• "I am deeply grateful to the Masonic Village's employees, and will never be able to express my gratitude to all of them." — Catherine L.

  • "I liked my Masonic Charity Foundation charitable gift annuity so much, I opened three more. Why? I might be old-fashioned, but the scriptures have taught me the virtue of looking out for others. Knowing that the funds left in my gift annuities will care for the Masonic Village residents makes me feel wonderful." — Dorothy B.

  • "I am writing to tell you, from the bottom of my heart, just how wonderful the last two years of my mother's life were, thanks to all of you at the Masonic Village at Burlington." — Carol O.

  • "It's not just the Masonic Village's beautiful facilities and the many services that are offered to the residents – most of all, it's the employees. They are personally dedicated it seems to each and every individual here." — Catherine L.

  • "We are equally grateful for the 'loving arms of hospice' that were wrapped around our family in our hour of need." — M.W.

  • "When we decided to come to the Masonic Village at Burlington, we knew it was going to be a very big change in our lives. When we came here, we were very pleased that it was not difficult. We would recommend the Masonic Village highly to a friend." — Joseph and Bertha B.

  • "There is simply no way to express the depth of gratitude I feel for the Masonic Village at Burlington – thank you!" — Jim C.

  • "We know first-hand how very special Acacia Hospice's caregivers are, and we thank every single one of them from the bottom of our hearts." — J.M.

  • "It is with a grateful heart that we extend to you our deepest gratitude for the loving care that Acacia Hospice afforded our beloved Aunt." — M.W.

  • "It has been a source of tremendous relief that my parents were in such caring and professional hands during the final years of their lives." — Jim C.

  • "It takes a very special person to do the job Acacia Hospice's caregivers do every day. We would like you to know we think you have an incredible group of 'Angels.'" — J.M

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Wednesday December 12, 2018

Case of the Week

Lucky Lucy Lindstrom's "Northern Long Shot" Charity Diversifies

Case:

Lucky Lucy Lindstrom finished college and headed west. She started as a financial analyst with a large company in Seattle. After just four years, she became a Registered Investment Advisor (RIA) and began advising clients. Lucy also managed her own investments. With her keen insight into financial markets, Lucy soon began to move from traditional stocks and bonds into futures and commodities markets. Lucy was so successful in these markets that she now only manages her own large personal portfolio.

Somewhat late in life, Lucy discovered the wonderful world of philanthropy. She volunteered at her favorite charity and learned that giving someone in need a helping hand is even more gratifying than making another million in the futures market.

Lucy had invested $1,000,000 in stock in a Canadian oil "wildcatter" with the name Northern Long Shot, Inc. This company has been drilling new exploratory wells in the far north. Recently, the stock rose from the $1 per share that she paid to over $5 per share. After this success, Northern Long Shot decided to "spin off" a smaller company with a portion of the successful wells. Lucy exchanged her $5 million in stock for 60% of the stock in Northern Long Shot, Inc. After the exchange, Lucy decided to give the Northern Long Shot stock to a private charitable foundation to help those in need.

Lucy discussed options with her attorney. She asked her attorney about the ability of her private foundation to keep the Northern Long Shot, Inc. stock. Her attorney noted that private foundations are subject to various rules on self-dealing, minimum distributions and excess business holdings and also must not invest in a way that jeopardizes the charitable interest.

Question:

Lucy said, "Wow! There are a lot of rules for private foundations. Why would my private foundation have to be careful with the type of investments? After all, I am an RIA who has been very successful with investments."

Solution:

Her attorney explained that the trustee of a private foundation generally has a lot of flexibility when investing a private foundation's assets. Investments are proper so long as they are permitted by the private foundation's organizational documents and state law and do not "jeopardize the carrying out of any of its exempt purposes." Sec. 4944. An investment jeopardizes a private foundation's exempt purposes if it is overly risky. This risk determination is made on an investment-by-investment basis. Possible jeopardy investments that are closely scrutinized include: trading securities on margin, trading in commodities futures, purchases of puts, calls, straddles and warrants and selling short.

If a foundation makes a jeopardy investment, the foundation is subject to an excise tax on the amount invested. In addition, a foundation manager who knowingly participates in a jeopardy investment is subject to an excise tax on the amount of the investment. If the private foundation does not subsequently remove the investment from jeopardy, an additional excise tax on the amount invested is imposed on the foundation. Any foundation manager who knowingly participated in the investment is subject to an excise tax on the amount of the investment.

Fortunately, there is an exception for property transferred to Lucy's private foundation by gift. Since the Northern Long Shot stock was given to her private foundation, the jeopardizing investment rules do not apply. Reg. 53.4944-1(a)(2)(ii)(a).

Lucy thought about these rules. After giving the Northern Long Shot stock to her foundation, the foundation sold the stock tax free and invested the proceeds in a diversified portfolio. Lucy now makes grants from her private foundation's income and growth. She realizes that the private foundation needs to follow prudent investor guidelines and may not have the complete freedom she enjoys with her personal investment portfolio.

Published October 5, 2018
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Previous Articles

Lucky Lucy Lindstrom's "Northern Long Shot" Charity

Lucky Lucy Lindstrom's "Hurricane Grants" Charity

Lucky Lucy Lindstrom's "No Self-Dealing" Charity

Lucky Lucy Lindstrom's "Ultimate Control" Charity

Lucky Lucy Lindstrom's "Wheeler-Dealer Charity LLC"

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