Category: Insights

Insights Into Donor-Advised Funds

Donor-advised funds are third-party charitable funds set up by a sponsoring organization that accept contributions from donors and then facilitate those contributions to various charities at the direction of the donor. Contributions can be made in the form of cash, securities, or even complex assets such as real property or a piece of artwork. These contributions are treated as gifts by the donor to 501(c)(3) public charities. The largest, nationally recognized sponsoring organizations for these funds include Fidelity Charitable Gift Fund, Schwab Charitable Services, Vanguard Charitable, and National Philanthropic Trust. Many high net worth individuals and families who are heavily involved in charitable giving, including many of our clients here at Chilton Trust, can utilize these vehicles as an option to their current form of charitable gifting. We are often asked the question, why choose a donor-advised fund as a vehicle for charitable giving as opposed to direct giving? Why not open a private family foundation and process donations from there? The answers ultimately depend on the client’s specific needs and/or circumstances, and the outline below will help provide further information on these donor-advised funds.

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Stuck choosing between riskier stocks or safer bonds which provide little income in today’s market environment? Have you considered an allocation to Preferred securities for your trust portfolio?

Trustees are like financial physicians in a way. They follow the rule of first do no harm. No harm to the principal, that is. The issue:How does one maintain and grow assets for the remainder beneficiary while at the same time provide a sufficient income stream to the income beneficiary?

Traditionally, a 3% to 5% distribution of income to the current beneficiary while preserving the trust for the remainder beneficiary was not particularly hard to do with a 70/30 stock-bond mix. In today’s low interest rate market, neither investment grade bonds nor common stocks are offering an average 3% to 5% yield which many income beneficiaries were used to receiving.As of the third quarter of 2016, the average yield for single A rated 10 year corporate bonds is 2.75% and the S&P 500 is about 2.15% (Source: Bloomberg). This leaves trustees searching for a way to find more income.

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When considering estate planning documents, it is important to include advance health-care directives so your family and loved ones have the appropriate guidance to make the desired and responsible health-care decisions should you no longer be able to yourself. While it is difficult to think about injury or falling ill, none of us are immune to medical risks. Further, you have the right to direct your medical care. As such, having the right documentation to define and address your health-care needs and desires is imperative to ensure your caretakers have clear guidelines. State laws vary concerning the legality and enforceability of these documents, so it is best to consult your attorney to determine the appropriate documents to prepare. While you may not fall ill in the state for which your documents are enforceable, at the very least having these documents will provide written evidence of your desired wishes. It is never too early to get these documents in order as it is best to execute them well before any medical needs arise. Lastly, communicating your thoughts on different medical treatments, quality of life and end-of-life care with your family and doctor is critical. The more they know, the easier it will be for them to fulfill your wishes.

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In the years following the financial crisis, endowment and foundation returns have benefited from strong equity market returns. However, as we now enter an environment where high returns are increasingly challenging to achieve on a risk parity basis, many foundations and endowments are taking the time to reevaluate the drivers of past performance and analyze the most intelligent means to maintain returns. It is incumbent upon the governing bodies of these organizations to implement best practices in effective management of investment portfolios, and to abide by their fiduciary obligation to prudently manage investment assets. As they look to evaluate their investments and/or reevaluate their investment advisors, we believe it is important for board and trustee members to focus on the following four questions, which we hope will lead decision makers to a deeper and more useful understanding of their own objectives and needs, and ensure that they are partnering with the right investment advisory firm for their organization.

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As you are aware, the unconventional campaign and surprise election resulted in Donald J. Trump being elected the 45th President of the United States. In addition, the Republicans will retain control of both chambers of Congress, providing the incoming President with significant influence over tax policy beginning with tax year 2017. Both Trump and House Speaker Paul Ryan, historically the party’s “tax wonk” since the Republicans retook the House of Representatives in 2010, have made proposals throughout their respective campaigns on how to overhaul the current tax code for both individuals and businesses. While the plans differ slightly in substance, there are many major similarities that we should look to see enacted into law early in President-Elect Trump’s first term.

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Donald Trump’s surprise victory will cause volatility in the equity markets, though it may be temporary. Markets do not like surprises, and this was certainly a surprise. In addition, Trump ushers in more uncertainty than Clinton would have since he is an outsider with an agenda for change. In Trump’s victory speech, he stuck to the script, honored his opponent, and talked about leading all Americans, suggesting temperance as a starting point which is welcome. Much will be learned in the coming weeks about Trump’s governing priorities as he appoints cabinet members.

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With all insurance, one wants to make sure that the essential levels and coverages are in place, not necessarily excessive levels and coverages. Excess liability insurance, commonly known as “umbrella” insurance, is somewhat of a misnomer and could easily be renamed “sleep at night coverage”. This coverage is a safeguard from which all individuals, whether considered high net worth or not, can benefit from and we have recommended adding an umbrella arrangement to many clients’ current insurance profiles. Most individuals consider themselves careful investors when it comes to considering risk. These same individuals typically have general property and liability policies, but not everyone has an umbrella policy. Umbrellas are reasonably priced and should be worth a second look. Umbrella policies can be offered and acquired through professional organizations (such as trade or business affiliations), your current place of employment and your current insurance carrier/broker.

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The investment management landscape continues to evolve and become more multifaceted with intricate investment options and solutions for investors. Yet, as the wealth management industry has become more complex, transparency – as it pertains to underlying investments, terms and fees – has rapidly declined. In 2008, stress and volatility in the markets tested the wealth management industry; many investors awoke to the harsh realization that their investments were not liquid or they could not immediately access their funds. These communication failures, and their sometimes severe consequences, left many distrusting their advisors and wealth managers. In a post-2008 and post-Madoff world, we believe that the need for transparency  is paramount. Wealth managers must be honest and open about your investments – whether it relates to fees, performance, or transaction and portfolio decisions. By focusing on and enhancing communication and the language and tools we use to work together, we strive to be better equipped in making smart decisions and establishing  appropriate asset allocations, taking into consideration your goals but more importantly, your risk budget.

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Chilton Trust’s Family Office Bulletin seeks to provide general commentary and guidelines on timely and relevant topics for clients and their families. While each situation is expected to vary based on each client’s individual situation and needs, the topics and discussion herein are intended to encourage thoughtful analysis. A Chilton Trust representative is always available if the observations or guidelines presented in this piece warrant additional attention and a follow up conversation regarding your particular circumstances or situation. Our mission is first and foremost to keep you informed and in a position where you can understand and evaluate your next steps.

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