Close Monitoring of Charitable Trusts Adds Up to Big Sums for One Group

In the past few years, hundreds of charities have won millions of dollars in legal settlements from banks accused of

misdeeds. Convinced that banks are mismanaging charitable trusts and other philanthropic accounts, some charities are stepping up their scrutiny of financial institutions — and their efforts are starting to pay off.

One of the most aggressive charities is Shriners Hospitals for Children, in Tampa, Fla., which has 22 hospitals across the country that provide orthopedic and burn care for children. Shriners is a beneficiary of about $450-million in charitable trusts, says Bill Fawcett, the group’s corporate controller.

To protect those assets, Shriners officials have started to monitor the organization’s trusts more closely than ever, Mr. Fawcett says, in part because its accountants, KPMG, started asking questions several years ago about how the organization was valuing its trusts and how bank trustees were handling them.

In the past two years, Shriners has collected millions of dollars by persuading banks not to sit on assets many years after trust beneficiaries have died.

‘Double Dipping’

Mr. Fawcett says his team of trust employees — one of whom works full time poring over the details of trust documents in which Shriners has an interest — has discovered many problems with how banks are managing the organization’s charitable trusts. He says his charity has uncovered cases where banks were overcharging trusts, taxing them inappropriately, or failing to distribute the correct amount of money from certain trusts to the charity.

He says he has also seen banks “double dipping” from charitable trusts, or taking fees by investing trusts’ assets that the banks already are paid to oversee into the bank’s proprietary mutual funds. Many states allow that practice, but some banks are reluctant to do it with charitable accounts because they fear it will be viewed as taking money from charity.

When Shriners officials believe a bank is acting inappropriately, Mr. Fawcett says, the charity asks the bank to end the practice — or plan to see the charity in court. The tactics have been “very successful” in getting banks to cooperate, Mr. Fawcett says.

“We monitor the heck out of banks, and if we find negligence and threaten to go to court, a lot of banks will reimburse the fees,” he says.

He says banks have given back money after Shriners has accused them of overcharging trusts and have refrained from taking extra fees for putting trust assets into their proprietary mutual funds after Shriners raised concerns.

Nevertheless, Mr. Fawcett emphasizes that his organization sees many banks operating appropriately. “I would hate to say there are a bunch of bad banks,” he says. “There are probably an equal number of good ones as bad ones.”

The money Shriners has collected from banks that it has accused of mismanaging trusts, Mr. Fawcett says, has saved the group about $500,000 in the past two years. But he thinks his organization’s methods have helped save it even more money, as the approach has helped stop banks from pursuing questionable activities.

“Banks know we’re looking, and they know we’ll ask them questions when something goes out of line,” he says.

Closing Accounts

Shriners has brought in far more money by asking banks to collapse trusts that no longer benefit anyone but the charity and the bank.

In most of those trusts, individuals who had been receiving payments from the trusts as beneficiaries had recently died, but the banks had continued to operate the trusts and collect fees for overseeing them.

“We would receive income from those trusts eventually, but it might take 10 or 15 years before we would get it,” Mr. Fawcett says. “The only reason to allow those trusts to keep operating would be to benefit the bank.”

By making that argument to banks, Mr. Fawcett says, Shriners has persuaded banks to shut down about 30 charitable trusts in the past two years — paying the charity more than $5-million.

As it scrutinizes trust documents, Shriners officials also take note of bank trustees that have the power to distribute discretionary money from trusts they oversee to charitable organizations. Trust officials at Shriners pass the names of those banks to fund raisers at Shriners.

Mr. Fawcett says he does not know precisely how much his organization has brought in through that approach, but he thinks it could eventually be a substantial sum.

“We figure, hey, we’re as good a charity as anyone,” he says. “Why not give us another 10 percent?”