As long as Seventh-day Adventist organizations serve as a fiduciary for church members the question of how the member’s assets should be invested will be continually asked? The simple answer to this question is…the way the donor directs in writing.
A problem arises though when the church member hasn’t given any written instructions and the donor becomes incompetent, can no longer communicate, or has passed away. In these situations, getting written investment instructions becomes difficult and maybe even impossible. We then must look at the state or provincial law, NAD Working Policy and NAD Planned Giving and Trust Services (PGTS) Standards for guidance.
When it comes to the law most states and territories have enacted their version of the UNIFORM PRUDENT INVESTOR ACT (UPIA) of 1994. You will need to consult your local legal counsel for what your state(s) or province(s) have enacted.
Prior to the UPIA trustees were guided by The PRUDENT PERSON RULE which was based on Massachusetts common law written in 1830 and revised in 1959. The Prudent Person Rule applied directly to trust fiduciaries and required trust assets to be invested as a “prudent person” would invest their own assets after the following are considered:
- The needs of the beneficiary
- The need to preserve the estate
- The need for income
The 1994 UPIA made four main changes to the rule:
- Entire investment portfolio is considered when determining the prudence of any one investment.
- Diversification is explicitly required of the fiduciary
- No category or type of investment is considered inherently imprudent
- A fiduciary is permitted to delegate investment management and other functions to third parties.
An update to NAD Working Policy concerning investments was voted November 5, 2019, at the NAD Year-end Meeting. The underlined section below is the primary change to this policy.
S 85 05.2 Safeguarding Denominational Funds
In order that assets for investment might be prudently managed the following principles and policies have been adopted for the North American Division: a. All investments must be in compliance with the Prudent Investment Act or other applicable legal standard in the jurisdiction(s). b. Unions may authorize their conferences, individually or as a group to apply the terms of this policy to conference member organizations such as churches and academies. c. The conference executive committee shall take action, after evaluating the nature of the available funds and the skill resources available, recommending to the Union that the member organization apply the provisions of this policy.
The following are three situations in which a living donor cannot give written direction to the organization because they are incompetent. When the donor is incompetent the documents become irrevocable and cannot be changed.
- An aging donor/principal who lacks capacity.
- A trustor, who has been declared by a physician to be incapacitated.
- A trustor, testator, donor/principal who has died and the organization is the trustee or personal representative for their trust or estate appointed in the trust or last will and testament.
In all these cases the trustor, testator, donor/principal is not able to legally express their wishes regarding how to invest their assets. Assuming you have not received written direction while the person was able to give direction, how does your organization as the fiduciary determine how to invest the assets?
(Note: Make sure you have followed the advice of your local legal counsel and have read the estate planning documents to determine that the person is indeed incompetent.)
- Review the documents to see if there is direction as to how to invest assets.
- If there is no direction in the document, review the needs as listed in UPIA.
- Review all NAD Working Policies and NAD PGTS Standards on investments
- Determine if outside professional investment counsel is needed to create an investment plan. Make sure counsel is aware of the NAD policies and standards.
- Have in-house committees vote approval of the investment plan.
- Store the voted investment plan in the donor’s file.
- Follow the plan with periodic review to reassess the needs.
When considering the investment strategy, it is important to keep in mind who the beneficiaries are, the trustor while living and the trust beneficiaries after the death of the trustor. You may need to adjust the investment strategy based on the needs of the current beneficiaries.
Summary
When investing fiduciary assets obtain written direction or instruction from the donor.
If the donor is not able to give written direction then vote a plan that complies with local law, NAD Working Policy, and NAD PGTS Standards based on the needs of the current beneficiary.