Case of the Week

Case:

Lucy finished college and headed west. She started as a financial analyst with a large company in Seattle. After just four years, she became a Registered Investment Advisor and began advising clients. Lucy also managed her own investments. With her keen insight into financial markets, Lucy soon began to move from traditional stocks and bonds into futures and commodities markets. Lucy realized that “shorting” financial stocks was going to be a bonanza. She was so successful in the down market that she now only manages her own large personal portfolio.

Somewhat later in life, Lucy discovered the wonderful world of philanthropy. She volunteered at her favorite nonprofit and learned that giving a helping hand to someone in need is even more gratifying than making another million dollars in the futures market. After reading in the charity’s weekly enewsletter about a charitable remainder trust, Lucy called Clara, a gift planner at her favorite nonprofit.

Lucy suggested that she would like to transfer $5,000,000 of securities to a 5% net plus makeup unitrust (NIMCRUT). She would serve as trustee, including making the investment decisions, and the nonprofit would be the remainder recipient. Since Lucy normally earns 18% per year on her futures and commodities investments, she feels that it would be easy to make the unitrust grow to $10,000,000 or more.

Question:

Would this plan work? May Lucy serve as trustee? Is it permissible to invest unitrust assets in the futures market?

Solution: