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Banks vs. Nonbanks in US: Disintermediation

Banks vs. Nonbanks in US: Disintermediation. Trust Services. A trust institution : a legal entity that can hold and manage assets for one or more beneficiaries over time Grantor is the creator of the trust Trustee is the manager of the trust

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Banks vs. Nonbanks in US: Disintermediation

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  1. Banks vs. Nonbanks in US: Disintermediation

  2. Trust Services • A trust institution: a legal entity that can hold and manage assets for one or more beneficiaries over time • Grantor is the creator of the trust • Trustee is the manager of the trust • Beneficiaries receive the benefits of the trust • Business trusts historically were formed among firms in the same industry to avoid competition and gain monopoly power • The Sherman Antitrust Act of 1890 in US and other legislation struck down such anti-competitive behavior • Today holding companies (ownership of affiliated firms) and consortiums (association or partnership of financial institutions but no cross ownership) have replaced trusts as a common form of business organisation • Trust institutions now handle employee benefit programmes, personal trusts and estates, and corporate trusts • Real estate investment trusts (REITs) is a trust that purchases real estate and offers shares of ownership to investors • Trust companies can be within or outside a bank for purposes of estate planning to distribute assets of an individual after death and reduce taxes for beneficiaries: US federal estate tax rates range from 37% to 55%!

  3. Trust Fund Training Presented By Trust Fund Operations Committee October 25, 2005 9 am -12 pm

  4. Trust Fund OverviewWhat is a trust fund? • Donation or bequest received by the University that has conditions and/or legal requirements for use • Conditions/requirements are agreed upon by the donor and the University, or terms for use are established by the University • Various types of trusts

  5. Long Term General perpetual trusts - only income from capital can be expended General long term -both capital and income can be expended Short Term Specific trusts - to be spent in the current year for some specific purpose designated by the donor Types of Trust Funds

  6. How McMaster ‘Manages’ Trusts • People / positions • Policies / procedures • Committees and Councils • Systems • Attestations and donor reporting

  7. People / Positions • Trust Fund Accounting Assistant • Trust Fund Administrators • Financial Services Staff • Development Officers • Treasury Staff and External Managers • Financial Aid and Scholarships Staff • Graduate Studies Staff • Staff in Various Faculties

  8. Policies / Procedures • Charitable Giving Policy • Prospect Clearance Policy • Operational Procedures • Investments Policy • Expenditure Policy • Cash Control Policy

  9. Committees and Councils Trust Fund Management • Chaired by AVP’s Admin & Advancement • Sets policies & procedures for managing trust funds • Accountable for annual Trust Funds Review and Attestations • Responsible for TFAIS • Submits reports to Board Finance Committee

  10. Committees and Councils(continued) Trust Fund Operations • Reports to TFMC • Operationalizes policies and procedures • Approves new trust funds • Coordinates flows between departments • Deals with problem trusts (e.g. inactive, too small, overspent) • Ensures centralized files kept

  11. Committees and Councils(continued) Undergraduate and Graduate Councils • Sets policies and procedures for managing scholarships and bursaries • Approves terms for new trust funds dealing mainly with scholarships and bursaries

  12. Systems • Financial Accounting System (FAS) • Financial Aid & Scholarship System • Advancement System • Trust Fund Accounting Information System (TFAIS) • Summary of information from Advancement, Scholarship and FAS systems

  13. Attestations & Donor Reporting • Key component of the Annual Review of Trust Funds • Attestations are obtained from administrators confirming terms of trusts have been upheld • Annual statements are sent to donors to provide information on their trust account(s)

  14. Overview • End of Overview • Any questions before we go on? • Next – the role of Advancement

  15. University Advancement • Development • Public Relations • Alumni Advancement • Advancement Services • Decentralized Advancement

  16. Development • Solicit donations from private sources • Handle incoming calls related to donations • Provide donors with naming opportunities • Draft gift agreements that document expectations of the University and the Donor • Holds gift announcement functions • Stewards donors ensuring a long term relationship, one tool is the annual Endowment Fund and Chair Statement

  17. Development’s Role in Trusts • For scholarships / bursaries, or issues related to the establishment of new trusts, Senior Development Officer is the key liaison with donor, TFOC, Adv. Serv., Financial Services, SGS and Office of Student Financial Aid & Scholarships • Discuss with Donors terms / conditions / policies regarding trusts • With Donor, and in cooperation with fund administrator, develop terms of reference for new trust

  18. Development’s Role in Trusts • Move establishment of new trust through TFOC process • Request the opening of a new trust fund including name of fund, terms of reference, type of fund, funds available and donor contact • Note: As a result of audit, gift agreements are currently being updated to better reference University policies related to trusts

  19. Acts as processing unit for all areas in University Advancement Advancement Services

  20. Donations • Verifies that every gift is for a university approved project • Ensures every gift qualifies as a charitable donation according to CRA • Records all donations on Advance system • Generates all tax receipts for income tax purposes

  21. Donations • Appropriately acknowledges all donations • Produces financial accounting information • Correspond with Investments regarding estate and securities donations • Produce pledge reminders to donors, for review and mailing by Development Officers

  22. Gift Restrictions • Cashing a cheque can be construed as accepting a donor’s conditions • If we accept a cheque, the funds must be used as the donor expects • CRA will audit to ensure that donor’s funds are spent as the donor indicated

  23. Accounting Practices • Produce month-end report to trigger monthly transfers to trust funds • Donations are transferred to FAS via journal entry

  24. Allocations • Every allocation represents an approved project or university type expenditure • The name on the allocation appears automatically on the tax receipt • Each allocation has an FAS account number attached to it • If the funds from more than one allocation are deposited to a general FAS account, then the administrator is responsible for monitoring the expenditures

  25. Types of Allocations Requiring Trust Accounts • Endowed Chairs ($2 million required) • Endowed Research Projects (under $2 mil) • Endowed Scholarships / Bursaries (min $20K) • Non-Endowed Scholarships/Bursaries (minimum 5 year commitment @ $1K/yr) • Other funds to be held long-term, with interest

  26. Advancement Services –Donations Role • Deposit funds into a Campaign/Annual Fund revenue account • Set up an allocation flagging administrator and trust account number • Produce monthly Donations Notification • Provide Trusts Assistant w/ Designated Report • Ensure all revenues transferred according to University transfer policy

  27. University Advancement Web Sites • http://www.mcmaster.ca/ua/alumni/giving/ • http://www.mcmaster.ca/policy/ • http://www.mcmaster.ca/policy/develop.htm • http://www.mcmaster.ca/ua/policy/ Prospect%20Clearance%20Policy.htm • http://www.mcmaster.ca/ua/policy/ CHARITABLEGIVINGPOLICY.htm

  28. University Advancement • End of University Advancement • Any questions before we go on? • Next – the role of Trust Fund Administrators

  29. Trust Fund Administrator’s Role Context • Trust funds = approximately 1,400 • Trust fund administrators = 38 • Total value of trust funds = approximately $250 million

  30. Trust Fund Administrator’s Role Purpose of trust funds • Student awards • Chairs • Professorships • Library and Art Gallery acquisitions • Other

  31. Trust Fund Administrator’s Role Key role of trust fund administrators • Participate in the appropriate initial set-up of the fund • Administer and care for the fund • Report on use of the fund • Budget fund resources • Steward the fund and its donors

  32. Trust Fund Administrator’s Role Policies and Procedures Guiding Trust Fund Management • http://www.mcmaster.ca/bms/policy/finance/opguide.htm (under review) • http://www.mcmaster.ca/bms/finance/ (how to set up a trust fund)

  33. Trust Fund Administrator’s Role Initial set-up • Terms that can be administered in perpetuity • Collaboration between all stakeholders • Approval process • Signed Gift Agreement or Pledge of Support • Open trust fund – how to • Promote gift in appropriate publications

  34. Trust Fund Administrator’s Role Ongoing administration • Determine annual allocation (4%) • Ensure match between terms and allocations • Monitor activity, inactivity, deficits, problems Reporting • Update TFAIS re recipients • Review TFAIS data prior to printing of Endowment Fund • Maintain donor files

  35. Trust Fund Administrator’s Role Budgeting • Account for annual interest • Account for expenditures Stewardship role • Donors and student thank-you’s • Special attention files • Revisions to terms

  36. Trust Fund Administrators • End of Trust Fund Administrators • Any questions before we go on? • Next – Accounting

  37. Cash Control Policy • http://www.mcmaster.ca/bms/policy/finance/ • cashcont.htm • Proper segregation of duties • Cheques must be stamped “for deposit only” • Independent person reviews the deposit • Deposits agreed to FAS statements

  38. Cash Control Policy • Funds collected to be held in locked, fireproof cabinets • A cheque log should be prepared • Written procedures should be developed • Deposits should not be put through the University’s Mail Services • Internal Audit is available for consultation on this policy

  39. Accounting • Standard Subcodes for Trust Accounts • Specific Trusts: • 0484 Donation Revenue • 0997 Over/Under Exp Cfwd • 2200 Trust Fund Awards • General Trusts (0 side): • 1100 Claim on Cash • 2500 GT Unexp Cap May 1 • 2501 GT Unexp Cap Cur/Yr

  40. Accounting • General Trusts (continued): • 2502 OSOTF I Donation • 2503 OSOTF Donation Cur/Yr • 2504 OSOTF I Gov Cont • 2505 OSOTF Gov Cont Cur/Yr • 2506 OSOTF II Donat May 1 • 2507 OSOTF II Gov’t May 1 • 2508 Cap Pres Prior • 2509 Capital Preservation • 3700 Trust Funds Other

  41. Accounting • General Trusts – Subsidiary Ledger (7 side): • 0484 Donations Rev • 0625 Invest Inc Allocated • 0997 Over/Under Exp Cfwd • 2200 Trust Fund Awards • 2201 Trust Fund Transfers • 2205 Trf to Other Ledgers

  42. Transfers Between Trusts and Other Ledgers • Should not be done, except under exceptional circumstances. • eg. required by Gift Agreement, Endowed Chairs, or PVP approved • All expenditures should be made from the trust to ensure they are following the terms and conditions of the trust (excepted are Chairs & Professorships) • All deposits into trusts must be processed through University Advancement

  43. Chairs and Professorships • Must have a corresponding 2 account • All budget matches, faculty contributions and expenditures must be recorded in the corresponding 2 account • Should spend from 2 account first, transferring expendable income from the 7 account when necessary • April final balances in 2 accounts must be carried forward each year

  44. Trust Fund Accounting Information System • Preview of system • TFAIS Manual available

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