
	March 24, 2007

Smart Investment With Harvard?

Retirees Give and Get Back
With University Trusts

By ARDEN DALE
March 24, 2007; Page B2

Rita Schneider and Ron Alberts wanted to give something back to Harvard University after working there for many years -- and they also wanted to pump up their retirement portfolio.

The couple found a way to meet both their goals through an option that allows charitable trusts to be invested alongside Harvard's high-performing endowment. Harvard was the first to offer such an option, in 2003. Other top schools, including Stanford University, the University of Notre Dame and the Massachusetts Institute of Technology, have been granted permission by the Internal Revenue Service to allow donors to invest with their endowments.

HIGHER INVESTING

• The Issue: A Harvard program that allows donors to reap the benefits of the school's well-regarded endowment fund has attracted much attention since its 2003 introduction.

• How It Works: Donors typically transfer money in the form of a charitable trust and receive a regular distribution until death. The remainder of the assets goes to the schools.

• What's New: Other schools, including MIT and Notre Dame, have received approval from the IRS to offer donors the trust option.

Stanford and Notre Dame began offering the option this year, and MIT plans to in the future. "Having the endowment option will be a win-win situation for both MIT and our alumni," says Judy Sager, director of gift planning at MIT.

The trust option allows donors to share in the returns earned by university endowments, which often have access to investments that are hard for individuals to hold on their own.

After a donor dies, the trust proceeds go to the university. One possible drawback: Tax rates on payments from the trust may be higher than some other investment options.

The strategy has worked for Ms. Schneider and Mr. Alberts, self-described "beach bums" who now live in Miami Beach. "As far as I know, this is about the best place to invest and be able to sleep at night," says Ms. Schneider.

The couple had strong ties to the school. Ms. Schneider, 56 years old, had taught French and Spanish to theology students at the Harvard Divinity School for 13 years in a summer program; Mr. Alberts, 59, was a staff assistant in the registrar's office.

They funded three trusts at Harvard from the sale of appreciated real estate. The trusts pay them a handsome income, and what is left when they die will go to Harvard.

University endowments are among the most successful investors. The Harvard endowment returned an annualized 15.2% over the 10 years ended last June 30, according to the school. The S&P 500-stock index's annualized total return over that period was 8.3%.

Higher-education endowment funds earned an average one-year return rate of 10.7% for the year ended June 30, according to a recent survey conducted by the National Association of College and University Business Officers in conjunction with TIAA-CREF. The S&P 500 returned 8.6% over that period.

Harvard and other schools have gotten these good results through an aggressive strategy that puts money into widely diverse assets such as hedge funds, private equity, real estate and even timber.

"You get a higher rate of return with less volatility," said David W. Scudder, the chairman of Aureus Asset Management, a Boston-based wealth-management firm. Mr. Scudder previously oversaw trusts at the Harvard Management Co., which runs the Harvard endowment. "Endowments are in all these different asset classes that have very little correlation to one another."

To invest alongside an endowment fund, donors typically use a specialized version of a "charitable remainder trust," in which donors put money and receive a regular distribution for a set period of time, usually for life. After the trust ends, the remainder of the assets must go to the charity.

Donors who invest in charitable-remainder trusts typically get an immediate deduction for the amount that is expected to ultimately end up with the charity. Some of the annual distribution that the donor receives, however, may be taxed as ordinary income, rather than capital gains. A donor could pay as much as 35% tax on distributions, rather than the 15% capital-gains rate. But for many people, the tax burden is offset by the higher returns endowments offer.

The option has been hugely popular at Harvard: The university has $1.5 billion in its planned-giving program, and about $900 million of that is invested through its approximately 700 charitable-remainder trusts. About 60% of the trust assets are invested through the endowment option.

"Having the endowment investment option has been tremendously beneficial for Harvard and our donors," said Anne D. McClintock, executive director of University Planned Giving at Harvard. "It's something that our donors have asked about for many, many years."

Indeed, it was demand from Harvard alumni that drove Harvard and Mr. Scudder to devise the arrangement.

"In the first year or two I was there, the Harvard endowment was doing quite well relative to the S&P, and I can't tell you how many alumni came to me saying, 'Can you get us into the endowment?' " says Mr. Scudder, who left Harvard in 2005.

Universities and donors both like the arrangement. Ms. Schneider and Mr. Alberts are particularly pleased that they were able to stipulate that when they die, the trust will go to the Harvard Divinity School to fund education on genocide.

"My father's side of the family perished in the Holocaust, and I wanted to honor them, and especially to devote my life earnings to the teaching of tolerance," says Ms. Schneider.

Write to Arden Dale at arden.dale@dowjones.com¹

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