Cushman Rice trust fund to seek reclassification in effort to remove restrictions on how funding can be distributed
WILLMAR -- Trustees for the Cushman Rice fund will petition the court to revise the fund's legal status, a move that will eliminate restrictions on how the money is distributed.
This course of action was approved Wednesday by the finance committee of the Rice Memorial Hospital board. Approval will be recommended to the full board when it meets on March 18.
Tax law changes that took effect last year now classify the Rice trust as a private foundation. As a result, it's required to distribute 5 percent of the value of its assets each year. It also must pay an excise tax.
The concern of hospital officials is that, over time, the value of the trust will erode and it will no longer be able to fulfill its original purpose of helping needy patients pay their hospital bills.
"We don't believe that was ever the intent that this would dwindle," said Bill Fenske, chief financial officer at Rice Hospital.
The fund was established in the 1920s when Cushman Rice, whose family money helped endow the construction of Rice Hospital, wrote the provision into his will.
Ever since, grants have been given annually to eligible patients who have no other means of paying for their hospital care.
In most years, the fund distributes around $75,000 or $76,000 in grants. Last year, because of the new requirement to distribute 5 percent of the value, grants totally $110,000 were made.
The Rice trust also saw its value shrink from $2.5 million to around $2 million as a result of the troubled financial market.
Mary Probst, an attorney with Leonard Street and Deinard, told finance committee members Wednesday that the trust could preserve more of its assets if it were reclassified as a supporting organization of Rice Hospital.
For many charitable organizations, this is a better option that allows them to be more flexible, she said.
Under the current tax law, "you have mandatory payout requirements," she said. "In this market a lot of private foundations are finding that to be a huge hunk."
Reclassification of the trust would require approval by a judge and a new letter of determination issued by the Internal Revenue Service, she said by teleconference with the committee and representatives of Bremer Investment Management and Trust, the trustees for the Rice fund.
There would likely be no change in how the trust operates on a daily basis, she said. "This is more a formality of changing the governing documents."
There would be one significant structural change, however: Rice Hospital would have to assume a more active role in the Rice trust, either as the sole trustee or as a co-trustee with Bremer. Bremer is currently the sole trustee.
Bremer representatives said Wednesday that they're not opposed to the change.
"We're comfortable with the process that has been outlined here. We'd like to move forward and take this to the court," said Janet Vandendriessche, senior vice president with Bremer Investment Management and Trust in Marshall.
Willmar attorney Brad Schmidt, of Johnson Moody Schmidt and Kleinhuizen, said the Rice trust has traditionally remained at arm's length from the hospital to avoid any conflicts of interest.
Ultimately, a judge will have to be convinced that it's in the trust's best interest to be reclassified, he said.
He called it "a unique situation."
"It's really the general public who has an interest," he said.
"Ultimately it's those beneficiaries who are the key people."