August 1995
Philanthropy Journal of North Carolina
7
Trusts
Continued from page 6
ital gains tax and you’d only get to
reinvest [the remaining] 65 percent,”
Brown says. “With a charitable
remainder trust, you get to reinvest
100 percent of it because you’ve
avoided the tax. The other advantage
is that during your lifetime you get an
immediate income tax deduction for
that future interest that’s going to
pass to charity”
The amount of money that typical
ly is involved in this type of activity is
significant. A unitrust, BroWri says, is
usually hundreds of thousands of dol
lars. Such a large gift can go a long
way toward helping a charitable
organization meet its annual funding
goals. Most universities, for example,
have development officers focusing
on planned giving through vehicles
such as unitrusts.
While some people may see this as
a way of beating taxes rather than
supporting charitable work, Morris
Weisner, president of Infinet Advisory
Inc., a Durham-based estate planning
and financial consulting company,
thinks such ideas are a misreading of
how charitable giving works.
“By and large most of these trusts
are set up for a combination of donor
Intent and financial reasons,” he
says.
While banks and other financial
institutions typically have had trust
departments, the 1969 Tax Reform
Act helped spur many financial insti
tutions to create departments just to
handle this area of business.
Wachovia was one of the first out of
the gate, forming its charitable trust
division in 1975, with five people
assigned to that area in North
Caroiina. Today, the bank employs 38
people in North Carolina, South
Carolina and Georgia specifically
working on charitable trusts.
NationsBank, which formed its
charitable trust division in 1993, has
15 trust employees working in Dallas,
Charlotte and Richmond, Va. First
Union, which formed its charitable
services division in 1994, employs
nine people and does business in six
states and the District of Columbia.
The function and responsibility of
charitable services divisions can vary
considerably Some institutions, like
Infinet, specialize in estate planning
services for individuals. Others spe
cialize in services for the charitable
organization itself. Many oi^aniza-
tions provide services to both.
For example, NationsBank has set
up a division to work only with chari
table organizations.
North Carolina Trust, a state-
chartered bank that is permitted to
provide trust service only, offers
money management and other fidu
ciary services to individuals and
organizations.
“We may be working for an indi
vidual who actuaOy has charitable
remainder trust or maybe an organi
zation that has hundreds of charita
ble trusts,” says Sue Cole, the compa
ny’s executive vice president. “We’ve
seen a trend lately where lots of orga
nizations want to outsource the
administration and investment man
agement, so we’re actually working
for the organization providing these
services and helping them communi
cate with their donor.”
Charitable trusts - and the greater
focus on planned giving and trust ser
vices - are also being used by non
profits to increase giving opportuni
ties for donors.
“It can be a wonderful vehicle for
the Salvation Army, tor religious
groups, for the different conferences
that churches have,” says Cole. “It
can be used in family and children’s
services, those kinds of agencies. It
really has no limitation as it relates to
a specific organization, provided that
they have someone on staff who
understands it well enough to work
with it.”
And that can be the clincher for
some groups. While the new charita
ble trust vehicles are creating possi
bilities for funding charitable causes,
it is a highiy complex and technical
area, and one that requires a charita
ble organization to look beyond its
day-to-day finances and plan ahead.
“Many of the nonprofits only have
current funds and they’re raising
money from year to year, so they gen
erally do not have long-term funds to
manage,” says Dreama Gasaway vice
president and senior administrator in
foundations and management for
NationsBank.
However, charitable trust experts
say they are beginning to see more
nonprofits moving in this direction.
“A lot of established charities that
would be like household words are at
this point not looking only at their
day-to-day existence and just funding
for current needs, but they’re devel
oping programs in which they need
assistance and guidance and we have
been able to help them,” says Carol
Nuckolls, NationsBank’s senior vice
president and national product man
ager for foundations and endow
ments.
Because of the increased aware
ness about charitable giving among
charitable organizations and the
amount of money involved, many
financial institutions are developing
comprehensive marketing strategies,
including hiring sales people to con
centrate just on this area, as a way of
attracting new business.
In 1993, the Southeast alone had
about $22.7 bilhon under manage
ment with foundations. Numbers like
that, as well as the proliferation of
nonprofits and new foundations in
the region, are expected to escalate
competition among banks and trust
companies.
“As we look to the future, nonprof
its are becoming more and more
sophisticated about investment ser
vice providers,” says Joyce Adger,
Wachovia’s senior vice president and
manager of North Carolina charitable
funds. ”As the nonprofit market
grows, one of the challenges will be to
introduce products that maybe hadn’t
been thought about.”
Some experts believe that
increased awareness of charitable
trusts could have a strong impact on
how charitable giving is done.
“We call this social capital, and
this voluntary philanthropy is you
voting your social capital,” says
Weisner of Infinet in Durham. “And
for you to vote your social capital, we
think the benefits could be tremen
dous. I mean, I think you’re talking
about lifting the standard of living of
this country tremendously.”
Smart
Continued from page 3
doesn’t actually remove some of
that.”
One example cited by Zalkind of
the Rocky Mount partnership is the
plan’s call for competitive bidding for
Smart Start service contracts.
“That’s an abrupt change from a
collaborative process where local
people came together to decide how
best to proceed and contracts went
on in a noncompetitive way,” she
says. “That is one decision-making
style and that was really key in my
mind. To then mandate that people
use a competitive style has the poten
tial to undermine one of the real cor
nerstones of Smart Start.”
By contrast. House Speaker
Daughtry sees no contradiction
between state oversight and local
control of Smart Start.
“Smart Start is not like buying a
building,” he says. “It’s different in
every county and not every county is
doing well. We felt oversight of the
program was missing. We’re very
happy with what we came up with [in
the General Assembly]. We think
everybody won.”
Among the questions left unre
solved by the poUtical debate over
Smart Start are:
• How the state partnership will
be reconfigured and who will be at
the helm. Shepherd’s resignation was
accepted last month and Goodmon is
also leaving as board chairman.
• Who will handle Smart Start
fundraising. Judy Harrison Barry, the
state partnership’s outgoing
fundraising director, has recommend
ed that Raleigh-based Capital
Consortium Inc. be hired to coordi
nate fundraising plans for the local
partnerships. The firm is already
working with local Smart Start
groups as part of a planning grant
from the A.J. Fletcher Foundation in
Raleigh. Barry also suggested forma
tion of “Children’s Cabinets” in local
areas to assess private financial
resources and avoid competition
between Smart Start counties.
• How services that the state
Department of Human Resources had
been providing to Smart Start will be
provided in the future. That issue was
among the main topics of discussion
at a state partnership board meeting
in July. Peter Leousis, who heads the
Office of Policy Development and
Research in the Human Resources
Department, says that providing
technical assistance in the form of
monitoring service contracts is going
to be among the most critical func
tions the state partnership will need
to replace.
Smart Start leaders have varying
opinions as to whether the political
debate over the program could have
been avoided.
“I think that depends on your phi
losophy of pohtics,” says Zalkind of
the Rocky Mount partnership. “I
think it certainly was avoidable if
people stuck to the facts - if people
had put politics aside and were open
enough to look at the data.”
Michelle Rivest of the Orange
County Partnership for Children says
arguments over funding for the pro
gram were the result of last fall’s
elections, which put many new
Republican lawmakers in charge of
the state House.
“They had a different agenda,
which included cutting back on gov
ernment expenditures,” Rivest says.
“They did not have a sense of owner
ship of Smart Start nor do they agree
with its purposes.”
Goodmon, who is a Republican,
views the legislative wran^g as a
natural outgrowth of the way Smart
Start was organized. “I don’t think
there is any more difficult way to do
anything than how we are doing Smart
Start,” he says. “That’s why it’s so
good: You have to get everybody at
the table.”
Local partnership leaders say
that in the future, they will work to
stay focused on the program rather
than the politics. The bottom line is
that they have come too far with
Smart Start to turn back now.
“If this [state] money dries up
tomorrow, we will still be here work
ing on improving things for children,”
Zalkind says.
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