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ASI Special Feature

A Specific Mission to Help

07/16/2008

Recently Inside ASI spoke with James Brown, president of Western Adventist Foundation (WAF). We wanted to learn more about this unique Seventh-day Adventist entity, and about planned giving and trust services in general.

ASI: What is Western Adventist Foundation?
James Brown:
Well, we started in 1997 from the conceptualization of Elders Tom Mostert and Si Bietz of the Pacific Union Conference. They realized there was an opportunity to save monies in the church by creating an organization that specialized in Trust Administration.

inside_asi_summer_08_page_15_image_0001Many of the larger conferences had fully staffed trust departments while the smaller conferences were having a difficult time providing adequate resources to participate in gift planning. Also, the higher education institutions were developing planned giving departments and did not have the resources to staff trust services. So Mostert and Bietz worked at creating a model for a foundation with the specific mission to help other organizations.

Then you work in the Pacific Union territory?
Initially yes. However, once other entities found out what we did they inquired about our assisting them in their trust administration. For instance, Richard Bland from United Prison Ministries (UPM) contacted us and inquired about WAF writing charitable gift annuities for donors who wish to benefit UPM. Also, Don Otis of Light Bearers asked if we could do the same for his organization.

So what is the criterion for you to assist these organizations?
Actually, the main criterion is simply that the organizations are focused on supporting the mission of the Seventh-day Adventist Church. And their non-profit corporate documents must include the appropriate language relating to the church.

How many organizations do you support?
Almost 50 different organizations in one form or another. These include hospitals, conferences, and supporting ministries that belong to ASI and are in good standing with the church.

Let’s talk a bit about planned gifts. Can you explain the types of planned gifts WAF manages for clients?
WAF is involved with pretty much any planned gift that requires some type of legal document. There are revocable trusts; and we assist in the development and management of those types of documents, mainly for conferences. Irrevocable trusts, however, are the most beneficial for charities and can impact donors in a very positive manner.

The charitable gift annuity (CGA) is the easiest to explain. The donor transfers an asset, usually cash or securities, to the Foundation in exchange for a lifetime income payment.

The other type of irrevocable trust is a charitable remainder trust. This is a little more complex than the CGA, however it is a great tool for a donor, and a good method for a charity to receive a future gift. This type of trust works best with appreciated assets, such as stock or real property. Similar to a CGA a charitable remainder trust provides income to the donor. The donor transfers to WAF, in trust, the appreciated asset, the rental property or stock. We sell the asset at market value in trust, and the trust pays no capital gains tax. We invest the funds, and the income beneficiary receives income for his or her life.

We usually suggest an interest rate of 6-7% in the document, but we all know the market will go through its cycles. If we manage the trust between 6-7%, there is an opportunity for growth over the life of the trust. This allows the income paid out to the donor to keep up with inflation. When the term of the trust ends, then the selected charity receives the remainder of the trust principal.

Many donors want their children to benefit from their estate as well, which is easily done. A charitable remainder trust allows some flexibility in how an attorney creates the document. So the trust can benefit, for example, you and your spouse and then your children for up to 20 years.

Does the donor receive a tax deduction?
Yes, there is a calculation we provide where a portion of the gift elicits a charitable deduction from income taxes, which can be carried forward for an additional five years if the donor exceeds the charitable deduction allotment. In some states a charity needs a permit, and in others there is a registration process. We currently can issue gift annuities in most states; however, there are a couple of states where we are still in the registration process.

Does WAF get a percentage of the trust at the end?
Actually no. We do not get any portion of the trust at the end. We do not want to appear to be competing with our clients. Therefore, no trust document we manage has a remainder gift to WAF.

Then how do you get paid?
For the revocable trusts, we charge the charity receiving the gift a management fee based on the activity of the trust, as revocable trusts require the most work. Many bank trust departments charge a minimum of 1% of the trust balance per year, but we do not charge that much.

On the irrevocable trusts, we do charge a management fee, just as a broker charges to invest your monies. For instance, a brokerage will charge around 1% to manage your funds. However, at WAF we charge less than 1% to manage the trust balance and do the accountings, pay the income to the income beneficiary, and prepare the tax returns. So actually, the charities we assist are benefiting from the Foundation services for less than many pay their broker to manage their gift monies.

How many people work at WAF? And what is the scope of your work at this point?
We currently have 18 full-time staff members. There are two attorneys, two trust officers, six accountants, plus support and administration staff. We are managing more than 2,000 different documents benefiting various church ministries, and we have distributed over $35,000,000 to various ministries since 1997.

One last question, how does WAF fit into the church structure?
WAF is quite unique in that our board chair is the treasurer of the Pacific Union Conference and our constituents are the executive committee members of the Pacific Union Conference.

Another unique aspect of the Foundation is that our board is comprised of our clients. Some of our board members are not even located in the Pacific Union. Once the amount of monies we manage for a client reaches a certain sum, the client is an invitee or a voting member.

We also have an investment committee that is voted by the board members. This committee is chosen for their expertise in management of monies, or their understanding of the goals a trustee needs to obtain while administering the various types of trusts.

James, thank you so much.
You’re welcome. It is my pleasure.