Once again, the IRS has ruled that an educational organization that owns an endowment fund and that is also trustee of an unrelated unitrust may unitize its endowment fund, exchange the assets of the unitrust for endowment fund units, and pay a contractual amount to the unitrust with respect to the units the unitrust owns. All without any adverse UBIT consequences to the educational organization or the unitrust. The purpose of such an arrangement is to allow the unitrust to take advantage of the large and well-diversified endowment fund, which earns a higher return than the unitrust can achieve investing on its own.

 PLR 201208038 is the latest ruling concerning a university that manages an endowment fund and also serves as trustee for various unrelated unitrusts. This post points out a few key points raised in the ruling. Continue reading →