Asset Management, Business Articles, Endowments, FUNDS, Trusts

Endowment Fund Basics

A Endowment is a Legal Trust Structure for the purpose of creating a FUND that raises donations for continuing the mission and operations of Non-Profit Organizations such as Hospitals, University’s, Museums.

What are the Three Types of Endowments

When your Non-Profit organization is considering using the Endowment structure? It’s appropriate to have your team of Investment Advisers, Accountants, and Attorneys work together to discuss the type of structure or type of Endowment Structure is appropriate for your Organizations needs. Here are the three types of Endowment Structures and how they are used. According to the Financial Accounting Standards Board (FASB) these are the details of the three types of Endowments.

Term Endowments

    A Term Endowment is not perpetual, it is organized and funded for a specific time period. This can be years or until a specific end date that is specified on the Endowments Documents. Term Endowments can begin often when a Death of a Donor takes place or when a Document states. After period of time or expiration the total amount can be used to begin funding Operations.

    True Endownments

    A True Endowment begins by the Donor providing FUNDS to the Endowment and specifying the Funds are to be kept in perpetuity. A written agreement is used to facilitate the Funding and future use of Income of True Endowments.

    Quasi-Endowments

    The Board of Directors of Endowment Funds vote on the best use and deployment of funds with their Advisers. This includes electing to use Reserve Funds, making unrestricted Gifts to other Organizations, and deploying new funds from a unforseen donation. Inclusion is at the Discretion of the Board of Directors of a Endowment. This means the Board can elect if the new funds can be placed into a new fund or included into a outside Quasi Endownment Fund.

    Endowment Management

    Fund Managers of Endowment Funds and Non-Profit Boards of Directors work very closely with each-other to ensure the Endowments Investment Objectives are being met and kept. The Endowment Fund manger is professionally duty bound and a Fiduciary. The deployment of Funds by Investment management will work to allocate into appropriate Investment Assets. Keeping to the Endowments Investment Objectives and Policies.

    Endowment Funding

    Endowments are funded mainly by relying on public donations. A “PRINCIPAL” amount Donated is invested into Income producing Assets which may include Bonds, Equity Stocks, and other Appreciating Assets. And later the income from these assets are used for Operations and other uses as stipulated by the Trust Documents and at the Discretion of the Board of Directors.

    Some Disadvantages of using the Endowment include: Some donations can only be used for limited purposes. There also maybe some limitations or restrictions in the Endowment Trust Docs that prevent funds from being withdrawn or used for operations. That depends on the Fund Covenants.

    Advantages of using Endowment Funds? Funding a Endowment Trust can lead to Non-Profits being able to fund a mission and it’s operations. Not to mention being able to invest donations for the purpose of funding programs that help and improve communities or causes.

    Did you catch my Article on “The Ultimate Guide To Trusts”click here.

    Largest Non Profit Endowments from the year 2021

    The National Center For Education Statistics lists the largest Endowment Trust Funds below, and HERE.

    In Conclusion I hope you learned some basics about Why and How Non-Profit Organizations use Endowments for their Organizations needs. This post is meant to communicate the uses, and what are Endowments for public educational purposes only. Thank you for reading.

    JS

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    Business Articles, Estate Planning, Law

    The Ultimate Guide To “TRUSTS”

    If your concerned with after life or just need to keep assets in a safe place for a time being? This list should be your go to guide for TRUSTS to choose from. Trusts usually are ensuring, Safety of Assets, continuity of Funds, Property, and Investments. This List of “TRUSTS” will help you decide with your Investment Advisor and Estate Planning Attorney which to choose.

    • Revocable Living Trust -This is a trust that allows you to make changes to it, while you are living.
    • Grantor Trust -A Grantor is an individual who creates the trust, and this type of trust allows them to place money, assets, or whatever it may be into a trust in order to streamline things.
    •  Irrevocable Trust -Once you’ve placed money into the trust, it stays there. You can’t change your mind about this one. There are many types of revocable and irrevocable trusts, and we are going to go over them as we continue.
    • Testamentary Trust -Most often, a testamentary trust is created by the will and specifically outlines what assets are going to be utilized upon the death of the grantor. If you’re not careful, this could create some problems, tax-wise, for your business. So be sure to have your attorney take a close look at your last will and testament when setting up a testamentary trust.
    • Minor’s Trust -As the name implies, this is a trust that provides money to a child that is under the age of eighteen. It is usually created before you pass away, but it could be a part of the testamentary process as well. A minor’s trust will require the appointment of a trustee to manage the funds until the minor child comes of age.
    • Spendthrift Trust -A spendthrift trust is a great option for leaving money to someone who may not be the best at dealing with their finances. The spendthrift trust gives an independent trustee the full authority to make decisions as to how the funds may be spent. I recently told you about a client that has a child with some addiction issues. This would be a great trust for someone in such a situation.
    • Blind Trust -I first heard about blind trusts in an episode of Law & Order. Basically, it allows the trustee or anyone with the power of attorney to handle the assets without the beneficiary’s knowledge. The most common reason for this is to stave off contention between beneficiaries.
    • Discretionary Trust -Discretionary trusts don’t have a constant, or fixed, allocation of assets. The beneficiaries and the payments can be adjusted throughout the length of the trust by the trustee, based upon the criteria outlined within the trust document.
    • Intentional Defective Grantor Trust -This one is a bit more advanced. An Intentional defective grantor trust freezes some of the grantor’s assets for tax purposes. Essentially, the grantor intentionally creates a problem within the trust document that guarantees they must pay income tax on the income, decreasing the value of their estate. So you would use the estate asset to pay the taxes on the trust that is outside of your estate. Thus, allowing the trust assets to continue to grow without the erosion of taxes.
    • Credit Shelter Trust -The credit shelter trust allows married people to avoid estate taxes by allowing the assets specified in the trust to be transferred to the beneficiary. Usually, this is the grantor’s children. This allows the spouses to maximize their estate exemption. These are commonly listed in the last will and testament and used in conjunction with trust number eleven.
    • Marital Trust -Instead of shifting the proceeds of the trust to your children, as in the credit shelter trust, a marital trust moves them to your spouse. When the first spouse passes away, they leave the assets to the second spouse and, through the marital trust, they aren’t included in the second spouse’s estate.
    • Qualified Terminable Interest Property Trust -Qualified terminable interest property trusts or QTIP trusts provide for the surviving spouse but allow the grantor to remain in control after the death of the surviving spouse. These are useful in second marriages or to prevent predatory marriages.
    • Qualified Personal Residence Trust -If you need to remove your home from your estate, a qualified personal residence trust is a great way to do so. You would transfer your house to a QPRT trust in order to remove it from your estate and it can be considered a gift. Under the terms of the trust, you would allow the beneficiary to live in the house for a certain number of years, rent-free.
    • Generation-Skipping Trust -Let’s say you want to leave all of your assets to your grandchildren because you have already provided your own children with a means for success. A generation-skipping trust does exactly what it sounds like. It allows you to skip a generation in order to provide for the next one.

    Before I move on with the list, did you catch my Article on “Pooled Investments and what you need to know? HERE!

    Charitable Trusts

    • Charitable Trusts -Now we will explore the charitable trusts. As their category implies, these trusts offer a variety of charitable benefits. Additionally, these are a great vehicle for mitigating tax liabilities. Don’t worry, there’s nothing wrong with benefiting from your giving.
    • Charitable Remainder Annuity Trust -The first is called the charitable remainder annuity trust or CRAT. With a CRAT you place your assets into the trust, which then pays back a fixed amount each year. Once you die, the remainder goes to charity.
    • Charitable Lead Annuity Trust -The charitable lead annuity trust is very similar to the CRAT, however, it works inversely. Instead of receiving a fixed annual payment and then giving the remainder to charity, a CLAT pays the annual benefit to the charity and then leaves the remainder to a beneficiary of your choosing, once you’ve passed.
    • Charitable Remainder Unitrust -A Charitable Remainder Unitrust, also known as CRUTs, is an irrevocable trust that is created under the authority of the internal revenue service. It pays a fixed percentage of the assets to your beneficiary — or to yourself — and then transfers the assets to a charity after your death.
    • Charitable Lead Unitrust -Charitable Lead Unitrusts or CLUTs allow a donor to give a varying amount each year, for a fixed amount of time. When the term of the trust is met, the remaining assets are given back to the donor or to the beneficiary.
    • Shark-Fin CLAT -The most aggressive type of CLAT allows small payments to be made into the trust for the first few years. However, a very large payment must be made in the last year, or two. By increasing payments over time, the assets in the trust have more time to grow.

    Complex Trusts

    Unlike simple trusts, complex trusts are a type of trusts that must retain some of their income rather than distributing all of it to their beneficiaries, distribute some or all of the principal to the beneficiaries, or distribute funds to a charitable organization. The name may be a little misleading, however. Complex trusts aren’t necessarily more complicated than simple trusts. They simply allow the trustee greater discretion.

    • Irrevocable Life Insurance Trust -This is one that I personally have. Basically, I’ve set the trust to buy life insurance and when I pass away, the trust shifts the proceeds to my wife and kids.
    • Crummey Trust -Some will argue that the Crummey trust isn’t a trust, but rather, a provision. Technically it is a trust, however. It’s based on the 1968 Crummey case and essentially allows you to take advantage of the gift tax exclusion when you transfer cash or assets to another person. With a Crummey trust, you retain the right to place limitations on when the recipient can access the funds.
    • Buildup Equity Retirement Trust -Buildup equity retirement trusts, allow a spouse to give a gift to their spouse, using the annual gift instead of the unlimited marital deduction. In doing this, the assets are exempt from both the gift and the estate taxes.

    Grantor Type Trusts

    These trusts have a few key takeaways. For starters, the individual who creates the trust is the owner of the assets and property for income and estate tax purposes. However, grantor trust rules can apply to a variety of trusts and are a useful tool for minimizing taxes.

    • Grantor Retained Unitrust -GRUTs are irrevocable trusts that allow the grantor to place assets into the trust and receive a variable amount of income during the term of the trust. Let’s say it’s a twenty-year trust, the grantor can receive a fixed or a varied income for the length of that twenty-year term, or the life of the grantor.
    • Grantor Retained Income Trust -Being a Southern boy, I am particularly fond of a good batch of grits but that’s not the type of GRITs I am referring to when I talk about GRITs: grantor retained income trusts. This is the same basic concept as a GRUT but in this case, the grantor places an asset in the trust and retains the right to receive income from those assets for a period of time.
    • Grantor Retained Annuity Trust -These allow the grantor to make a large contribution, as a means to avoid gift taxes, and then set up an annuity through the GRAT. This creates an annuity payment for a fixed period of the term. Afterward, the remaining assets go to the beneficiary as a gift.
    • Dynasty Trust -This one is where your attorney will earn his money, as some states do not allow these types of trust. Dynasty trusts are irrevocable and give the grantor the right — as long as it is within the law — to set stringent rules on how the money is to be distributed and how it is to be used by the beneficiary. Because it is irrevocable, a dynasty trust can’t be altered by the grantor or their beneficiaries. These are typically used by wealthy grantors to ensure that they are leaving their financial legacy to generations rather than individuals.

    Asset Protection Trusts

    This class of trust is often used to shield an individual’s assets from creditors. These are the strongest protection you can find from creditors, lawsuits, or any judgments against your estate. However, you should always consult a qualified financial advisor to see if this type of trust is right for you.

    • Domestic Asset Protection Trust -This is a simple way to protect your assets from creditors. That is, literally, the simplest term available to describe a DAPT.
    • Offshore Asset Protection Trust -While it might sound like something the incredibly wealthy super-villain in a movie would have, in order to shield their holdings from the scrupulous eyes of the hero, in reality, they’re pretty common. Essentially, you create a trust in a non-domestic jurisdiction to protect your assets from seizures, judgments, or creditors.
    • Totten Trust -We discussed these in the last article, but basically, it is a form of trust in which the grantor places money into a bank account or security. Upon the grantor’s death, the assets in the account pass to a beneficiary.
    • Illinois Land Trust -Illinois land trusts are for non-profit entities for the purpose of conservation. If you had a piece of wooded land or a farm and wanted to have it maintained for the benefit of someone else, you would create a land trust.
    • Gun Trust -A trust that isn’t so well known is the gun trust. It allows its creator to acquire a class-3 weapons holder — you must have a license — in order to transfer a gun into the trust. This is especially useful for collectors and enthusiasts that may have several (Legally obtained) automatic firearms, suppressors, and things of that nature. There are a lot of laws that surround gun trusts though, so it’s best to speak to your attorney when setting one up.
    • IRA Trust -Individual Retirement Account Trusts are often set up by the courts. You are essentially setting up a retirement account for the beneficiary, usually your kids, and placing it into a trust.

    Special Needs and Elderly Care Trusts

    As you might expect, this group of trusts is designed with the long-term care of individuals with special needs in mind.

    • Special needs planning is unique from typical estate planning when you have beneficiaries with unique challenges and perhaps who also participate in means-based government programs, such as developmental disability (DD) services, Medicaid, or Social Security Supplemental Security Income (SSI). Special needs planning allows you to:
    • Provide a legacy for your special needs loved ones,
    • Designate someone to manage the trust for their benefit,
    • Handle any unexpected inheritance or personal injury lawsuit funds,
    • Protect them from creditors and predators, and
    • Protect their eligibility for benefits.
    • First-Party Special Needs Trust -These trusts can be set up by an individual with special needs, in order to maximize their social security or Medicaid benefits.
    • Medicaid Trust
    • Medicaid Trusts are income-only trusts that help seniors avoid tax issues and probate problems when they are living in a nursing home and pass away. It’s a way to protect assets, but there are some clawback issues. You will need to speak with your experienced estate-planning attorney.
    • Qualified Income Trust -Also known as the Miller trust, the QIT protects the assets of an individual that has applied or is applying to Medicaid. If the individual has too much money to qualify for Medicaid, they could place their assets into a qualified income trust in order to meet the financial requirements. Personally, I have ethical issues with this type of trust, but feel free to form your own opinion.
    • V.A. Eligible Trust -The V.A. Eligible trust is similar in concept to the Miller trust. Once again, you are placing money outside of what the government can track, in order to make way for the Veteran’s Association to help you with in-home care or nursing home care.
    • Spousal Testamentary Special Needs Trust -Spousal testamentary special needs trusts combine two different trusts to help the surviving spouse be counted eligible for Medicaid.
    • Pooled Trust -Finally, we’ve come to the end of our long list with the pooled trust. It is designed to allow people with disabilities to become financially eligible for public assistance benefits like Medicaid home care.

    Using Trusts for Tax Mitigation

    The goal of most of the trusts that we’ve covered is to minimize the amount of income tax you will be responsible for. Now, that’s not to say that this should be used as a means of dishonesty, but rather that there are allowances and exemptions — if you know where to look — that will allow you to protect your assets and sustain them for the people you love the most. It is important to speak to your attorney when planning and creating your trusts, in order to make sure that you utilize all of the tools available to you, while also keeping within the guidelines of the law.

    In Conclusion

    The following list of Trusts was meant to give you a better understanding of the TRUSTS that you can use for you family, personal or group needs. It provides all types of options for safety of Assets, Securities, Medical Care, and Financial Planning and Developing a long legacy. I hope you found value with this list, and hope you work with your Attorney, Tax Accountants, Investment Advisors, and other Financial Professionals to make this list work for you.

    Godspeed.
    JS

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    Business Articles

    Wealth Management “TRUST”

    What is the elusive often misunderstood Trust. Wealth Management Topic

    A trust is a contract that gives an individual or an institution—like U.S. Bank, for example—the authority to hold legal title to assets while managing them for the benefit of others. Trusts can help you ensure that your assets are distributed and managed according to your wishes. US BANK Rich Snippet

    I would like to introduce you to Trusts and the history and also how they are used in Banking.

    In the 12th century and middle ages of English Knights whom were about to go on crusade needed a safe place to keep their wealth and have it benefit someone else “IF” they were captured, tortured and placed into indentured servitude for the rest of their short lives. So wouldn’t make sense to have a place to have all your wealth act like a “Will” in a way? Of course. So they would go to the London Finance Center which is a little Banking Town inside of London the City and its sole purpose in this small finance town is to act as a separate entity to ensure personal Land, Assets, and wealth was taken care of and used in the correct manor under English Law. These stewards in Banking were often bound by law so nothing could ever separate the Beneficiary from the Assets.

    The legal owner would hold the land for the benefit of the original owner, and would be compelled to convey it back to him when requested. The Crusader was the “beneficiary” and the acquaintance the “trustee”. The term “use of land” was coined, and in time developed into what we now know as a “trust”.

    Click on Image For Wikipedia Page

    The Beneficiary is the person who is entitled to the benefits and entitlements of the TRUST. Now with this said. Beneficiary’s do not “OWN” the TRUST. They are the Beneficiary of the Trust. Trustee’s are the legal stewards of the land or Assets. Often times Attorneys have their own Trusts being officers of the courts in United States.

    Is a beneficiary an owner of a trust? In legal jargon, trust and will attorneys refer to Trust beneficiaries as the “equitable owners” of the Trust. Beneficiaries will receive money and other assets from the Trust either outright (meaning being paid all at once) or in smaller amounts over time, based on the provisions in the Trust document.

    Thanks for reading, we hope you found this useful. Use the links if you would like to know more.

    J.S.

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