Financial Report
NOTE: The article below was originally printed in March 2007. As there were numerous questions regarding our financial standing at the St. Louis Convention, her e is the reprint.
NABWMT FOUNDER MAKES LASTING FINANCIAL LEGACY
By John R. Williams II, Co-chair, Financial Development Committee and Paul Hawkins, NABWMT Office Manager
At its January meeting, the NABWMT board of directors voted to liquidate the Michael Smith trust and to transfer its proceeds to both endowment and operating funds at the Pittsburgh Foundation. As this is a key move for the NA, this article will outline the key considerations and implications.
Key Background Information
At the outset of this investigation, a few important facts came into focus. Because these facts may not be well known to the general membership, we state them here.
NABWMT's founder, Michael John Smith, died in Atlanta in late 1990. In his will he specified that the residual of his estate should be left to NABWMT, requesting that no more than $50,000 should be spent in any given year. Although we often refer to the Michael Smith Trust as if it is a legal entity (typically when one establishes a trust it is set up like a corporation) in fact, there is no such legal entity. Instead, to the extent there is a "trust" it is in the form known as a "testamentary trust," which means that Michael Smith's estate is still open, and Sandy Porter's legal role was that of executor of Michael Smith's estate.
In late 2006, Sandy Porter informed NABWMT that due to personal and professional changes in her life, she wished to relinquish her duties as trustee. In the subsequent research that followed, the NA board faced the following decisions:
How to manage the funds on an ongoing basis
The NA had the option of continuing to work within the jurisdiction of the Probate Court of Fulton County, Georgia. Any change to the trustee would require a petition to that Court. Just like when Sandy Porter was named executor a few years ago, this is a process that takes several months. Also, an attorney would need to be hired to prepare and present the required petitions, which will involve considerable expense. Thus, there would be restrictive access to needed funds. The second option was for Sandy to liquidate the residual of Michael Smith's estate and to then notify the probate court that the estate has been settled. By liquidating the estate, all of the monies now invested with TD Waterhouse would be given to NABWMT. The face amount at the transfer date was approximately $200,000.
Where to place the funds
As you know, NABWMT recently established an endowment with the Pittsburgh Foundation. As you also know, the principal of this endowment can never be invaded. Therefore, we asked the Pittsburgh Foundation whether it would be able to establish a second fund on NABWMT's behalf, particularly a fund that would allow access to principal, and the Pittsburgh Foundation agreed. The only stipulation articulated by the Pittsburgh Foundation is that, once established, this second fund could never be entirety liquidated. It must instead maintain a minimum threshold. Per Pittsburgh Foundation policy, the current minimum threshold for any managed fund is $10,000. The Pittsburgh Foundation also agreed to insert a clause in the fund agreement limiting the amount that NABWMT could draw down in any given year. In keeping with the spirit of Michael Smith's request, this clause would ensure that no more than $50,000 or 10% of the principal balance (whichever is greater) could be withdrawn in any year. (The 10% provision not only allows future withdrawals to keep pace with inflation, it also approximates the ratio in effect when Michael Smith died.)
As stated earlier, the board voted to liquidate the trust and place the funds at The Pittsburgh Foundation as outlined above. It is important to for members to realize the difference between an endowment and operating fund.
Think of the operating fund as a limited checking account. Each year, the NA budget is comprised of revenues and expenses. The operating fund will be one source of revenue, but it will be important for all to realize it is not a bottomless pit. If the NA were to use $50,000 per year, it would be very close to the $10,000 minimum in about three years (assuming no accumulation on the original $172,000 balance). This must be complemented by internal and external fundraising and profits from activities such as the convention.
The endowment fund is meant to be a long-term reserve that with donations and well as interest accrued, could help offset some operational expenses (such as the Bush-Mallon Institute).
Having both funds sends a message to potential donors such as foundations that the NA is a worthwhile investment. It is for that very reason that we ask all of you to consider donating to either or both funds through your annual support as well as considering the NA in your will. These methods will help build on Michael Smith's legacy to see the NA move confidently into the 21st century.
Posted: modified by:Del Korte Modify date:2008-11-17 06:07:54