An Unusual Way to Create an Amazing Legacy

I came across this amazing and unusual estate plan where the a family created a credit union for heirs only.  Forget having to worry about gifting or tax ramifications of intra-family loans this a legitimate credit union where, according to the CBS’ article,

For a $5 deposit, plus a 25-cent handling fee, you become a member of Our Family Social Credit Union IF you are a direct descendant of Manley and Lucy Williams, or are married to one.

According to the article, OFSCU has 511 members in 22 states, and shockingly only has about $500,000 in assets.  For a 50 year old credit union I would have assumed it would have more assets.

The pros and cons are pretty self evident.  You may have access to capital that otherwise you wouldn’t have since a family credit union may lend to you in times when traditional means wouldn’t touch you (unemployment and disability), however, if you fail to make a payment the entire family is likely to find out.

How I Would Create a Family Credit Union

Beyond just the cool novelty of the family credit union I think it is shocking, almost deplorable, that at the current time it only has about have a million in assets under management. How I would try to grow the credit union is the same way I’d start one.

Is there an asset that provides a lump sum and costs pennies on the dollar in some cases? Life Insurance would be a perfect funding vehicle.  Think about if every current member bought a cheap policy to fund it, or if allowed, the credit union actually paid the premium almost as an “investment.”

10 Responses to An Unusual Way to Create an Amazing Legacy

  1. I think the credit union is a pretty good idea. People can get loans for emergency, a business, or other purchases. Probably not a house because they’d run out of money pretty quickly.
    I don’t know about life insurance. Doesn’t the insurance company win when you keep adding more people?

    • Evan says:

      “I don’t know about life insurance. Doesn’t the insurance company win when you keep adding more people?”

      Not sure what you mean, but think about the relatives who died from 1950 to 2013 – if they just had in flows of cash each time the thing would be HUGE at this point. Would it have been the best investment? Maybe not, but the assets under management would be a lot larger than $500K

  2. That’s a pretty good idea. Although that’s amazing that with over 500 members there’s less than $1,000 per person. It would definitely be a great way to go about loaning money within the family especially in cases of emergency.

    • Evan says:

      I think at that size it is almost a disservice not everyone can possibly know each other, but it is nice that you can put something in the middle of the loan. For example person A wants to loan to Person B…just deposit with the Credit Union then the Credit Union becomes the bad guy when it goes to collect/

  3. Bobby says:

    This seems like an interesting concept, but how does the underwriting process work? Could you deny someone in the family from a loan if you were pretty sure they couldn’t pay it back?

    • Evan says:

      Video didn’t have enough info in my opinion, but the person in charge did say she had denied loans before. Talk about awkward!

  4. Steve says:

    This is a TERRIBLE idea. Whenever money changes hands between family members eventually, you’re going to have problems. What happens when a lazy family member wants to borrow money for some crazy scheme? How do you evaluate the risk to the credit union? What if the low life doesn’t pay it back? Everyone with money in the credit union will be mad at him. Instead of borrowing money from one family member (a bad idea) you are borrowing from 500 (a much worse idea). If the purpose is to lend money to someone who can’t get money any other way, there is likely a GOOD reason why that person can’t get money any other way. He is a bad risk!

    If my family came up with this, I wouldn’t touch it with a ten foot pole!

    • Evan says:

      I could see why joining one may be a problem, but what about starting one? Think about if you, Steve, were the founder that helped how many children, grandchildren, great grandchildren and at this point probably great great grandchildren. That is a TRUE legacy.

  5. Wait, what?

    Well, first, how did they create it? What d’you have to do to make such an entity legal?

    Second, if on average members have only about $500 apiece in the CU, does this suggest few of them trust it? Or that several have many tens of thousands invested while most are going along to get along with the others by depositing the minimum?

    Then, there’s the old and still valid principle, “NEVER DO BUSINESS WITH FRIENDS AND FAMILY.” How do they deal with the nightmares that this arrangement presents? Is the thing managed by some outside conservator, so that no one in the family takes the blame for a decision made for the CU’s good but that is wildly unpopular with all the nephews, nieces, and cousins?

    If one created such an entity, could the entity lend money to buy real estate or vehicles? Whose money is it actually lending, anyway? And who (or what) gets the money and interest back as it’s repaid?

    It’s an interesting idea. But it sure raises a dizzying number of questions.

    • Evan says:

      In terms of starting it – I don’t think 500 people deposited $500 if I had to guess some put in more than others, but it is really made up of an inheritance and careful planning with that endowment. So the grandparents died and left a couple hundred thousand to start the Credit Union.

      The never doing business with friends and family is a 100% fair reasoning not to get involved.

      “And who (or what) gets the money and interest back as it’s repaid?”
      - A credit union, by its very definition, is owned by the members. So the interest gets put back into the pot and if the board decides it can issue a dividend. Really just like any other business.

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