Charitable Donation Accounts

In a comment letter filed on October 21, ABA clarified a point of fact and urged the National Credit Union Administration to amend a proposal on a federal credit union's funding of a charitable donation account (CDA).

Under the proposal, banks, savings associations, and trust companies may not manage the assets of the CDA, even if acting as trustee. The proposal states: “A regulated trustee or other person who is authorized to make investment decisions for a CDA (‘‘manager’’), other than the FCU itself, must be registered with the SEC as an investment advisor. This will help to ensure proper regulatory oversight of those professionals who owe fiduciary duties to the FCU, and to mitigate counterparty, credit, interest rate, liquidity, and reputational risks associated with funding a CDA.” The implication of the last sentence is that only investment advisors registered with the SEC are subject to proper regulatory oversight, owe a fiduciary duty to their client, and can mitigate the risks associated with funding a CDA.

In fact, banks, savings associations, and trust companies acting in a fiduciary capacity are subject to proper regulatory oversight, do owe a fiduciary duty to their clients and trust beneficiaries, and can mitigate risks associated with funding a CDA. There is, therefore, no reason to restrict the entities that can manage the CDA investments to registered investment advisors alone. Excluding banks, savings associations, and trust companies from managing the CDA’s investments will unnecessarily limit the options for FCUs looking for an investment manager.

In addition, the proposal states that "if an FCU chooses to establish a CDA using a trust vehicle, then the trustee must be an entity regulated by the Office of the Comptroller of the Currency, the U.S. Securities and Exchange Commission (SEC) or another federal regulatory agency." However, this provision would exclude a nondepository state-chartered trust company from acting as a trustee, because it has no federal regulator.

ABA wrote: "There is no reasonable basis for such a restriction on nondepository state-chartered trust companies. All banks, savings associations, and trust companies, whether federally chartered or state chartered, are subject to the highest fiduciary duty when acting as trustee."

Finally, the proposal incorrectly characterized the fiduciary duties of banks, savings and loans, and trusts. “Contrary to the implication in the proposed rule, when providing those services, banks are indeed subject to a fiduciary duty and must act solely in the best interests of the clients or trust beneficiaries,” ABA said. “For these reasons, the proposal should be amended to allow both federal and state banks, savings associations, and trust companies to act as trustee and to manage the investments of the CDA.”

Read the letter.