium non-profits have needs in all these areas. My guests are expert in all these areas and mohr tony martignetti non-profit radio fridays, one to two eastern on talking alternative broadcasting you’re listening to talking on their network at www dot talking all calm now, broadcasting twenty four hours a day. Welcome to the chronicle of philanthropy and tony martignetti non-profit radio coverage of the national conference on philanthropic planning. Our guest right now is katherine miree she’s, a principal of katherine w miree and associates, and i’m joined by raymond flandez of the chronicle of philanthropy. The chronicle and my radio show are partnering to cover the conference, and i’m going to turn to raymond toe. Ask him to introduce our next guest, kathryn miree create thanks, tony, really appreciate and and plaid where we’re here to cover this. Today’s guest is a graduate of the university of alabama school of law, marie’s past share and treasurer of the national committee and plan e-giving now the partnership for philantech opic planning porter directors pass chair of leave, a legacy committee and various other boards. She spent eighteen years in banking management and she’s here to tell us a little bit about what she’s doing here at the conference. And katherine, your your conference it’s titled seminar title is endowment crisis. That sounds dramatic. What what is the well, that’s before we ask what the crisis and endowments is when we talk about what is endowment so we know everybody’s starting in the same place, i think that’s a good idea, there’s a lot of confusion about that. Endowments are permanent funds for charities that are set aside for their long term use, and there are two components of endowment that you normally see. One is what we call true endowment, where the donor’s restricted the use of principle and said that the funds to be made long term thie other is quasi endowment, which are so franklin. Most of the endowment balance is that i see where donors have left bequest or other large gifts to charity and the charity’s board, it has set him assad for their long term use and the role of endowment in non-profits i mean, you said long term use, but can we be a little more specific about what the value of endowment is too? Non-profits yes, and i have a very particular perspective on that. I believe that the most effective use of endowment is not to keep the light bulbs on in the door’s open, but to provide funds that really leverage the mission of that charity, allow himto act quickly on opportunities, allow them to expand programs and supporting where there is need. So i see him, and also, frankly, to get him through the economic crisis sees that come from time to time like the one we’ve been in recently and were in in the first decade of this century. And so i believe that endowments are critical components buy-in critical assets for every charity, whether they’re larger, small, whether their hospital, educational institution or a gospel rescue mission is it is it the case? Typically endowment is not spent, the principal is not spent, but the on ly the income or a portion of the income is spending. Isn’t that how these endowments last in perpetuity? Yes, but my endowments, their subject, true and down looks permanent endowments those restricted by donor’s air, subject to state law and under state law under the old upmifa the uniform management of institutional funds act and the uniforms prudent management of funds act, they can spend a percentage of the asset base it’s not limited anymore to accounting income. It can also include a portion of the appreciation. I see catherine tell us a little bit, but the state of what endowments are facing now, especially you mentioned about economic crisis and how maybe that’s affected some of the endowments. Well, the economic crisis has all of a sudden made the need for endowment very clear for all charities. So you hear a lot of talk about it, but in my work i go into a number of charities every year, and i’m looking at their programs. They’re playing, giving programs there sometimes their entire development programs, and i’m looking at endowment because endowment is the most important provides the context for deferred gifts and what i see are both internal threats to endowment and i can go into that a little more if you like as well as external threat to endowment. Yeah, why don’t we? Why don’t we talk a little bit? What? What what’s, the most serious external threat to endowment, external threats, congressional legislation you see congress looking at large and down months. The senate finance committee has been a lot of time studying large endowments, especially back in not two thousand eight, when we saw such large returns right before the crash on dh there looking at ways to require mandatory payouts, they’re looking for ways to tax endowment when you say mandatory payouts, almost like the foundations are now required to spend a certain up five percent of their assets exact that what you’re referring to exactly and there’s been legislation that floated around that for the larger foundations would require a five percent payout very much like private foundations, very much like type three supporting org’s now is this only towards a higher education, kind of in the end, they focused the senate finance committee focused on educational institution endowments. But, you know, just prior to that, they did that big focus on non-profit hospitals and my great concern is that they’re going down a path that some charities arm or charitable than others and more equal than others. If they come to the educational field, then it won’t be long before it spreads a little further, and you also see a lot of local governments looking for ways to tax endowments. Indeed, i’ve i’ve seen press about the greater new york city area, where property tax exemptions for non-profits are on the on the table. We haven’t seen them withdrawn yet, but it’s a subject that’s under discussion and you will see that throughout the northeast and in fact, in some cases charities heir stepping up and making a voluntary payment in lieu of that tax payment, and they’re negotiating payments that they make to the municipalities and the counties in the townships or whatever form that local government takes. What about external, sorry, internal threats to endowment? What does that mean? That’s, the more consistent problem internal threat are simply the malays and lack of attention that sometimes i see when you get this big pool of money that plays such an important part in the operating budget and it rolls out. The investment team is playing, paying a lot of attention to it. But what happens is the number of funds begins to proliferate. The ability to account to donors on an annual basis, drops. You see people creating really small funds. I walked into an institution one time with a fun, very large fund balance with over a thousand funds. They could not put their hands on the governing documents. For those more than a thousand funds, i would say they were distributing and allocating a lot of just by what i would say was folklore and tradition. Amane and they some of the fund balances were only fifty dollars o r five thousand, and i think that represented an intent to build larger funds that never materialized. So they’ve got all these funds on their books all the time required to allocate the earnings the, you know, negative investment values the fees that distribution for the fifty dollars as well as the fifty thousand exactly and then sell your administrative expenses began to climb. It’s those sort of threats that i think that best practices would fix. I see. Have there been any lawsuits are kind of awareness among donors about these kinds of you know, these problems that that endowments going to face, i would say absolutely on a larger scale, you’ve seen the princeton lawsuit that had to do with this supporting organ, which was an endowment, created a tte princeton and buy the roberts and family you’ve seen the lawsuit it to lane from the endowment that was created in the late eighteen hundreds by sophie newcomb to create new come college on the campus of two lane. And in two thousand six the college more or less dissolved that separate college absorb the endowment and created a women’s studies program. That’s it high level view of it you’ve got the barnes museum, which was thie endowment, created by dr barnes and philadelphia for his art collection. You’ve got the knot traditional endowment, but the art contributed to fisk university and the big lawsuit. So mohr and mohr often you’re seeing descendants, especially for these large endowments, whether they’re created a separate institutions apart of a larger pool, you’re seeing the descendants suit. What about states, attorneys general? Are you seeing much action at at that level? Especially curious about that causes the one the case. That you mentioned with the the organization that sort of had that embarrassment of riches, they couldn’t keep up with thousands of funds that they had. I mean, if a state attorney general caught wind of that, there would be pretty serious repercussions. Are you seeing any enforcement actions at the state attorney general level? Not too much. There are some of the most egregious after you have that big lawsuit in hawaii, where the attorney general got very involved with the king kamehameha school trust. I’ve seen some action out of new york, some in the northeast, but for the most part, you take a state like mine, alabama there’s probably one napor brand new attorney general working a portion of their time addressing these sort of issues in their tens of thousands of charities in the state, they’re simply overwhelmed, and i don’t see that they have the time to take on those issues now in new york state, though there’s a whole charities bureau within the attorney general’s office and i think that’s probably the reason that you mentioned them is one of the more activist, although i haven’t seen i’m not aware of yeah, enforcement actions. Of the type that you’re talking about from the a g’s office, not in new york state know not related to endowment. I’ve seen enforcement actions come out of the new york attorneys attorney, general’s office, on other issues, compensation issues, for example, for trustees of scene. But the truth is excessive compensation. Also for the ceo it’s, actually, those kinds of actions, exactly, exactly. And and but you can see it’s a lot of numbers. I mean, they’re what one point three million charities and their fifty states, and they’re all those non nani’s it comes rolling into the a g’s office. I think it’s pretty hard to pick out the issues. Now on my show, katherine, we have jargon, jail. And earlier you you mentioned you met fa and upmifa you did. You did say what they with the acronyms mean, i know, but and i gave you a reprieve from jargon jail because you were you were explaining something else but let’s ah, i’d like to get you get that sentence commuted from for jargon jail. So let’s, let’s, talk about what you missed. U m i n f a a and upmifa u p my f a r upmifa you met fa the uniform management of institutional funds act is the state body of law it’s a uniform law that was promulgated by the uniform commissioners, law commissioners and forty eight of the fifty states adopted it. I want to say it was first put out there by the uniforms, commissioners and maybe nineteen, seventy two or so. And the attempt was to create a universal investment standard because there were several depending on whether you were trusty, whether you’re fiduciary and it was very confusing, it also allowed some relief and gave addressed to some degree what you do with small funds or funds that no longer met. Their original purpose this has been replaced by the uniform, prudent management of institutional funds act, which was put out there in the summer of two thousand or fall of two thousand six. This truly provided one prudent investors standard across all old the you know, whether you were corporate, whether you were trustworthy, whatever form you were in, so it unified those standards, and it put frankly, it provided mohr discretion to trustees and board members in making their decisions that laid out the factors to consider and making investment decisions. And i always believe when you have discretion that you have a little bit higher duty because you’ve gotto do a good job of documenting why you made the decisions you did. It also went a little bit further and giving charity summerlee for these older funds that were too small to be reasonably administered or where the purposes were no longer appropriate or effective or cost effective. See you earlier. You mentioned about best practices that you knew endowments can implement right now to kind of deter or mitigate some of the influences by external or internal forces. Can you talk more about that? Sure, i have. I think of none best practices, and i’m sure i won’t be able to recall them all now without looking at him, but i start with a document you need a document that not only is going to be really clear about the charities, obligations to the family and to the donor, but also addresses flexibility long term provide some non jew judicial relief in the document. You need really good internal standards for management, a way to hold onto documents and have those available a white attract for restricted funds, and that is funds. I’m not referring there to funds restricted as endowment funds, but rather funds within your endowment restricted to a specific purpose, whether they are true and down. Mother, quasi endowment if you’re going to make a distribution for the library in the business school, you’ve gotta have a way not only to track that money going over there, but two on the backside to ensure it was used for those purposes. My, our guest is katherine miree a principle of katherine w miree and associates and you’re listening to the chronicle of philanthropy and tony martignetti non-profit radio coverage of the national conference on philanthropic. Planning. Dafs you’re listening to the talking alternative network. Oppcoll are you feeling overwhelmed in the current chaos of our changing times? A deeper understanding of authentic astrology can uncover solutions in every area of life. After all, metaphysics is just quantum physics, politically expressed, i and montgomery taylor and i offer lectures, seminars and private consultations. For more information, contact me at monte m o nt y at r l j media. Dot com i really need to take better care of myself. If only i had someone to help me with my lifestyle. I feel like giving up. Is this you mind over matter, health and fitness can help. If you’re expecting an epiphany, chances are it’s not happening. 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You’ve been listening to interviews i conducted from the national conference on philanthropic planning that’s when this show partnered with chronicle of philanthropy to interview speakers at the conference and bring those to you later to expand the reach of that conference. If you weren’t able to be there, i’m in bangladesh, sri lanka and thailand. I’ll be returning next week. As always, you can get our insider alerts and see my live appearances on our facebook page. Facebook, dot com, tony martignetti non-profit radio, the creative producer of tony martignetti non-profit radio is claire meyerhoff. Our line producer is sam liebowitz, and sam is also the owner of talking alternative broadcasting. Our social media is by regina walton of organic social media. I’m tony martignetti hope you’ll join me next friday when i’ll return from bangladesh, sir lanka in thailand and south asia at one p, m eastern time. 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