TOWER- Tower’s Gundersen Trust Board formally dissolved itself at their final meeting on Oct. 12. The board’s dissolution is actually good news for the city of Tower, and the result of the research and work done by the Gundersen Trust Board over the past couple years with an aim of significantly increasing returns from the fund.
The money, formerly part of the Gundersen Trust, totaling close to a million dollars, is now being managed as a dedicated fund by the Duluth-Superior Area Community Foundation (DSACF). The DSACF will be making an annual payment from the trust to the city, this first year at four percent of the fund’s assets. DSACF estimated distributions to be between 3.5 and 5-percent each year, and most years, this means some of the earnings get added to the principal amount, which then can grow year to year, and create higher annual distributions.
“With four-percent interest we will be getting about $40,000 this year,” said board treasurer Steve Wilson, who led the effort to have the trust monies managed to bring more benefits to the city and its residents.
The city will now need to establish a committee that will set guidelines for the disbursement of the annual payment, create an application process, and then decide how to award the money each year. The money will be divided consistent with the original intent of the trust when it was established in 1992, with 75-percent going to the city’s general fund, and the remainder to community organizations that are working to benefit the city.
“I think I am dreaming,” said Wilson, who had done meticulous research into the history of the fund, as well as legal and accounting issues. He also helped the board find an experienced community trust attorney and investigated possible community foundations to better manage the fund.
The legal and court costs for the transfer have totaled close to $30,000. But as board members noted, after those bills are paid, it still leaves more proceeds from the fund in the first year than in recent memory, when any proceeds had to go back into the fund to account for inflation.
“These attorney fees were necessitated by past faulty decisions,” Wilson said. “And it wasn’t just by the Gundersen Board, the city has some responsibility.”
A decision by a former city clerk in 2018 forced all the trust funds, not just the original investment, into government-backed securities, which were paying only a fraction of a percent in interest. And prior to that, four years after the trust was formed, a decision was made not to apply to the IRS for nonprofit status, which also had limited investment options, and created some legal and tax uncertainties.
Attorney Bradley Hanson, who did most of the work on the transfer, told Wilson this was “definitely one of the most complex trust termination cases” his firm had ever had.
“It involved a trust created by a city through a court order. So, any changes had to be made in court, and those changes had to be approved by two layers of decision makers,” Hanson noted.
“There were complicated tax issues involved in the history of the trust,” he said, because the trust had been set up as a charitable trust, but then the trust board never applied for a tax exemption. This meant the trust fund was treated as a government trust in the city’s audit. A final complication was the fact the trust included a municipal bond, because the city had borrowed money from the trust. This required hiring a bond counsel to oversee that transfer.
In opting to disband, the trust board did approve a final recommendation to the city council about the makeup of the new committee, which will oversee the disbursement of the funds each year. The board is asking the city to create a five-person board, with one council member, three city residents, and one at-large position, that does not have to be a city resident. The board would need a chairman and secretary/treasurer, although they are are hoping the city will take over the actual check-writing duties. They also discussed having the city draft conflict of interest guidelines and term limits for board members.