When a Trustee Changes, the Donor's Intent Might Be Lost
When philanthropically-minded people leave money to a foundation, they might assume that money will be given to the causes they intended. However, this is not necessarily the case.
In her article, “Donors Gone, Trusts Veer from Their Wishes”, published in the September 29, 2007 edition of the New York Times, Stephanie Strom discusses the problem of “orphan trusts” in the United States.
“Orphan trusts” are trusts that were once held locally but later ended up in the hands of lawyers or large banks or trust companies. As a result, the grants made by the trustees often stray measurably from what the donor had likely intended.
The NYTimes’ examination of orphan trusts found four major trends:
- When large banks take over as the trustees, the number of grants given decrease, which has the effect of reducing the bank’s administrative costs while the bank fees, which are based on the value of the assets of the trust, increase;
- Smaller grant recipients are often dropped for larger and more prominent causes or receive fewer grants;
- New grant recipients sometimes include the alma maters of the trustees or other organizations with which they have a personal relationship; and
- Regulators in the United States have limited ability to identify and monitor orphan trusts.
It isn’t clear how many “orphan trusts” exist; however, at least 3,995 foundations reported having a financial institutions as their sole trustee. Those foundations held more than $5.4 billion dollars in assets and donated $256.1 million in 2005.
Have a great day!
Megan F. Connolly
