Asset allocation is the primary driver of a charitable trust's investment returns. A disciplined, long-term approach to investing that considers the characteristics of a trust and the needs of the income beneficiary can help ensure that its specific goals and objectives are accomplished.

When initiating a trust, consider the following factors when designing an appropriate asset allocation strategy:

1

What Type of Trust Is This?

A net income trust will have different goals and objectives, as well as different payout provisions, than a unitrust, for example. These differences should drive the asset allocation decision.

2

What Is the Expected Time Horizon?

The longer the expected time horizon of the trust, the greater level of risk the trust assets can tolerate. A shorter time horizon limits the trust's ability to recover from a difficult economic cycle.

3

What Are the Liquidity Needs?

Is the goal to attempt to offset a high payout rate with high investment returns? Or will the trust focus on principal preservation and stability?

4

What Level of Risk is Appropriate?

Nonprofits tend to be more risk tolerant, given their focus on growing remainder values, whereas income beneficiaries are often concerned with the stability of their payments.

5

Are Taxes a Concern?

Some beneficiaries may expect that investments be managed to limit the tax burden on distributions. We generally caution against allowing tax to be the primary driver of asset allocation decisions.

“In the long run, a disciplined investment strategy has the greatest chance of producing returns that meet the trust's goals while also minimizing overall portfolio risk.”
Asset allocation should not be treated as a "set it and forget it" decision
Revisit your allocation annually

An annual review will help ensure that the allocation is still appropriate given the
circumstances of the trust, the beneficiaries and the overall economy.

Consider changes in certain circumstances

It may be a good time to adjust the allocation if there has been a change in the account structure, time horizon, risk tolerance or income yield requirements.

Resist making impulsive changes

Some common mistakes we see include changing allocations in response to recent market
events or the advice of media pundits, or in an attempt to time the market.

  • The information provided is for illustrative/educational purposes only. All investment strategies referenced in this material come with investment risks, including loss of value and/or loss of anticipated income. Past performance does not guarantee future results. This material is not intended to constitute legal, tax, investment or financial advice. Effort has been made to ensure that the material presented herein is accurate at the time of publication. However, this material is not intended to be a full and exhaustive explanation of the law in any area or of all of the tax, investment or financial options available. The information discussed herein may not be applicable to or appropriate for every investor and should be used only after consultation with professionals who have reviewed your specific situation. BNY Mellon Wealth Management conducts business through various operating subsidiaries of The Bank of New York Mellon Corporation. ©2016 The Bank of New York Mellon Corporation. All rights reserved.