Re: Comments on Vanguard's account rules

On Sun, May 23, 2010 at 8:13 PM, Scott Mintz <scott.w.mintz@gmail.com> wrote:

I don't remember whether or not Fidelity offered the same assurance (vetting of donations). I plan on doing a similar analysis of another donor-advised program as soon as I have the opportunity.

On Sat, May 22, 2010 at 11:03 AM, Clark Robinson <robinsonchicago@gmail.com> wrote:
Thanks for getting this information and writing it up.

From where we are at the moment, the $25,000 threshold is daunting, but I think we should have planning in place for the day we go from having hundreds of dollars to tens of thousands.

Vanguard's services of doing due diligence before making the gifts and assuring compliance with IRS rules is work that has value, which may somewhat offset the loss of potential growth due to their conservative investing.

The fact Vanguard identifies $1,000,000 as the point where it becomes efficient to have individualized services may of significance to us.

I think we should continue to proceed on two tracks.

Clark
217-722-8680

On Fri, May 21, 2010 at 3:15 PM, Scott Mintz <scott.w.mintz@gmail.com> wrote:

PNC

Summary: Unsure fit

501(c)(3) organizations looking to receive money must submit a grant application forms using the common grant application format, which are then reviewed four times each calendar year and approved based on various factors, including meeting donors intent and trust documents
Currently have 31 trusts that they provide services for
Called (412) 762-5157 and left a message for Susan to confirm and obtain information
Website

Spoke to Susan who said she couldnt do anything for us until were setup as a trust, but that donors can provide specific instructions in their trust documents (?). Maybe I wasnt explaining myself well, but I didnt find her to be very helpful.

Vanguard

Summary: Possible fit

Please call 888-383-4483 to request a visit from a member of our executive staff.

Our staff will also conduct due-diligence research on a charity you wish to support to ensure that it is an eligible nonprofit agency.

Online capabilities including recommending changes to asset allocations, review account balances and statements, and recommend grants as well as notices grant approval/denial
Recommend grant minimum of $500 with Vanguards staff making a decision typically within five to seven business days, and they reserve the right to reject any grant recommendation for any reason.
The Program requires that at least one grant be distributed from each program account every seven years. If the Program distributes less than 5% of its total assets over a five-year period, additional grants may be required.
The Program will only issue grants to organizations that qualify as tax-exempt public charities or private operating foundations as defined by the Internal Revenue Code
Direct international grants can be made via US charities serving the International community, through intermediaries i.e. United Way that often charge a fee, though US charities that have International affiliates, to any disaster recovery charity, and directly to foreign organizations subject to case-by-case approval
Minimum initial contribution of $25,000 with additional contribution of at least $5,000 eligible to be made at any time. Once the contribution minimum of $25,000 has been received, the account balance may decrease to $100, with a maintenance fee of $100 assessed annually to accounts with less than $15,000
Accounts with more than $1 million will be considered for the Programs Select Plan, with reduced fees, more investment options, and a personal service representative
Each program account may have a maximum of two account advisors, but may provide limited online access to certain interested parties
With under $1 million there are nine investment pools which authorized parties may recommend allocation among, however, the recommendations are subject to the approval of the Trustees and they reserve the right to decline exchanges if they become excessively frequent, if they cause unnecessary expenses, or any other reason
Index-based mutual funds compose the majority of the pool holdings (i.e. money market, investment grade short-term bonds, all bonds, all U.S. stocks, International Stocks) then there are combination funds (i.e. 50/50 money market and investment grade short-term bonds, 60/40 stocks and bonds, 80/20 stocks and bonds, and 100% in stocks)
If grants over a five-year period totals less than 5% of the accounts average assets, you may be required to provide grant recommendations within a 60 day period after receiving request by Vanguard. If not done, Vanguard reserves the right to transfer up to 5% of assets from the program account to the Programs General Fund for discretionary grant-making by the Board of Trustees.
The Program reserves the right to charge a nominal processing fee in the rare cases where grant recommendations are excessively frequent or problematic, or if legal costs are incurred by the Program for a grant agreement.
Normal expenses are those charged by the investment pools, which range form 18bps to 34bps, plus an administrative fee of 60bps for the first $1 million
Legal costs may be incurred i.e. Vanguard gets sued by a charity we incorrectly and against Vanguards rules, provided a pledge to
Website

On Thu, May 20, 2010 at 8:24 PM, Barrett Brown <barriticus@gmail.com> wrote:

I agree with all the reasoning expressed here and will defer to your judgment on these sorts of issues.

On Thu, May 20, 2010 at 5:52 PM, Clark Robinson <robinsonchicago@gmail.com> wrote:

Scott, for when you have time,

Barrett stuff you have not seen is blue.

I have been thinking about filing the non profit corporation papers IRS approval request ourselves.

Barrett is not having much luck finding a lawyer to volunteer for this.

Here are some remarks I sent him earlier today (Thursday) with some later thoughts added-in:

RE: finding a lawyer

I have spent the morning looking at the actual process of creating a non profit charitable corporation in New York, and although it involves tedious steps and filings, it looks do-able:

here are some of the things that are involved:

choose a name that is not in use and can not be confused with one in use, "Project PM Foundation" appears to available

File certificate of incorporation with the state of NY, this will require three individuals to sign as officers of the corporation, need not all be NY residents, but will need a NY mailing address (which will need to be kept current with the state authorities), so probably a PO Box would be best, there is a $75 filing fee

File for charity exemption with IRS (looks do-able)

Register charity with state of NY

At some point after the corporation is formed we will need to open a bank account for the corporation, I would expect that to require a minimum deposit

So, a stable address, a couple hundred dollars and some paper work.

I do not see much risk or potential liability in making these filings, if we do it wrong, they get rejected and we re-file.

However, once the corporation has funds or the ability to enter contracts (even verbal ones) it gets pretty serious, so the three incorporators need to know and trust each other

For instance, if the corporation misbehaves, the incorporators themselves can be liable under some circumstances

Illustration: my condo building was built by some guys doing business as a corporation, and when we, the buyers of condos in the new building, sued over construction defects, the builder moved for dismissal on the grounds that his corporation was liable, not him personally -- however, we found a defect in his corporation and the court ruled he would be personally liable, which as a practical matter harmed his credit, thus he became motivated to settle

I will be sending Scott the forms when I have more time and I will get his input on the wisdom of bulling ahead with forming a corporation ourselves.

(Additional comments:)

Why a non profit rather than a foundation or trust? As I understand it, 'foundation' (in this sense) is a non-legal term that describes entities that are recognized under state law as trusts or corporations. A trust is a more difficult entity than a corporation to create and I would not be willing to tackle it. (I do not know if this is true in all states, but seems to be the case in NY.)

Why NY? If, heaven forbid, someone has to show up in person at an administrative agency or court when something goes wrong, we don't want to travel or hire out the appearance. NY requires an in-state mailing address, which is not unusual, since they may have to pass on service of process. I would not be surprised if there are some states that like collecting fees and make it easier to incorporate, but if the organization is incorporated in, say, Nevada but the officers and activity are primarily in NY, it may look sleazy to potential donors.

Anyway, here are some of the forms to look at in the vastness of your leisure.

Search for a name

Application to Incorporate

501(c) application

Registering as charity in NY

(It looks as if the individual fund raisers may have to register, as a separate matter)

IRS informational links

From things you (Scott) have written, I suspect you are familiar with a lot of this material, moreso than myself.

I will eventually put all this in the Financial document, so others can comment, but I would be glad to get your reaction first.

As discussed, this would be something we would do concurrently with opening a donor-advised gift fund account with a brokerage, so that we would be ready when we reach the point where we are able to wind down the brokerage account.

There are also online law firms that advertise prices for doing these things, which might be OK since this is not an unusual set of transactions. I will to look at that sometime in the coming week.

Clark
217-722-8680

--
Regards,

Barrett Brown
Brooklyn, NY
512-560-2302