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Donor requesting Control of Investments

  • 1.  Donor requesting Control of Investments

    Posted 01-06-2022 05:24 PM

    Colleagues,

     

    We have a donor offering a significant gift of investments, but they want to control where and when the investments are held and traded, and where they go in the end of it all. This would be considered Quid Pro Quo, wouldn't it? I am being asked for official tax rules to provide to the development office to use in their visit with this donor.

     

    Thank you.

     

    Denise Mattie

    Director of Advancement Services

    Division of Institutional Advancement | Maedgen #209

     

    McMurry University

    1 McMurry University | #938 | Abilene, TX

    325-793-4750
    mcm.edu | give.mcm.edu 

    68270171-ac72-4324-9093-1b37b968f2da

     



  • 2.  RE: Donor requesting Control of Investments

    Posted 01-06-2022 05:50 PM
    Actually, the IRS permitted donor involvement in investment decisions of their contributed assets many years ago.  It's called Donor-Managed Investment Accounts (DMIA).  However, there are a couple of considerations:
    1. You want to allow it!
    2. Neither the donor nor their affiliated companies/investment firms can profit (self-dealing)
    We had a case like this at Duke.  The donation was $20,000,000 and the donor felt they could get a better return than we could using his investment strategies.  We agreed to a "trial run" for 18-months.

    During that 18 months, Duke earned an 18% rate of return.  The donor earned 11% following his strategy.  The "trial" ended :-).

    Donors are given a limited power of attorney to act as the investment manager.  There's an agreement stipulating the sorts of assets the account can hold.  And, as we did at Duke, the agreement can (should) include investment benchmarks.  The agreement should also give the charity the right to terminate the agreement at any time.

    There are other caveats and restrictions.  But it is allowed.

    John

    John H. Taylor
    Principal
    John H. Taylor Consulting, LLC
    2604 Sevier St.
    Durham, NC   27705
    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987