Post Type: White Papers

Sep 6th

6 Considerations Before Starting a Private Foundation

These essential questions will inform the direction of your charitable giving endeavors.

The first thing to know about starting a private foundation is that it’s not your only option when it comes to philanthropic giving. A donor advised fund (DAF) is another popular grant-making entity available to you. “The entities are very different in terms of legal structure and governing rules, but you can name your DAF with ‘Foundation’ in it and the public won’t know the difference,” says Ashley Fontanetta, vice president of Philanthropic Services at Whittier Trust.

A DAF must be housed by a sponsoring organization that holds authority with respect to final grant-making decisions, however they take grant-making direction from those named as advisors to the fund. A private foundation can be established as a corporation or charitable trust and offers more control for the donor. If you start out with establishing a foundation and then change your mind, you can transfer assets to a DAF later on. However, once a DAF is established, the assets within it are irrevocably there. 

“There are numerous things you can do with a foundation and can’t do with a DAF, and vice versa,” Fontanetta says. 

The following are six questions to ask yourself when deciding on the most compatible path for your charitable goals.

1) How much time do you have to put into your philanthropic causes organization?

Every private foundation that is established as a corporation must have an annual meeting, recorded minutes of that meeting and a tax return filed. “At the very least, you have to convene once a year. If that’s a problem for your family, then a donor advised fund would be the better choice since it does not have a meeting requirement,” says Fontanetta.

2) Who is going to be involved in managing it?

Typically, the board of directors of a private foundation is made up of family members. The board has a fiduciary responsibility to the foundation, such as paying attention to financial statements and attending the annual meeting. A family member might even find a career path as the executive director of the foundation. “Family engagement could be a big reason for setting up the foundation in the first place, and the formal push to get together annually and compensating board members or an executive director might be welcome,” Fontanetta says. However, if you prefer a less time-consuming, low-key approach, a DAF is a better choice since it doesn’t have any of those requirements. “It can essentially just sit there until you’re ready to make grants,” says Fontanetta.

3) What kinds of grants would you like to make?

A DAF is more restrictive in that you can only grant funds to another 501(c)(3) public charity. With a foundation, you have the flexibility to make a grant to another private foundation or to a for-profit entity (after completing additional diligence), in addition to public charities. 

4) What experiences do you want to have?

Experiences that are of a reasonable cost and are in line with your foundation’s mission and charitable purpose are deemed “qualified” to be paid from the foundation itself. For instance, you might envision further education and a salary for the executive director, an annual board retreat, travel stipends for meetings and site visits, hiring a consultant to create a website about your foundation and its charitable giving. “If these things are part of what philanthropy looks like for you, establishing a private foundation is the right path, as you cannot pay for any such expenses from a DAF,” Fontanetta says.

Another financial consideration with a foundation is the required 5% of average asset value distribution to charitable purposes each year. “This 5% includes grants but also certain expenses. Anything that is related to your charitable purpose and not spent on investment management can apply,” says Fontanetta. With expenses calculated, she suggests asking yourself “Will I be able to make the charitable impact that I intended?”. If not, then a DAF might be the better choice.

A DAF does not require a minimum annual distribution or tax return. 

5) Which assets will you contribute?

The IRS offers the highest level of charitable deduction for donations to public charities which include DAFs. Fontanetta provides this example: If real estate is contributed to a private foundation, the amount you are allowed to deduct is going to be limited to the cost basis, which is likely lower than the market value is right now, and a percentage of your adjusted gross income (AGI). Alternatively, if you contribute that same real estate to your DAF, the deduction will be based on the fair market value of the property and a higher percentage of your AGI. “This is a massive difference in a lot of cases,” says Fontanetta. One consideration might be to maintain both a private foundation and a DAF. The DAF could receive certain assets such as real estate to maximize your tax deductions.

6) If you decide on a DAF, what kind of sponsoring organization works best for you?

It is necessary to select a sponsoring organization, such as a financial institution or community foundation, to house your DAF. Fontanetta notes that not all DAFs are similarly situated. It’s important to look at options in both a community foundation and a financial institution to find the best fit for your needs. Depending on the type of assets you want to contribute or how long you’d like your family to advise grantmaking or what investment options are available, one option will stand out as a better fit for you. With regard to fees, it’s important to understand both the administrative fee as well as the investment fee, which are often separate. 

Whittier Trust provides a unique offering for DAFs. While we do not maintain public charity status, we partner with a best-in-class community foundation that allows us to invest assets for our clients and maintain the primary role of interfacing with the client and grantees. “With expertise in estate settlement, real estate, private equity and other complex investments, this capability allows Whittier clients more flexibility to contribute and manage alternative assets within their DAF,” Fontanetta says.

If you’re not sure if a private foundation or donor advised fund is right for your situation, the Philanthropic Services team at Whittier will help you understand the differences between the two and advise on which direction is the best for your family.

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Jul 26th

It’s a Match

Whittier Trust has a team of more than a dozen dedicated professionals responsible for protecting and growing all of our charitable clients. The passion these skilled matchmakers have for the philanthropic field is never more apparent than when they have the opportunity to connect Whittier Trust nonprofit endowment clients to Whittier Trust grant-making clients. Philanthropic clients often seek out the team’s expertise when looking for well-run charities that align with their goals and missions. Similarly, Whittier Trust’s nonprofit clients trust the team to help identify new qualified revenue sources. The diligent members of Pegine Grayson’s team explore all possible options and make special note when values, interests and visions for the future align between clients.

Whittier Trust Senior Vice President and Director of Philanthropic Services, Pegine Grayson, and her group never guarantee more than a personal and thoughtful introduction. However, they can offer exclusive visibility into certain nonprofit and grantmaking clients. Connecting these dots can be critical for grant making foundations and donor-advised funds that don’t publicize their efforts or existence through social media or websites. The insights and relationships the team has with their clients allows for more informed decision-making and can help save valuable time. The team is happy to provide win-win scenarios on a regular basis.

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Mar 25th

Is ‘Doing Good’ Good for your Portfolio?

As environmental and social issues come to the forefront of the agenda of many individual investors when working with an advisor, trickling down from the shift led by large endowments and foundations, the question stands – is it profitable to make investment decisions aligned with values that will have a positive impact on our world?

Studies have shown that having a socially conscious lens toward investment can have a positive impact on portfolio performance, taking into account that organizations that highly regard social values are likely to take an ethical approach across all of their operations driving long-term profitability.

There are different approaches to building an investment portfolio that reflects a commitment to varied Environmental, Social, and Governance (ESG) issues such as selling stocks that are not representative of your stance on the issue (“negative screening”), or funding organizations that are driving beneficial impact in this area (“social impact investing”). As with any investment decision, individuals need to take a broad view of the overall goals and stance of their portfolios when pursuing ESG focused investing.

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Feb 22nd

An Upside to Inflation? Larger gift tax exemptions!

Inflation has been a trending topic in the news as supply chains and labor shortages continue to struggle to meet market demands. Though this current climate may reduce an investor’s confidence, there is an upside: larger gift tax exemptions. The increase in gift tax exemptions has increased to $16,000 per donee, which means that tax savvy individuals can reduce the overall tax burden of their estate.

The current lifetime gift tax exemption allows for individuals to give over $12million per donee. While this is set to “sunset” in 2025, there has never been a better time to take advantage of this opportunity. Though taking advantage of this exemption is extremely lucrative, it should not be done without the oversight and guidance of a qualified estate planner, as errors can be incredibly costly. Talk to your advisor to craft an effective strategy about how you can protect your estate for future generations.

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Feb 2nd

Seven Steps to Involving the Next Generation in Philanthropy

As a parent, it can be challenging to find meaningful ways to integrate your children into your philanthropic efforts. Factors such as age, interests, and financial status all play into how you handle introducing your children to your family’s philanthropic goals. At Whittier Trust, we channel our years of experience into tailored solutions that help mitigate uncertainty as we address the needs that are most important to you. Over the years our Philanthropic Services team has worked with adolescents, and adult children to make sure this transitional phase is both educational and impactful.

When meeting with the next generation, it is important to set up one on one time with your children to see where their interests, and passions lie in the philanthropic sphere. After honest and comprehensive conversations, we can begin to align their interests with the causes they feel are most significant. From there, we are able to provide recommendations that best align with that vision. To begin coordinating interactions between your child and nonprofit organizations, it is crucial to set up an associate board. Oftentimes, we also find it beneficial to pair a young philanthropist with an advisor of a similar age so that they can get expertise with someone who is familiar with the social and digital platforms they are accustomed to using.

This process is deeply rewarding and can result in many long-term benefits. Through it, we educate the next generation on the charitable tools and topics that will be most useful to help them achieve their goals. Tools like grant-making become increasingly valuable during this phase, as it allows for the child to involve other members of the family and deepen the family bond around their cause. When all is said and done, our aim is to help create an individual who has the confidence, knowledge, and support to perpetuate their family’s legacy in their philanthropic endeavors. If you are unsure about where to begin this process with your child, please reach out and allow us to guide you through this exciting process.

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Jan 5th

4 Stages for Developing Good Stewards of Wealth and Family Businesses

The parenting and education we provide our children has a profound impact on their future attitudes towards wealth, money, stewardship, and the family business. We have to consider our approach very carefully, as it must be consistent, thoughtful, and disciplined, not exerting too much or too little control. It is ultimately up to them whether they want to pursue the family business or other ventures. It is our job to encourage their passions and be active participants in their lives, giving them all the tools we can possibly offer to make their own decisions and be prepared for any opportunity. There are different methods for each stage of our children’s lives for teaching family history, family business, money, investments, and estate planning.

In early development, from the time they’re born, till they’re about six years old, what is most important for your children is dedicating time and attention to them regardless of your other demands, creating a warm and loving environment to start laying a strong foundation for their character and values. At this age we lead by example, children see and internalize us working hard and being kind and generous to others. The latter end of this stage is also a good time to introduce your children to actual currency. Through an allowance, they will start learning money management and delayed gratification as they realize they need to save for items they really want, a valuable lesson as technology will be ever more present in their lives and needs to be understood as a tool, not a magic wand. At ages seven to thirteen, your children will begin asking questions about money and business, and when this happens you must take the time to provide them with thoughtful answers to encourage a strong work ethic, curiosity, generosity, and a fully functioning moral compass. If they have allowed their savings to grow, this may be a good time to introduce investing. Let them buy a few stocks of companies they know well and introduce basic ideas of compound growth and market behavior in relation to the larger world. To foster creativity and a go-getter spirit, it’s not a bad idea to let them start a simple business, your classic lemonade stand for example, but it’s important that they are actively involved in all aspects of planning and expenses, not just the revenue side, so they may work out themselves how to overcome challenges and understand logistical relationships. If applicable, this is also a good time to teach them the basics of the family business and introduce them to key figures. They may gravitate toward it, or they may not.

Their high school and college years (14-22) will be challenging, and it is critical that you remain an active participant in their lives, as they will have many life-impacting decisions to make during this time. However, it is also essential you recognize that while choices of academic rigor and effort, college, costs, and career path are not to be taken lightly, ultimately it is their choice. As variables grow and life gets complicated, communication becomes increasingly important to properly handle the questions and expectations of all parties. This is also the age to encourage the pursuit of internships. Real-world experience is a must for future employers and a necessity for personal growth. If you own a family business, let them intern at the bottom and learn how to work their way up, so they can understand the hard work that goes into every level of the company and the value of each component to the business overall. After graduating from college, they’re on their own. You can still give advice and help them find opportunities, but this is where your hard work, love, and lessons pay off. They will be on their own journey, and that may involve a career you envisioned for them or even the family business, or it may not. The important thing is maintaining open, honest communication, and bringing them into the fold on estate planning, so they may preserve, protect, and enhance your family’s assets as they teach their own children about stewardship.

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Dec 9th

Family Estate Planning: Keeping Your Family Business Legacy

Family businesses represent nearly 90% of American businesses and account for roughly 50% of U.S. employment, yet over 70% of these businesses lack a well crafted succession plan. While most owners like the idea of passing the business down to their children, family-owned enterprises often fail by the time the founder’s grandchildren take over. However, taking proactive action can help the family business avoid this and continue to grow and thrive long after the original owner has stepped aside. Looking towards eventual succession and long term business success in general, you should first develop and be able to articulate your long term business vision. You may indeed want to pass on a business legacy to future generations, or your eventual goal may be to sell the company for a significant amount of money. Either way, it’s important to know your goals so that all your efforts are working in harmony with a distinct vision. Once you have a clear objective, it’s time to put a plan in place. This is where corporate trustee services come in handy. Professional business and estate planning services can help identify the first step in family estate planning. Taking this first step can be the hardest thing to do, but it will result in proper successor identification, strengthening of relationships, mentorship and vision sharing that encourages buy-in from all parties involved. Without a clear plan and well articulated goals, you may leave your company listless and struggling for direction.

Choosing an eventual successor can be a minefield as you’re trying to avoid misunderstandings, hurt feelings and choosing an unqualified candidate for a position of power. Not all your family members will want to be involved in the business, but starting your succession plan sooner rather than later will help you strategically prepare for family growth, allowing you to act with intentionality when relatives want to invest more of themselves within the company. It’s even more important to communicate with those potentially affected by the change in leadership about their roles moving forward in the company. Properly leveraging skill sets will give them some sense of ownership in building the family legacy, regardless of who takes over. Talk with your employees, leadership and family about their strengths and personal goals and how those relate to the company. Whether the best fit for your successor comes from inside the family or out, clear and honest communication will help you avoid tensions and strained relationships. An objective third party can also be an effective resource in managing these conversations. It’s important to remember that you don’t have to take on these daunting tasks alone. Enlist the help of corporate trustee services and estate planning services as they can provide qualified legal, tax and business counsel to help guide you through planning, communication and eventual transition. Confidence is critical in family estate planning. A well-thought-out and executed process will set you, your family and your company up for success now and for years to come.

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Oct 13th

Philanthropy and Impact Investing: A Perfect Match

Philanthropy is the heartbeat of wealth management. It gives investors a chance to align their wealth and their values for a positive impact while furthering the long-term goals they envision for themselves. However, traditionally, only a relatively small percentage of charitable assets available to investors are actually given in service of donor-advised funds, grant-making or establishing foundations. The majority of assets are invested for preservation and growth, and don’t always align with the investor’s overall mission-oriented goals. Because of this, philanthropists are asking: “Is there a way we can put our investments to work on behalf of our charitable mission as well?” The answer is a resounding yes. Not only are there many ways to view impact investing, but making a difference doesn’t have to mean sacrificing returns.

Our Philosophy – It’s All About You

The values of our clients are as unique as our clients themselves, and each philanthropic goal is equally deserving of a unique investment plan. At Whittier Trust, we’ve developed a process to help our private clients maintain the maximum flexibility necessary to handpick the investments right for them and their charitable giving vehicles. This includes: avoiding mutual funds, focusing on quality investments, measuring those investments against the clients’ prioritized ESG (Environmental, Social, Governance) factors, and customizing a portfolio of recommendations for careful consideration. Examples of our tailored ESG solutions include investments in impact-screened equities, program and mission related investments (PRI’s and MRIs), fixed income, venture capital and other private investments. By looking at companies through an ESG (or impact) lens, not only are you aligning your portfolio with your philanthropic values, but because you will be looking at investments that mitigate risks, reduce taxes, and ensure long-term sustainability, you will also be growing your assets (including those used for grant-making) over time.

Our Process

Thanks to the increased presence of ESG in the markets, we have also expanded our fundamental analysis to provide metrics that demonstrate the real impacts your investments are having as a result of our process. With decades of experience, a high-quality investment philosophy, and an eye towards principles of sustainability, we know that the best way to begin this process is by listening carefully to you. Once we understand your values and how you’d like to express them through your investments, we will build a uniquely tailored portfolio to align with these values and goals. Our traditional rigorous financial analysis, known for uncovering excellent private and public market opportunities, is complimented with a layer of diligence focusing on environmental, social and corporate governance considerations.

We give these considerations equally rigorous treatment. When looking at environmental factors, we analyze a company’s commitment to energy efficiencies, recycling, minimally invasive manufacturing processes, responsible sourcing for raw materials, supply chain sustainability and deference to natural resources and environmental effects. We pay attention to how a company treats their employees, measuring social responsibility through reported levels of satisfaction and low client and employee turnover. We also look at governance. Quality of leadership and management shows through in high scores on integrity, diversity, accountability to investors and community engagement.

Is Impact Investing Right For You?

Investors are at the forefront of corporate change. We can help you join their ranks to address issues like climate change, diversity, human rights and animal cruelty. It’s up to you to ultimately determine for yourself whether impact investing is right for your money and your mission. Whittier Trust Client Advisors are here for any questions you may have, and ready to show you how impact investing can be successfully integrated into  your investing strategy.

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Sep 27th

Successful Succession Planning

While the thought of a company leader falling ill or worse is never pleasant, there can be dire consequences for companies that do not have contingency plans in place for such events. The smooth transition of leadership within a company is vital, especially because client needs must continue to be fulfilled and employees still require direction and a leadership team that they can rely on. Lack of preparation for these situations can lead to worse case scenarios, a loss of trust among employees and management, and businesses in these situations often find themselves collapsing inward.

Succession planning has even further consequences, as job loss, company revenue, and culture are all at stake. It is possible that families could lose their livelihoods from a lack of planning ahead.

What can be done then?

At Whittier Trust, we take care to navigate taxes, funding sources, and relationships for clients in order to make the transition of succession run as smoothly as possible.

“We take a comprehensive approach to planning, which is why I think we’re so successful in what we do,” says  Elizabeth Anderson, Vice President at Whittier Trust. “It’s our company mission to help generations of families care for their significant wealth in all sorts of different family and business scenarios. Our model for succession planning is customizable, so families can choose a plan that is right for them.”

What Steps Are Necessary? 

  • Plan early. It is advised that succession planning starts at least 3-5 years before a transition. Circumstances might demand an even longer period of transition time. Consideration should be taken to minimize capital gains taxes and maximize asset protection.
  • Assemble your advisory team. Start with the basics – surround yourself with people who can help you understand the bigger picture and the complexities that business, tax, and wealth management pose. Your team should give you options that best suit your overall objectives.
  • Make a contingency plan.  Making sure your business will run smoothly in an emergency will increase trust and confidence among employees, customers, and potential buyers.
  • Identify your ideal successor.  The person you wish to name as your successor may not be the best choice. You should work with your advisory team to find the best options.
  • Plan for after.  Knowing how you’ll spend your time and what resources you will need during retirement is critical.  To estimate financial needs during retirement, you must know how and where you will be spending your time.
  • Update your personal documents.  It is crucial to meet with your tax advisor, estate planning attorney, and wealth manager before a transition of leadership. Minimizing capital gains taxes and estate taxes while maximizing asset protection and family harmony takes time and planning.
  • Prepare the business.  If you are planning an exit that you hope leads to a high sales price for your business, you may want to bring in experts to help make the company more attractive to buyers.  Making sure the company financials are clean and audit-ready involves more than just following GAAP principles.  Strategies to retain top talent, reduce risk, and add value are some of the priorities you and your advisors should tackle.

If you are planning a family transition, you should focus on the relationships with non-family employees you value the most.  Making them comfortable with the transition is critical.

  • Prepare the family. In the case of a family transition, it is best if your family understands your objectives for the business and how you want those objectives to impact the family.  Clear communication allows family members to focus on a common goal, which builds trust.
  • Consider legacy.  If exiting your business allows you to establish a desired legacy, take the time to consider it.  Share your objectives with family and others who may be carrying your mission forward, so you can be sure that they understand your motivation and have the tools to keep your legacy alive when you are no longer present to do so.

This roadmap provides an overview of several steps we advise proactive owners to undertake as they consider succession planning.

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Sep 13th

Top Considerations When Investing in a Unique Asset Class

The term alternative investment may sound odd at first, but it is simply any investment outside traditional asset classes which include stocks, bonds and cash. Alternative investments may include a venture capital firm investing in a biotech startup or owning interest in a professional sports team. The practice is much more common than you may think, with approximately 45% of wealth managers investing client money in these unique assets.

Below are outlined three major considerations one should take before investing in alternative investments.

A Value-Add Tool

Perhaps the most obvious reason that people invest their money is to increase the value of their portfolios and build upon their wealth goals. With alternative investments, advisors are able to individually tailor client needs and find investments that may not exist in traditional public offerings. Alternative investments make things like adjusting or improving risk levels, diversifying portfolios and bringing social and environmental considerations into view much more simple.

For example, if a client priority included increasing expected returns of an equity allocation, an advisor might consider investing in venture capital to do so more efficiently.

Access Matters

Before jumping into alternative investments, it is important to be aware of the disparity in performance between different advisors and fund managers. Investing requires a lot of trust, especially as it involves someone else managing your money. Thus it is important to be informed and choose your advisors carefully.

While top managers are able to outperform traditional public markets, less experienced managers will often underperform. Much of investing success depends on the advisor’s ability to pick the right manager and investment. This is especially important in venture capital, where top tier managers most often produce the best funds.

Alternatives are not Mythical Creatures

Alternative investments are not a secret special form of investing. These types of investments follow the same rules of the game as any other investment. This means that economic growth and decline, as well as public debt levels and interest rates are all factors that can impact these alternatives. Taking this into account, wealth advisors must be careful not to oversaturate portfolios with too many investments that may be impacted by the same external economic risks. Even within alternative investments, advisors should be diversifying portfolios.

Finally, a question of complexity arises, as alternative investments can become the cause of a conflict of interest between client and advisor. Because alternatives are much more complex than traditional investment forms, there can be short-term gains and expense fees that come into play. It is important to have an advisor that can weigh these outcomes and choose the most appropriate course of action.

Alternative investments can be a great way to further your portfolio’s goals by offering better returns and diversification. One must keep in mind, however, that market risks are still a factor of consideration, and that much of investment success depends upon the advisor and manager that you choose. It is vital that the wealth advisor you work with is unconflicted and can determine the costs and benefits of these investments in a way that leads to your financial success.

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