Donor's charitable remainder trusts helped fund private loans

<p>To fund its private loans, the Sonoma State University Academic Foundation relied heavily on a pool of money donated to SSU through a tax planning tool designed to benefit both the university and its donors.</p><p>At the direction of the donors, the foundation placed their money in special accounts called “charitable remainder trusts.” These trusts were designed to generate regular payments to the donors for their rest of their lives. Upon a donor’s death, all of the remaining money is given to support the university.</p><p>The money usually goes into the university’s endowment fund, which supports scholarships, academic programs and other campus activities.</p><p>In 1994, the foundation began investing its charitable remainder trusts into private loans, rather than the government securities it had previously relied on.</p><p>For years, private loans were a way the foundation could make regular payments to the donors and grow the principal balance of the trust, said Jim Meyer, the former SSU vice president for development who oversaw the foundation until his retirement in 2002.</p><p>By 2003, almost a quarter of the $40million in assets managed by the foundation were held in charitable remainder trusts.</p><p>The university advised all of its charitable trust donors how it intended to invest the money in their trusts, said Larry Furukawa-Schlereth, SSU’s chief financial officer. Each was advised their money would be used to make personal loans backed by real estate, he said.</p><p>“They fully knew what they were doing,” Furukawa-Schlereth said.</p><p>Now, the foundation is notifying a half-dozen donors that their payments may decline because their trusts were used to fund a $1.25 million loan to developer Clem Carinalli.</p><p>The foundation would not identify the donors.</p><p>In May, Carinalli notified the foundation he would stop making payments on the loan. The foundation is now taking ownership of the 10.5-acre property north of Windsor and looking for ways to minimize the impact on its donors.</p><p>The university itself is also exposed to potential losses. To help fund the loan, the foundation pulled just over $358,000 — or a quarter of the $1.25 million loan made to Carinalli — out of the university’s endowment fund, which is used primarily to support scholarships and academic programs.</p>