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Serving Northern St. Louis County, Minnesota

A tale of two trusts

The Gardner and Gunderson trusts have similar origins. They diverged sharply after that.

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Consider this tale of two trusts. In 1989, officials in Ely founded the Donald G. Gardner Trust, with $510,000 in proceeds from the sale of a famous painting which Mr. Gardner gifted to the city, and which was subsequently sold to a New York collector.
In 1992, the city of Tower founded the Martin G. Gundersen Memorial Trust using $399,000 in funds generated by the sale of timber land that Mr. Gunderson had gifted to the city.
The Gardner Trust, which operates as a 501c3 nonprofit corporation, has since made major contributions to the arts in Ely, annually providing operational funding for community arts organizations, like the Northern Lake Arts Association and Ely Greenstone, along with individual grants to artists. While the amount of funding available from the Gardner Trust has varied depending on the trust’s annual investment returns, its annual giving ranges from $35,000-$50,000 per year. At the same time, the trust maintains a part-time paid director to administer the trust’s grant programs and ensure proper record-keeping.
While Tower’s Gunderson Trust was managed for a time, and generated decent returns when interest rates were higher, it has provided next to nothing in terms of returns to the community for the past decade. Even worse, as one recently-appointed trust board member noted recently, record-keeping became a literal black hole. The city never even retained bank statements, although it is beginning to do so now.
Board members aren’t even sure if the trust is a 501c3 or some other kind of entity. They can find no articles of incorporation or bylaws but operate based on a series of shifting court orders, the meanings of which are far from clear. In contrast to the professionally-run Gardner Trust, no one was minding the store at the Gundersen Trust for years.
Since its founding, the Gardner Trust has disbursed  $779,000 to the Ely Library and to the arts and humanities in Ely, a remarkable success story.
While the Gundersen Trust had its moments and has returned nearly $400,000 to city purposes since its founding, those contributions were generated in the early years. Since 2011, there’s really no record of any trust disbursements, although the city did borrow $258,000 from the trust to cover harbor-related expenses in 2015.
It’s unclear how the trust found itself in such a state, although lack of oversight is probably the biggest contributor. The trust’s board is supposed to have quarterly meetings but met only three times in the four and a half years between late 2014 and early 2019, when the new administration began working to get the trust back on track. That effort has been stymied, however, by questionable financial records and a host of questions about the restrictions currently in effect on the trust’s investments. The trust’s investment portfolio is a disaster, with much of its money in certificates of deposit paying less than one percent interest. The trust did obtain court approval in 2018 for a modification of its investment portfolio, but it’s unclear what the change actually means.
City officials seem to be taking the steps to restore the trust to working order, which is critically important. The board, late last month, established a sub-committee to work with legal counsel to determine how the trust can be better managed. While professional management is probably advisable, such a move will need to be carefully researched. As the current trust board chair noted recently, the trust ended up losing money in the past when an investment advisor soaked the trust with high fees that exceeded its returns. The trust board needs to avoid a repeat of that experience.
The Gundersen Trust would also do well to hire a very part-time director, who can ensure that the trust is administered properly, provide oversight of any financial manager, and solicit and manage grant requests once the trust begins to generate returns again. While three-quarters of the trust’s annual proceeds are supposed to go the city of Tower, the city could utilize the funds to support any number of valuable community purposes, such as recreation or operational support for a venue like the Lake Vermilion Cultural Center, or funding for a public library.
The Gardner Trust is a good example of the impact a small trust can have when it’s managed properly. The Gundersen Trust is a cautionary tale about what can happen when a city loses track of its valuable assets.

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