National Heritage Foundation Files for Bankruptcy: Gift Annuitants Among Largest Creditors

National Heritage Foundation Files for Bankruptcy: Gift Annuitants Among Largest Creditors

News story posted in Charitable Gift Annuity on 4 February 2009| 14 comments
audience: National Publication | last updated: 27 April 2017
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Summary

On January 24, 2009, the National Heritage Foundation filed for Chapter 11 bankruptcy in federal court citing a $6.2 million court judgment in connection with a charitable split-dollar life insurance case as its largest single outstanding debt and numerous charitable gift annuitants as creditors.

Full Text:

In September of 2008, the Virginia-based National Heritage Foundation was found in a Texas District Court to have changed the beneficiaries of three multi-million dollar charitable split-dollar life insurance policies from the donors' children to itself without notifying the donors of the change. In that case, $6.2 million was awarded to Dr. Juan and Sylvia Mancillas. However, while this award may have been the straw that broke the troubled foundation's financial back, a recently released document has uncovered other financial problems at NHF.

Specifically, in connection with court-ordered post-judgment asset discovery, the Mancillas' attorney, Albert Garcia deposed NHF financial analyst Julia Weltmann. In that deposition, Weltmann testified that NHF began making loans in 2005, now totaling $14 million, to Stellar Financial, a subsidiary of Stellar McKim Capital and the company that produces NHF's fund accounting software. According to Weltmann, no credit analysis of Stellar was performed by NHF prior to making the loan; rather, the loans were made on "good faith" because Ian Scott-Dunn, Stellar's then CEO also served as NHF's "investment adviser" even though he was not licensed in that capacity.

Weltmann further testified that Stellar Financial has made no payments on the loan since 2006 and that NHF was in the process of renegotiating the loan and acquiring additional guarantees. The only security for the loan, according to Weltmann, was the source code for the software that Stellar produces.

Of particular concern is the fact that, according to Weltmann, the $14 million loaned to Stellar came from donations made to NHF by numerous donors in exchange for charitable gift annuities which require NHF to make fixed annuity payments to annuitants for their lifetimes. Weltmann expressed further concerns regarding NHF's ability to recover its principal.

For independent coverage on this story, see the following articles from The Chronicle on Philanthropy and Forbes:

In addition, the Planned Giving Design Center received the full transcript of the NHF/Weltmann deposition. It is available as an attachment in PDF format at the bottom of this page.


For previous coverage of NHF-related charitable split-dollar life insurance litigation, see the following PGDC news stories:

AttachmentSize
Deposition of Julia Weltmann.pdf338.43 KB

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