Ethics Dilemmas & Resolutions Archive
As a planned giving professional, I have gotten close to many of my donors — closer even than some of the people at my organization who solicit major gifts. Something about a planned gift transaction speaks to a long relationship. It’s not that major gift officers don’t have good relationships with their donors, but my discussions of what happens with my donors’ estates, their children and their philanthropy after death make me feel particularly close. Now, last week, my boss told me that I’ve gotten too close, that some actions I take as a result of the relationship might be perceived as applying undue pressure. As an example, he reprimanded me for driving a donor to her attorney to discuss her gift. Is that really getting too close?
You are not alone. A few years ago, a fundraiser wrote to ask if driving a donor to the store to get her groceries was such a bad idea. His boss had reprimanded him for doing that. My response at the time was to consider the organization’s perspective. The fundraiser was being paid to obtain gifts, not to act as chauffer or, to get to the larger issue in your situation, not to put himself into a position where he might be accused of applying undue pressure. All a disgruntled child needs is a story to tell the court of how a fundraiser ingratiated himself with a donor to the point of leaving less money to her loved ones. Even if the legal question were resolved in the charity’s favor, the ethical — to say nothing of the public relations — question would hardly be resolved.
That said, we can’t let fear steer us away from our best intentions. One of the tenets of ethical decision-making is to consider, to the best of our ability, all of the relevant facts of a situation. You say that you did your donor a favor, yes, but the favor was to drive her to her attorney. That fact makes a difference. It’s different from, say, driving her to your organization’s attorney for legal consultation, or, even, to the grocery store. I think anyone could only conclude that whatever influence your favor may have generated would be far, far outweighed by the knowledge that your donor would be getting advice from a professional whose time and expertise were paid for by your donor. That is, no matter who got her to the attorney’s door, the attorney would be representing her best interests. Even if you were present during that discussion, I would have to think that the attorney would not be influenced away from what’s best for his client. In fact, although this usually takes place after a gift strategy is decided upon, the fundraiser and the attorney, to the benefit of the donor, often discuss the particulars of the arrangement. This is most important when deciding the components of the gift agreement, which is separate from deciding what is contained in the language of the charitable trust or other gift vehicle.
In this particular case of helping a donor, I’d suggest you sleep well at night.
But while your question seems easier than some to answer, it should remind us all that relationships with donors can be tricky waters to navigate. As I have said before, ethics is far less about deciding between right and wrong and far more about deciding between right and right. While these two truths, or rights — it is proper for office executives to analyze the activities of their fundraisers to reach the organization’s highest efficiency and it is proper for fundraisers to care about and help their donors in appropriate situations — are compatible, we must constantly find the proper balance. It’s a matter of degree and, for the most part, ethical common sense.
If you have a question, please feel free to contact Doug White at email@example.com. While all issues discussed are real, identities are kept confidential.
Ethics in the New Year
Ethics in the New Year
Although we shouldn’t count end-of-year gifts sent by check if we have received them after the beginning of the new year and if the postmark is in the new year, my boss told me that it would be okay to “consider” the gift having been made in the old year, as long as it’s not too deep into the new year. He said this after we received a significant gift. We often receive such gifts but have been diligent about saving the envelope with the postmark to ensure that the mailbox rule was followed. He says we should just discard the envelope, use the date of the check on our acknowledgement, and no one is the wiser. After all, he said, the IRS doesn’t go digging around the filing cabinets of charities for this purpose. I certainly don’t want to report this to the IRS, of course, but what can I tell him? And the thing is, he’s a really good guy and cares about doing the right thing. And, although it doesn’t address this situation, we actually have an ethics policy.
People are often confronted with how to best determine the right course of action, and many times we fail. To begin, you can tell him he’s doing the wrong thing. Even though it may seem inconsequential, his approach to this issue has ramifications. He may be right that the IRS won’t be coming around to search the filing cabinets containing your donor records, but it may audit the donor, and you don’t want to be in the position of upholding a lie. But, more basically, the IRS has outlined what is acceptable and what is not, and that the chances of being found out are small is no defense or excuse.
That you have an ethics policy is laudable, of course — and that puts your organization in the minority — but a policy alone is not enough; the quality of the contents must reflect a good deal of soul-searching. Ethics policies, as is true with any set of policies, should not be filed away with some smug satisfaction that everyone has now done enough. It takes more to ensure an ethical atmosphere. A recent article in the Harvard Business Review, “Why Ethical people Make Unethical Choices,” quoted former federal prosecutor Serina Vash, “When I first began prosecuting corruption, I expected to walk into rooms and find the vilest people. I was shocked to find ordinarily good people I could well have had coffee with that morning. And they were still good people who’d made terrible choices.”
While the article identifies five reasons for this, the pervasive one for me is that the culture either permits bad decision-making or encourages it, and within that is the idea that performance targets can often create undue pressure to record results. I looked up your organization’s fiscal year and found that it ends with the calendar year, and so must wonder if your boss would like to count as much as possible for the year. When you think of it, the basic part of your question really isn’t about ethics; the law is clear. The ethical issue arises because of the gamble your office would make by not applying the rules, and the mindset the permits the thought to begin with.
greeing that your boss’s plan is wrong — by acknowledging the clarity of the law — is only the beginning. You need to dust off and read the ethics policy you have and bring it up to date, which might mean you add the situation you describe, and then resolve to read it often — once a quarter would be my recommendation — and amend it as needed. But, as with the original writing of it, the guts of the process cannot be merely mechanical or considered only quarterly. The office culture must accept and respect questions about behavior and everyone must set a positive example. Ethics isn’t a side matter to be found on a shelf; it is the guide for all we do. Nor is it a separate subject; it’s the living, breathing philosophy that informs all our significant decisions. Devoting ourselves to this would not be a bad New Year’s resolution.
If you have a question, please feel free to contact Doug White at firstname.lastname@example.org. While all issues discussed are real, identities are kept confidential.
Dilemma & Resolution — Mailing It In
Dilemma & Resolution — Mailing It In
I was having a conversation with two professional advisors – an attorney and a CPA – and three gift planners on the subject of mailings. One gift planner presented his idea to address a letter to a “filtered” group of donors who had indicated a desire to execute an estate plan and to make bequests to certain charities. It was his understanding that most of the donors in that filtered group did not have plans for various reasons. Therefore, one advisor, the CPA, suggested that the charity include this wording in the mailing: "If you have no personal attorney and no desire to visit an attorney's office, for X-amount of dollars you can have a complete estate plan prepared by an attorney by mail.”
The document preparation fee would be significantly less than normal, and the charity would use its gift planner to prepare the planning form to provide to the attorney. I have often thought of doing this but it just does not feel clean. I know these people very well. I am confident the planner and the attorney would have the donor's best interest first with the obvious agenda of hoping the donor will remember the charity.
A heretofore unknown attorney being entrusted to perform a most important task. By mail.
My sense is yours: no one is trying to do anything wrong here, but in the continuous search for the bigger issue, when anything arises of an ethical nature (or any other nature, for that matter), it may be wise here to ask whether the charity ought to be involved with providing actual lines to a specific attorney.
The question is not whether the attorney is good. Instead, it’s a question of the charity's role, especially if there's a fee involved, as of course there should be. Whether the donor ought to use this form of mail-in Will writing is also of interest: as estate plans are often complex and very personal, one or more in-person consultations produce the best results.
Personally, I think that anyone who wants legal work performed should be adult enough to understand that he or she should go to an attorney and be prepared to pay a market rate. If you needed an operation, you would most likely see a doctor and be prepared to pay the going rate for the examination.
I also agree with you that the feel is uncomfortable. Why not send the mailing to the group explaining the benefits of a bequest designation, with the suggested language to take to an attorney? If the prospect wants to do something, you can include a statement to the effect — as the mailing would be directed to people whom you think want to establish an estate plan but have not yet done so – that you will be glad to provide a list of three to five estate planning attorneys in the area. One of those could be the one in your group, and would be used by those who feel that, upon being initially consulted, he or she would be the right person to do the work.
I have to say, though, that it's hard to believe that those in this group, filtered precisely for their interest in estate planning, would have such an aversion to seeing an attorney.
Are Bribes Ever Ethical?
Are Bribes Ever Ethical?
A donor has asked that her gift be used to provide medical supplies to families in impoverished Middle East countries where my charitable organization works. Yesterday, during a Skype call, an on-the-ground employee (a close friend as well as a colleague) told me in confidence that he secretly uses a “not insignificant” portion of his budget to bribe distributors in some countries. So far, he said, he has been able to hide the money used for this purpose from the organization’s finance people. These are forced bribes; he says otherwise the materials very well might not get through. In fact, he says, he has heard that some drivers would fear for their lives without enough ready cash to pay at the frequent checkpoints on the way to their destinations. I have a few other donors who have been specific about how their money is to be used in our efforts in the Middle East, and I can assure you that the goal of bribery has not been mentioned. Is it right to take the money, knowing that part of it is being wasted and used to line the pockets of corrupt officials?
This conundrum requires us to consider ethics in the context of different cultures. A more basic question might be whether the bribe itself is ethical. Clearly, it’s not – least at not by the standards people aspire to in many countries – but there seems to be no stopping it in some others, at least with the resources your organization (or any other charitable organization) has. This is generally a matter for governments to negotiate – and even the agreements in those negotiations that go well in this context are not always upheld. It is well known that doing business in many countries around the world – even when that business is philanthropic – requires palms to be greased. And it’s true that absent the bribe, the work might not get done.
This question must be discussed and decided upon at the board level of your organization. From what I sense in your question (the confidential comment in your Skype call), it has not been. That would be the first step. While, on the face of it, bribery is wrong, it is more wrong, in my view, to play a role in it without being honest within your own group. As the supplies would not be distributed otherwise, I could easily understand accepting this repugnant condition, knowing that payoffs are part of how the work gets done. This is an example that clearly illustrates why ethical decision-making is rarely a black-and-white process where everyone is happy with the outcome. If your charity’s mission is to save lives in war-torn regions of the world, your board and senior staff must be prepared to address uncomfortable questions.
But the donor should be told. If we can’t influence ethical decision-making in other countries, we can certainly take control over our own internal policies. Regardless of the reasons that might support a decision to engage in bribery, you have no choice but to be honest with the donor. While she might balk at future gifts – or even demand a return of her previous gifts – she must be told how her money is being used. That is, your honesty to her is more important than her money is to you. Such a discussion, should your organization resolve to accommodate bribery requests when and where they are required (as determined by your trusted people on location), could be an opportunity to lay out the realities of how you are obligated to perform your work. Donors might very well understand if you explain those realities: if you simply decided not to play ball, many people would not get the care they need – the common goal of both your organization and your donors.
Honoring the Donor’s Wishes
Honoring the Donor’s Wishes
You have written in the past of how important it is for a charity to honor a donor’s wishes. But you have addressed only the question of whether the purpose of the gift might someday not be in the best interests of the charity, at least from the charity’s perspective, to carry forth. What about when the charity is perfectly able to carry forth the purpose but chooses not to use the donor’s money in that way? We have a donor, still alive, who, with a major outright but planned endowment gift, provided explicit instructions on how she wanted the gift to be used. We stay in touch with the donor and often thank her for her generosity, but she never asks for an accounting of her gift. And no one brings it up with her. My boss says the donor is elderly and, more important, never signed an agreement, so we’re not legally bound, and besides, the donor is perfectly happy, as she trusts the executive director so much. I think we ought to make sure the money is used in the way we all know she wants – or tell her the truth.
I once had a boss, a long time ago now, who said that no donor, even one who made an endowed gift, is going to hold his feet to the fire on the matter of balancing the budget. (I sense budgetary concerns are at the heart of the issue you describe.) While I understood his need for authority in his job, I also sensed that he was dismissing the donor’s importance.
Not every donor goes to court to ensure that his or her intentions are being honored (but more and more, it seems, are). This woman may not be inclined to ever take legal action, and it may be that she is, in the end, uninterested in how the money is used. The problem, however, is that you don’t know that. What you know is what she wrote. And I have learned that such an expression of intention, even if it is not signed, could be legally binding on a charity. I’m told that the laws are not yet mature on this point, and different judges (or juries) see it differently. Either way, though, a charity shouldn’t count on judicial sympathy. It should, as you suggest, do the right thing. Wouldn’t it be nice if it didn’t matter to your administration whether the donor signed the document? Wouldn’t it be nice if everyone acknowledged what they know – the donor’s intentions – and acted accordingly?
(As an aside, the way you write about the issue makes me wonder if your boss thinks that a gift from an elderly donor is somehow less important than one from a younger person to steward correctly. There may be issues at work here that are not so evident.)
But the issue might not be born solely of budget concerns. Incompetence could also play a role. Far too many charities just don’t track endowed funds they way they should, making the inappropriate expenditure from those funds difficult to identify. Alas, with tight budgets ruling the day and, sometimes, uncaring or unable administrators making decisions, doing the right thing often comes with great difficulty or not at all.
I would get everyone on the same page with the intention that you discuss this with the donor. Mea culpas are uncomfortable, but you actually may have dodged a bullet: you are being given an opportunity to examine the process by which you deal with donors without anyone – except you, in this case – making a real fuss about it. The conversation with the donor needs to be explicit: this is what you wanted and we’re not – or weren’t – doing it. Three things could happen: 1) The donor says it’s okay, that she doesn’t care, in which case she’ll value your honesty; 2) The donor wants her money back; or 3) You, the charity, make sure the money is used the way the donor has expressed. As for #1, you’ll know you’ve been honest. As for #3, you could just do it and then let her know what’s been going on, and every year report the results of the gift, how the money is really being used. Even if she isn’t comfortable with a lot of numbers, you will be able to convey that you are as good as your word. As for #2, make sure #3 is on your to-do list.
Thanking a Friend
Thanking a Friend
A past member of our university board is very close to one of our major donors. The donor is widowed and elderly, but has the capacity to make her own decisions. The two have been friends since well before the former board member began her service. The donor has established several gift annuities, some for herself but others for friends and family members. She has also made provisions for us in her estate plans. As you can see, she is very generous to her friends, as well as to us. Last week the donor said she would like to donate $100,000 to establish a gift annuity with the former board member as the income beneficiary in appreciation for her volunteer contributions over the years. My boss and I are uncomfortable with this. Even though we have no policy for board members, our policy for employees does not allow them to accept gifts from donors. It seems reasonable that we apply the same standards for board members – current or former. Your thoughts on this?
This reminds me of a case - my own, when I was a director of development. A donor, without my knowledge, wrote me into her will. When she died, I received a small but important amount of money. On the one hand, the school where I worked was why I knew her; on the other, donors should be able to give to whomever they choose; thus, in the classic tradition of ethical dilemmas, I faced two conflicting “right” values.
That's a little how I see it here (except I was an employee and therefore gave the money, quietly, to the school – although I felt free to pass it along to any organization at my discretion). But only a little.
If the former board member, who undoubtedly served in an unpaid position, had never been affiliated with the university, I presume – as you have done this more than once already, and it is something not uncommon at charities – that you would have no problem putting together a gift annuity that the donor funds and that pays her friend. If that is so, it seems that the awkward point for you and your boss is that the annuitant was once on the board. I would understand the concern that a donor might be trying to influence the governance decisions of a currently serving board member – and I agree that a policy on this point would be a good idea – but that is not the case here. Furthermore, you say their friendship pre-dates the time when the board member began her service. It may feel like there's a conflict of interest or some private inurement in there somewhere, but I looked for something and couldn't find it. To me, not permitting someone to thank a long-time friend who is no longer in a position of influence seems like a harsh penalty. After all, in an odd way, the reason would pretty much be that the friend served in a pro-bono capacity to help a charity.
Besides, why would the university think it has any say at all over the transaction? Neither party is beholden – either through employment or volunteer service – to the organization.
I'd permit the gift annuity to be written with her as the donor and the former board member as the annuitant. (Picking a tiny nit, I say "annuitant" as opposed to "income beneficiary" when it comes to gift annuities; also, "payments" and not "income.”)
We’ve always done a pretty good job of attracting unitrust gifts, even during the economic downturn after 2007, and we continue to market them aggressively. We’ve always done a good job of showing how a unitrust works and I always point out that the value of the trust, as well as its income, can drop from time to time. My question now, however, is that with all the recent market turmoil, what can we tell donors about the future of the stock market – and, more importantly, how their income will grow over time? I’d like to assure them that everything will be okay.
Oh, where to begin?
I applaud you for sticking with what I think is a solid life-income gift, even during hard economic times. You are adding to your organization’s expectancy file and, over the years, you will receive gifts for which your successors will (or should) thank you. And most of the remainders will be larger in value, at least in nominal terms and quite possibly in real (or inflation-adjusted) terms, than on the day they were established.
But that’s about the end of the backslapping here. You should realize that you are not an economist. And you shouldn’t play one in your prospect’s office. But, as even an economist cannot predict the economic future, you have no business telling donors about anything that might or might not happen down the road, especially when it comes to creating expectations about their incomes.
In 2009, I answered a question about how potential unitrust income is visually portrayed, and said that the assumptions put into the graph’s underlying equation never hold. Thus, whatever is shown is untrue. And do not think that telling people that their income might go up or down will compensate for a powerful visual that shows no such thing. (The assumptions are rigged so that the graph always goes up - smoothly.) I have repeatedly asked that the graphs used, in the first meetings with prospects, portray actual experience from the past to show the volatility of income – but pretty much to no avail.
As you point out, this past month has shown a stock-market roller-coaster ride (we should count on more) and many people are rightfully reluctant to throw assets into that whirl of uncertainty and chaos. If you begin with the premise that you have to assure them that everything will be okay – especially since you shouldn’t – the gift is probably being made under false pretenses and ought not to be made at all. And, since this is an ethics column after all, it must be said that such an approach is highly unethical.
What you can say is that over time the markets have risen and – based on the presumption that the assets are diversified and somewhat conservative – chances are good that a unitrust’s value will rise . . . over time. But it won’t rise smoothly; there will be a lot of bumps in the road. And, of course, it might not rise at all. Yes, some unitrusts, by the time they have finished paying incomes and the assets have been delivered to the charity, have fallen in value.
As a result of this – to say nothing of why you really have a job raising money for a nonprofit organization – we all must bear in mind the most important reason someone might be interested in a unitrust: that it is, in the end, a charitable gift.
Strict Gift Annuity Minimums
Strict Gift Annuity Minimums
The minimum gift annuity amount we will accept is $10,000 (it’s been this way for the last four years). Before that, it was $5,000. A $5,000 annuitant – whose gift was made prior to the policy change – called at the end of last year and said she wanted to establish another $5,000 annuity. I was not in the office that day, and in my absence my boss agreed to accept the gift. We will lose money on this one. I said it was wrong to have accepted $5,000 when it is clearly stated and advertised that our minimum is $10,000, and if we make exceptions for one person then it should be across the board. Case in point: I have another annuitant who gifted a $10,000 annuity in 2011. She called last year to tell us she wanted to do an annuity for $7,230, but I told her we had a $10,000 minimum, that my hands were tied. This happened twice with this donor – and my director knew the circumstances. That’s why I was so annoyed when she said yes to this other donor. Who is right here? Again, I look at it as a contract with rules and there should not be exceptions.
Your question exposes the tension arising from two competing “rights” (as opposed to a right versus wrong situation): fairness, where everyone is treated equally and the same, and accommodation, where exceptions are accepted. There is no point to having policies if they are not used. Your organization decided to increase its gift annuity minimum, and if you are like the many other organizations that have done the same, the decision was based on efficiency – the costs to administer and maintain the gift are, in total, less with higher gift transactions than they are with smaller gift transactions.
The question, then, as I see it, is whether an exception to the policy might be legitimate. I get the sense from the way your question was written that part of the problem is that you feel your director made her decision in the absence of a legitimate process. Ethical decision-making is a process, and all perspectives and relevant facts should, without emotion or favor, be welcome for consideration. Consider this: a donor – not a prospect, but a donor – wants to increase her support for your cause. Yet you are telling her she can’t because the increase she proposes isn’t enough. This, to me, is relevant. And to a question of fact: Will you really lose money on the transaction? Or is it more accurate to say that your efficiency will be less because the administrative costs are higher than you would like? That latter question is not meant to presuppose an answer. The concern is valid: it’s not just the costs of the outside administrator and investment team; in a true cost-benefit analysis, the salaries of those internal employees soliciting and stewarding the gift, as well as other overhead, need to be taken into account. There’s an objective result in that financial calculation (for the most part; some of the components might not be so objective), and, to legitimize your position internally and develop an authentic explanation for your donors, you must perform it. You can then consider that objectively derived information when making the subjective decision your question calls for.
If you reject the proposed lesser transactions from donors who made their gifts before the policy change, you need to explain why – as specifically as the donor’s query demands. That process is part of stewardship; in a real way, in this situation, you are still stewarding the first gift. But you also don’t want to be all Inspector Javert about this. Assuming there is no actual financial loss in the transaction, context should account for something. If, based on, but not being a slave to, the cost-benefit calculations, you agree to accept the gift, you are accommodating a person who is doing nothing more than trying to help you further your cause. That sentiment means something. And it has a value.
I’d make the exception in this case. Further, in the search for the desired equity you mention, I might add a provision to the policy so that prior donors can be accommodated.
Intentions and Costs
Intentions and Costs
My organization is the beneficiary of a $1 million irrevocable charitable remainder unitrust that was signed about 10 years ago. The agreement is to use the trust to fund and name a research lab that was to study an area of biomedical research that we are no longer studying. The agreement states a specific value: $1 million with the condition that the funds be used for the facilities and programs of the science lab to be named for the donor. I wanted to offer the widow an opportunity to redirect the funds to another laboratory and another area of study, with the attendant naming. My vice president, however, says that naming a lab now costs $3 million, not $1 million, and that therefore we can't do it. My opinion is that this is unethical, and we should honor the original agreement price, even if our costs have gone up.
The actual amount of the remainder when a trust finishes up is pretty much never the same amount, either in nominal or present-value dollars, that the trust was funded with. The best way I know of to do what your organization wanted to do 10 years ago is to calculate, before the trust is established, the estimated future interest of the gift and the estimated future cost of the project. The original funding amount should then be based on the results. (I briefly outlined this process in my March 2013 column, “Promises: Part I.”) The results, admittedly, are still just estimates, and they most certainly won’t align, but keep in mind that the remainder value calculation itself – despite the precision (and agony) of the math – is based on assumptions. One of the essential aspects in this situation is for the charity to agree, given that the future-funding calculation is conducted, to name the project or program regardless of any difference between what is needed and the amount available.
Your organization made a promise at the outset: we’re going to name something in exchange for the proceeds from the trust. It’s not the donor’s fault that the amount isn’t the same as what was predicted or that the cost of the project has increased over time, and it would take an incredible flexibility of logic to argue that no one had any idea that costs would rise when agreeing to the naming opportunity. So, for this reason, I disagree with your vice president. While the higher-than-predicted cost of a new lab (naming an existing lab costs nothing) is important to a charity’s finances, in this case the gift was made with the expectation that the promise would be fulfilled. The higher-level issue here is not the amount written in the agreement (although that point seems not to have been adequately thought through), but that a lab would be named. That the remainder is a lesser amount from what is now needed is no relief from responsibility and it should not be used as a barrier. If your organization denies the agreement – in effect, breaks a promise – what credibility will exist when it approaches other donors?
This, right now at least, is an ethical issue insofar as your vice president is ignoring an understood intention. But it could also become a legal issue. The chances of the widow going to court are small, but if she does, although some states are more receptive than others, she might have an argument.
The immediate fix might be financially expensive – you have to come up with the difference – but the ongoing fix is fairly simple. Either do the math to estimate what will be needed for a project in the future or don’t permit deferred-gift donors future naming opportunities. I think the former is better, as it is more donor-centered and involves acceptable (to me) risk, but every charity’s fundraisers and other leaders must assess that for themselves. A policy on the issue would be most helpful (as would one accounting for the possibility that a charity might not conduct a particular brand of research into forever). The key consideration is that a charity does not break its bond with a donor’s intentions or its own promises.
The Contested Will
The Contested Will
About a year ago, you addressed complications in a will. You wrote that when a charity is named in the will but family heirs or others don't like that fact, a charity has a right, an obligation really, to fight for its interests. We've run into this situation and don't know how to proceed. Our attorneys say we have a right to sue, but my boss feels it would be untoward to sue a donor's estate because of the potential bad publicity. Should we fight those who are contesting the will?
We hear a lot in the nonprofit arena about the fears of bad publicity. One old ethics adage – not one to which I think we should blindly adhere – is that a charity should not do something if, as a result, it might be portrayed badly in a newspaper headline the following morning. Sometimes, without a full understanding of the situation, what seems to be bad actually isn't wrong or untoward. And rightfully fighting for your interests is neither.
The problem arises from how it might look to challenge the blood relatives of someone who has left a provision in his or her estate that will benefit a charity. As sacred as charity's role is in society, it is not more sacred than the role a provider plays for his or her family. Who would want to go up against the relatives in the court of public opinion, especially in this era of high-level scrutiny and almost-daily news stories of how charities misbehave?
But the thing is, even more sacred than the role a provider plays for family members is the idea that a person contemplating what will happen after death has the ability and right to direct how, to whom and when his or her own assets will be distributed. In that sense, it doesn't matter what the family or the charity wants. What matters is what the decedent wanted. And if the charity is confident that the decedent wanted to leave a bequest for its benefit, then it has a responsibility – not a mere option – to pursue the claim.
The legal issues here are numerous, and so the prerequisite for providing an ethics-based perspective is that the charity's attorneys are certain that the bequest designation is valid. Courts don't listen to the wishes of family members – or those of anyone else – just because. There has to be a reason to contest a will. That's what a probate court does – it proves (the Latin derivation of "probate" is probare, which means "to prove") or validates the terms of the will. If a charity's legal team thinks the charity has been properly named as a beneficiary, they should pursue the claim. A donor's intentions, as well as the good deeds the charity performs for society, are at issue. It should not matter that the wails of family members make a better headline than the facts of a case.
An oft-cited reason for a will to be challenged is that the decedent was non compos mentis – not of sound mind – or was coerced when writing the will. Charities can do much to avoid being in the mix of either charge by ensuring that the donor – and documents that it sought out and ensured this was the case – employed competent and independent legal counsel when the will was written.
Be My Executor
Be My Executor
I know you've written about the relationship fundraisers often create with their donors, and that it's dicey to accept gifts from them. But one of my donors – his wife died long ago and he is estranged from his children – has asked that I serve in the role of executor. He's become a close friend over the years. I'm an attorney and would feel comfortable; in fact, the job would be pretty easy because the wills that he showed me, the one written before his wife died and the recently updated one, shows that all of his estate, which is valued at approximately $3 million, will be coming to our museum. Actually, he was going to leave his wife $1 million, but the rest was going to come to us; after she dies, he updated the will. I can't see anything wrong here, but are there any issues that I should be aware of?
In a word: Yes. Getting too close to a donor, even when he's gone, is not a good idea. To begin with, the one point you make in your favor – that the donor is bequeathing all of this assets to your museum anyway – is actually the biggest reason you should not act as executor. It doesn't matter that he wants to give your museum the money anyway; that you would be his personal agent in charge of distributing his assets creates a conflict of interest. Although it is true that an executor is charged only with executing the terms of a will that is already written, in which the donor has already made all of the beneficiary decisions – as well as the amount and timing of distributions – you still put yourself at odds with the organization for which you work. Although in all probability no problems would arise, the basic conflict of interest should steer you away. Yes, I'd assume you'd be glad to do it at no cost, but that's not a professional approach. Even so, the perception of anyone who found out – the will is a public document, remember – might wonder about any benefits you might accrue personally.
And what will happen if the will is challenged? Children and other heirs have been known in the past to mysteriously materialize when money is lying around in someone's estate. Even if he really is estranged from his children, does the will explicitly exclude them? They could argue that at least the amount that was earmarked for his wife, had she lived after his death, should have gone to them. And if the will is explicit, would they be able to persuasively argue, for example, that his mental capacity at the time the will was written was diminished? Following that for a moment, could you actually prove that you were not involved in his decision to leave everything to you at their expense? As the success of your argument would so clearly result in your organization's benefit, your rationale, whatever you might muster up, would be seen as tainted, and you would be put into an impossibly difficult position.
That you are an attorney is even less of a reason, in my view, to undertake this responsibility. Presumably, your donor's will was written by an attorney and so – an obvious question – why wouldn't the attorney who wrote the will agree to act as the executor? Even if an attorney did not write the will, as many people are suspicious of the work attorneys do, the qualities that you bring to the table as an attorney are far outweighed by the conflict of interest that you would be creating.
Why go there? Ask your donor who wrote the will and if he would agree to having that person act as executor. And don't hesitate to explain the truth of the issue: Even though your relationship might be close and even though he wants his treasure to benefit your museum, you are not the right person to provide this service.
Acting as the Trustee of a Charitable Lead Trust
Acting as the Trustee of a Charitable Lead Trust
Because interest rates have been fairly low these past few years, we've been advertising the advantages of charitable lead trusts. An attorney called the other day – our first bite! – and said one of her clients (I presume one of our prospects, but I don't know who) would be interested in exploring the idea further. Her big question had to do with trusteeship. Some years ago, our board authorized our organization to act as trustee of remainder trusts, and we went through a lot of ethical questions to make that decision. So now I wonder if there's anything I should be aware of when speaking to the attorney on this topic. Specifically, even if we feel we can handle the investment and administration aspects, should we offer to act as trustee?
Managing a lead trust is very different from managing a remainder trust. Because lead trusts are not tax-exempt, managers must buy and sell assets with taxation in mind. Therefore, a more complex calculation must take place to make sure, as much as possible, that the gains that are realized in any one year can be offset by the deduction allowed for the payment to the charitable beneficiary; otherwise taxes will eat some of the gains. Some loss to taxes might be unavoidable as investing is hardly an exact science, but those who manage lead trusts must be thoroughly familiar with how a lead trust operates.
By the way, many lead trusts are funded with assets that might throw off a dividend to pay the beneficiary but which themselves are not really managed – closely held stock, for example. In that situation, the investment questions might not be so complex.
But that's not really the big issue. The big issue is one of psychology. Many lead trust remaindermen are the children or grandchildren of the grantor. In this sense, the trustee is investing as much for their future as to secure the charity's income. That is, the question becomes one of expectations relating to the amount of the remainder at the end of the trust's term. It is not unusual for the children to think this is their money, that the charity may be borrowing it for a while to generate income but that the trust's corpus is really their inheritance. Even though your investment people might say they are comfortable with the intricacies of lead trust management, I would want to think long and hard about this. Any perceived misstep, even though it might be wholly unrelated to the money manager's competence – even though it might not even be a misstep at all – could be turned into a legal or public relations problem. Keep in mind that lead trust marketing materials – and here I'd ask you to review your own, as you say you've "been advertising the advantages of lead trusts" – tout that this vehicle can generate a lot of money that can be transferred tax-free, or at severely reduced tax, to the next generations. If what's left isn't at or above the levels advertised, you could receive complaints, possibly publicly voiced, from the remaindermen. This is a consideration even though the trustee – of remainder and lead trusts – almost always outsources the actual work. Still, as the fiduciary caretaker of the assets, the trustee is in the hot seat.
The easiest way to deal with this issue is for someone else, a family advisor or a bank, for example, to act as trustee. But you don't want to just pass the buck. If, in this partnership, you want to play a role in protecting not only your income but in accomplishing the goal of a satisfactory transfer of assets in the future, you want to do whatever possible, if you have any say in the matter, to ensure that the trustee is competent. If your organization does agree to act as trustee, I would recommend that you are represented by your own counsel and that all parties to the trust – the grantor, the spouse, the children and other remaindermen if there are any, and you – review all aspects of the trust's operation and agree in writing what the expectations are and how potential issues will be resolved.
As a planned giving officer I work with many prospects who also make outright gifts. It seems that planned gifts always take a back seat to outright gifts, and that my work with a prospect is either overshadowed by that of the major gifts officer or sometimes even ignored. The real problem comes in crediting the work I do. Almost always, the person responsible for securing the outright gift will get all the credit. It's not so much the credit that I worry about, but the way my worthiness is judged. I understand that current dollars are more important than deferred gifts, but we play an essential role in the whole development process.
This is more of a management dilemma than it is an ethical dilemma – finding the right ways to evaluate employees is always difficult – but ethical considerations lie within the whole process. First, though, I want to address your assertion that "current dollars are more important than deferred gifts." While current dollars can be spent or invested more quickly, I would not say they are more important. Managers often fall into the trap of confusing an immediate or urgent need with an important one. Even though this may sound more like a management problem than an ethical one, it does bring to light one of the fundamental ethical dilemmas: long-term needs versus short-term needs. Clearly, both can be important. The task is determining how to accomplish both objectives without sacrificing anything important. If having a pipeline of expected gifts is not important, then the work to establish planned gifts is not important. But who believes that? And, believing that, who would pay a person to act as a planned giving professional?
So, if we all understand that your work is important, how do we reconcile that with the recognition you deserve in a world where many donors combine a current gift with a deferred gift? Or, more often the problem: What about recognition in a world where the planned giving officer helps with what turns out to be a wholly outright gift? Putting aside the idea that many "planned" gifts are outright, my ideal would be to remove the dollar signs from the evaluation equation altogether, and simply focus on the relationship-building process and all its component activities; far too ideal, however, because organizations need to recognize the reality that current dollars count. Your manager (probably the development director at your organization) should meet with you and the major gifts people to outline ways to recognize everyone's efforts. The last thing an organization needs – although it's often the case – is a dog-eat-dog mindset that uncomfortably pits people against one another. If we don't take dollars out of the evaluation altogether, why not create a soft credit for the planned giving person? We do that for donors who make gifts happen when they don't come directly from those donors; a board member of a family foundation, for example. Many organizations have employed this mindset successfully. Or, give both equal credit. There's nothing that says the amount credited to fundraisers has to equal the total amount donated.
The key objective is to responsibly raise money from people who want to further your mission. As the donors will do what they can, the job of those who ask for money is to fit their needs into the donors' abilities. The structure for recognition you have at the office is of no consequence to donors. They are unconcerned with your quotas and who gets credit for what. That's as it should be, and no gift solicitation should be altered to conform to bureaucratic needs. And the way this dilemma is resolved will say a lot about the organization's true commitment to obtaining deferred gifts.
Perpetuity and Reality
Perpetuity and Reality
We are a social services agency and have received a bequest that requires us to fund a program – early childhood education – "in perpetuity" (that's the phrase in the will). My executive director and the board have already accepted the gift, but I have reservations because the money is to be used for one purpose – and one purpose only – forever. I asked what we would do with the money if we someday didn't offer this program and the executive director said that it is probable that we would always offer it, and if we didn't, the donor's wishes wouldn't matter. He did this by reminding me, with a wink, that dead donors can't say much.
Although that kind of response is convenient, it's a little too cute for the seriousness of the gift intention, as well as for the potential gravity of the situation. While dead people don't talk, their voices can be heard through the ages. And doing what donors want should be a big consideration – even for those who make their gifts through bequests.
Putting aside the inconsiderate attitude for a moment, the word "perpetuity" has a meaning: "a thing that lasts forever"; "the state or quality of lasting forever." Note the use of the word "forever." Charities cannot promise something forever. It's not humanly or organizationally possible. Not when you think of the world in 1,000 years – or longer (because forever is longer than even that); but that is certainly true when you take into account the reality that not much stays the same for more than only a few years. This is why, when chartering his foundation, Andrew Carnegie said, "Conditions upon the [earth] inevitably change; hence, no wise man will bind Trustees forever to certain paths, causes or institutions." Benjamin Franklin said much the same when he established his historic gifts – 200 years would pass before the corpus would be distributed – to benefit Boston and Philadelphia, and Massachusetts and Pennsylvania: "Considering the accidents to which all human affairs and projects are subject in such a length of time," he wrote, "I have, perhaps, too much flattered myself with a vain fancy that these dispositions, if carried into execution, will be continued without interruption and have the effects proposed." But even if a donor is the one demanding the dead hand's grip, it's imperative that the charity accepting the gift doesn't bind itself past its abilities. No one, as I say, has the ability to promise something forever. With that in mind, I think it's best when gift agreements never use the phrase "in perpetuity." Actually, gift acceptance policies might be wise to use the word "never" when describing when the phrase can be used. (But that point takes us more to a philosophical conundrum than to an ethical dilemma.)
But I also take note of your executive director's attitude. Although more and more states take seriously the idea of a donor's intentions, statutes (of which there are currently almost none) or judicial results (or which there is a growing number) on this subject should matter far less than the trust a donor infers when a charity takes a gift under its wing. Break that trust, especially if it's intentional, and the charity has no business being in business.
While it very well may be that you fully intend to provide early childhood education forever, it would be prudent to accept the gift only after discussing with surviving family members – and obtaining their written agreement about this – a thought-through diversion of the income if it becomes necessary in the future.
Bottom line (in addition to fostering trust through responsible stewardship): Although we don't think of it this way, a lot of ethical decision-making is based on our understanding of what words mean – and what future generations will think was meant back in 2014.
Writing a Will
Writing a Will
We have been approached by a company that has offered to help us help our donors write their own will online. While the sales pitch is compelling – too many people put this off, and no one can leave a bequest to us without a will – the idea seems a little . . . off. I've always been told that we should direct our donors and prospects to an attorney. In addition, we've established a program where we reach out to advisors in our area to remind them that some of their clients might want to be charitably minded in their estate plans, particularly as it pertains to including us in their will. Wouldn't promoting online will-writing by-pass a legitimate process? The idea would be for our donors who go to our website to be linked over to the company's site where a bequest reminder would be included.
In our world, we've been trained to think of almost anything offered by a for-profit provider as being a little . . . off. What's in it for them? What dark-side motive do they have? Clearly, they must be trying to take advantage of us, trying to get their hands on our donors. Such an alliance would violate our trust with them while at the same time promoting something that's, on balance, bad. Let's be honest here: That's what goes on in at least some of our minds.
As part of better understanding that many service and product providers are not attacking us with nakedly greedy impulses, we know that some people and organizations that come to us feel right: money managers, seminar sponsors, and the software providers of calculations come to mind. The differentiating aspect seems to be how close others want to get to our donors. The idea you write about could well fit into that category.
A 2007 study showed that about 55 percent of adult Americans have not written a will – and there's little reason to think things have changed in the last several years – so clearly there is a benefit when a company promotes the writing of a will, even if it's online and by-passes an attorney's input. Still, when it comes to specific provisions, a professional skilled in the minutiae of estate planning will better prepare your donor to consider a bequest. The online will providers seem to be more concerned with reporting relatively shallow matters – gathering data on the number of people who signed up, their ages, and their states of domicile; things like that – than with helping you build relationships. (That's just as well, when you think about it, because any outsider that purports to help you strengthen the cord between you and your donors should be suspect.) The sales language usually does not acknowledge that a charity has a sacred bond with its donors, a bond that is not for sale.
I applaud a for-profit organization whose goal is to get more people to create a will, and have no problem with the money-earning aspect of that effort. But, as with bad insurance policy comes-ons (and yes, there are some good ones), this idea seems to be far too tilted to provide more benefits to the company than to the charity. As inefficient as the process now is, the better decision – one that seems less "off" – when trying to get people to include you in their estate plans, is still to continue reaching out to advisors and reminding people in your communications – whether in print, on your website or in your emails, or even in your social media – to create a will by visiting an attorney, and asking the attorney about including your organization in those plans.
Enforcing a Bequest Intention
Enforcing a Bequest Intention
One of our donors has died. While he made several annual gifts during his lifetime, his biggest commitment was when he told us of his intentions to leave us in his will. As it was quite a lot, and because we run on a tight budget, we were looking forward to receiving the distribution when the probate process was complete. But now, we've been told that his wife doesn't want us to receive the money, that she needs the funds to keep her lifestyle, and that the provision was removed from his will long ago – longer ago, actually, than when we last received an update about his intentions. I smell a rat here. I don't want to make waves but I also don't want our organization to suffer at the expense of his wife's greed.
Most people think of a bequest intention as a pledge. In fact, there's been a lot of discussion over the past several years about how to make bequest provisions enforceable, much like lifetime pledges can be. While bequest intentions that have not been included in a person's will, apparently, can be written so that they can be enforced, most are not written that strictly. For the most part, it's an agreement founded on trust and understanding.
I think it's fair to say that if your organization was not named as a beneficiary of the estate in the man's will, the one that was probated, you have no claim – legal or moral – to any unsubstantiated assurances he might have made to you while he was alive. It's also fair to say that you want to avoid accusing his wife of being greedy – you have no idea what discussions took place between them. (Even within your office you want to stay clear of such a conclusion; that kind of poisoned air has a way of working its way to the public ear.) It's possible that his wife persuaded him not to leave a substantial amount to charity – she might have made the case that she or the children if there were any, needed the money – and, if that was the case, perhaps he was too embarrassed to say anything to you.
Writing a will is one of the most personal and meaningful tasks an individual can perform, and charities, while often the recipients of the estate planning process, cannot count on that beneficence, not even from people who have shown their support during their lifetimes. Minds can change, times do change, and circumstances occasionally change. You did nothing wrong, assuming, as you imply, that you stayed in touch with the donor. This would not have changed anything, but you might have stayed more on top of the probate process, as you would have learned of the donor's final intentions sooner.
Some charities begin to spend anticipated money far too soon. I'm not sure, but perhaps your "looking forward to" is really a way of saying that you were "counting on" receiving the gift. While it's natural for budget-minded business officers and executive directors to take into account bequest expectancies, especially from those who have already died, it is generally a better idea to wait before planning anything. We can never be certain that we have the money until it's in our hands.
One final thought: This is different from when a will is contested. In that situation – where a charity is named in the will but family heirs or others don't like that fact – a charity has a right, an obligation really, to fight for its interests. More on that in a later column.
Our new boss, the vice president of development, has been promised "incentive pay," an amount that could equal as much as 25 percent of his salary. His salary is close to $400,000 (I'm at a big university) so that means his actual pay could be increased by another $100,000. I know my own employment agreement has no such provision and I doubt anyone else's does either. Is this ethical?
I cringe when I hear about this type of situation. On the face of it, the agreement seems to contradict an established ethical principle of both the Association of Fundraising Professionals and the National Association of Charitable Gift Planners. In March 2009, I wrote about why paying commissions in philanthropic fundraising violates our sense of right and wrong, but apparently the administration at your university didn't get the memo.
Yes, what you have described is unethical – and not just because it says so in some code. While large colleges and universities are looking more and more like corporations these days – one columnist friend of mine calls well-endowed universities "investment management companies with a few classrooms attached" – we have to struggle all the more to maintain our sense of charity and philanthropy, a world where commissions, or "incentive pay," as you describe it, do no one any service. Donors still have the quaint idea that they are giving to a cause close to their heart, that their gift – the making of that particular gift – is not financially rewarding someone who, by contract, is subtracting from what would otherwise be provided for that cause. When the photo of that shiny-faced scholarship student shows up in a brochure as a come-on, is there another picture next to it showing the chief fundraiser's incentive check? I doubt it. Simple math tells us that your boss's annual incentive alone at today's private college prices could pay for two full-pay sticker-price tuitions; maybe four at a public university.
Some people don't get it, the "it" being the nonprofit or charitable ethos that rules, or should rule, our world, a fact that no amount of for-profit mindset can alter. Our job – and I admit that we have not done well at making this case – is to persuasively carve out the differences between nonprofits and for-profits. While we can learn a lot from adopting sound business principles, charities are not for-profit businesses – not only in the sense that we don't have shareholders but because not every bottom line is more important than the values inherent in serving people in need.
With enough leadership like the administration you are working under, Congress will seriously question – some members are already asking about this – the value of charities to society and whether the charitable deduction is all that good an idea. Think of it this way: At a 25 percent tax bracket, the public subsidy to a donor who makes a $400,000 gift is being spent completely on the incentive. I'll go on the assumption that the school where you work is a wonderful place and provides a great education, but the administration's overarching ethical understanding of where the school fits into our society needs a serious overhaul.
Come to think of it, the most serious problem facing charities that look and act like huge businesses might not be Congress or the regulators. Instead, it might just be the donating public. While there is nothing wrong with paying administrators well, within parameters broadly guided by budgets and revenues, it is an insult to donors to pay commissions or incentives directly tied to an amount raised. Not only on the face of it, but deep down . . . it's wrong. And donors know it.
Getting Too Close?
Getting Too Close?
Many of my planned giving donors have become friends over the years. In fact, I find myself taking part in their personal lives in ways that I find rewarding. My boss, however, reprimanded me for getting too close when I drove one elderly person – a recently widowed gift-annuity donor – to the grocery store and helped her buy food. She lives alone and has no one to assist her. I told my boss that this is part of the job and that, with luck, the woman may increase the share allocated to us in her bequest intentions. What could possibly be wrong with helping another person – and I'm doing it on my own time – especially when it comes with the real possibility that it will help our organization?
Getting too close to donors should be a constant concern among fundraisers, and it seems to be a particularly thorny issue within the world of planned giving. We want to accommodate our donors, a desire often laid bare by our efforts to make sure the donor is getting what he or she needs from a life-income arrangement: "Yes, this is the way your income should increase," or "This is how the annuity payments are guaranteed." Aside from that kind of hyperbole, which still litters too many oral appeals, the line between satisfying the donor and satisfying the charity is blurry. By saying "satisfying" here, I mean economically. Many donors give away a lot of money and are happy, or satisfied, to do it; thus, in an altruistic sense, there is no blur. But life-income gifts are so often driven by donors' financial benefits, the danger is to represent those interests at the expense of the charity we work for.
No, it is not wrong to occasionally help a donor. A desire to help others is the essence of being human (in my view) and that characteristic is what draws people to this wonderful profession. But it is also true that, despite the mutual warmth we generate when we talk with our supporters, a donor-fundraiser relationship is not a personal relationship. Your boss is correct to question your actions; she is responsible for your productivity. The charity you work for must make money and your job as a fundraiser is all about ensuring your charity's financial health. The harsh way of putting it: you work for the charity and not the donor, so anything you do that doesn't follow is a waste of time. Bosses are not unreasonable to apply that kind of test to an employee's work. In that sense, we are no different from any other kind of employee at any other organization, including for-profits and, even, government agencies.
You say you're helping on your own time – which tells me you're conscious of the issue – but what would happen if other donors asked you to do the same? I don't like using the slippery slope analogy (a refuge for those who can't think critically), but you should at least ask what you would decide if you found yourself doing chores for more than one donor, or choosing between one person and another. The admirable desire to help would be strained, and, it could be argued, none of that help would be on behalf of the people who are paying your salary. Furthermore, that your charity's slice of the bequest someday might increase because of your help is not persuasive: you get the bequest, whatever the amount, by selling your charity's mission and future, not by buying groceries. (To that point, I can envision fundraisers from several charities – all representing potential bequest recipients seeking a bigger piece of the pie – falling over themselves to the point where the woman is chauffeured everywhere every day.)
Sit down with your boss and have the difficult conversation. Clearly, you're always going to care about your donors. The occasional help might not be so bad, but there should be a policy, probably loosely defined, that outlines guidance on this matter. "Too" (in "too close") is a relative term and so the issue should be addressed with compassion. A healthy policy would allow for some personal activity with donors, as well as promote a sense of enlightened self-interest. But I would be cautious. Your top priority is serving the charity's purposes.
Recognizing Revocable Commitments
Recognizing Revocable Commitments
We're having a raging debate in our office about recognizing revocable commitments. And I'm not sure where I stand. On the one hand, a person who makes an irrevocable gift is making a better gift – in the sense that it is more guaranteed – than a donor whose commitment is revocable. The problem is that some people in our office want everyone to be recognized the same – with no public distinction between irrevocable and revocable gifts. This seems wrong but it makes everyone equal – and equally appreciated.
You're not alone. This is a situation where one of the ethical-dilemma constructs – "right vs. right" – is most evident: It is right to celebrate every donor and it is also right to give proper and relative credit as it is due. The fact of the matter is that a person who names you in his or her will has the ability to change the designation. (We're not going down the "irrevocable bequest" route here. Not now.) This means to some people that a bequest intention is meaningless. Why in the world would we want to credit this person with anything? I know of one trustee – a committed donor, you would think – who announced such a promise and then promptly removed the designation when things didn't go her way on the board. Why celebrate nothing more firm that the ego-driven whims of a person's capricious breeze?
But another fact of the matter is, and studies strongly support this, the vast majority of those who commit themselves to a gift through their will make good on their commitment. And what I mean by "vast majority" is deep into 90 percent territory. Does that fact not also account for something when you determine whether or how to publicly acknowledge your supporters? Furthermore, even though irrevocable gifts are just that, their ultimate value can be skewed by a high payout rate, poor investments or a troubled economy. It's quite possible that an irrevocable gift might very well provide less than a revocable one.
Calculating the value of any deferred gift, when you think of it, is a guessing game. (Although that may be a strange way to view those complex remainder value calculations, that's what it boils down to.) But unless we want to walk away entirely from accepting and monitoring deferred commitments, we must do our best to be fair and practical. So, perhaps this might be seen as a solution without too much confusing nuance: be effusive publicly and hard-nosed privately. While making the distinction in showing your fundraising results between current and deferred commitments, don't make a public fuss over delineating revocable and irrevocable deferred gifts. Your internal files should make that distinction, however, along with others: the present value of the expectancy based on investment expectations (not the IRS calculation); the changing ages of the donors or beneficiaries; and a discount rate that reflects your organization's cost rise or endowment growth, as opposed to the federal mid-term rate. (The CMFR is only the official factor in calculations; it has nothing to do with long-term realities.) That is, play it like a hawk internally and celebrate everyone in public.
In capital campaigns, organizations need to publicly delineate current and deferred gifts. People need to understand what is in the bank, or what will be there within the campaign period, and what is coming down the road at an indefinite time. Still, if all deferred gifts are known not to be included in the current gift totals, why not celebrate all of them – irrevocable and revocable – the same?
So, we have two opposing facts: 1) bequest donors have the ability to change and 2) strong evidence that almost everyone doesn't. The question, therefore, comes to down to values. My highest value, in this case, is to honestly applaud good intentions as much as possible, and let the accountants worry about the details. You value system may be different, but each of us needs to acknowledge what brings us to our conclusions.
Excellent and helpful….especially the 90%+ figure.
However, a crucial dimension in this discussion is that what you call "internal files" is called in many circles "counting" (as distinct from recognition), and some "authorities" (CASE most obviously) are extremely hard-nosed about not letting "recognition" stray too far from "counting." Especially in the world of higher ed, and perhaps health care, too, executives and development folk may not feel the freedom to maintain much of a distinction between what & how they recognize publicly, and what & how they count "privately" toward campaign totals.
Maybe I'm splitting hairs, and I'm certainly grateful to have worked in arts & culture and social service where nobody is breathing down our necks quite so insistently. But I know higher ed people get stomachaches over this stuff. In a previous institution, I ensured out endowment campaign "counted" strictly according to CASE standards, because they had the most stringent ones and I wanted to remain conservative about our results.
Thanks again for an excellent column, which may reshape our own thinking about how to recognize bequests.
PJN, Cincinnati, OH - 11/12/2013
Looking Back with Ron Brown: Part II
Looking Back with Ron Brown: Part II
Establishing a code of ethics for gift planners was not easy. On his new website, Ron Brown, the senior director of gift planning at Fordham University and a long-time veteran of planned giving, devotes an essay to the origins of the Model Standards, the ethics code developed by the National Committee for Planned Giving (today, the National Association of Charitable Gift Planners). This month's question for Brown: Why is the CANARAS council important to everyone in planned giving?
Without the CANARAS Planned Giving Council, the Model Standards of Practice for the Charitable Gift Planner might never have been given life. CANARAS, a council limited to 15 gift planners from colleges and universities, takes its name from its meeting place on Saranac Lake in New York State; CANARAS is Saranac spelled backward. In 1974, gift planners began meeting there in a small-group format to discuss the issues of the times. Brown recalls that after passage of the Tax Reform Act of 1986, a major topic was ethics: some financial planners were promoting charitable remainder trusts as tax shelters, and requiring that charities pay a finders fee for delivery of a planned gift.
Ron Brown writes in his essay "The First Ethical Standards for Gift Planners: A Fledgling National Association Earns its Wings" that the group was so alarmed by these unethical practices, in 1989 they issued a call to action: the CANARAS Convention. In 1990, with help from the late attorney David Donaldson and Jonathan Tidd, the group produced a more practical code of ethics entitled the CANARAS Code. Brown points out that these formed the heart of NCPG's Model Standards (the CANARAS Code and Convention, as well as the original Model Standards, are reprinted in his essay).
Brown's historical essay recalls the troubled beginning of NCPG, with its failed attempts at developing an effective and widely-accepted code of professional ethics for gift planners. "Frank Logan deserves a lot of credit," according to people interviewed by Brown in oral histories he conducted. Logan, the gift planning director at Dartmouth College, was President of CANARAS at the time. "Frank was the perfect spokesperson to warn of a clear threat to the spirit and the laws of charitable giving," Brown says. Instead of high-minded abstractions, the CANARAS Code provided clear, practical guidelines for practitioners.
When Frank Minton, Tal Roberts, Terry Simmons and other pioneers of NCPG began drafting the Model Standards, they used the CANARAS Code as the foundation, and added concepts found in the ethical codes of other professional associations. "NCPG looked at NSFRE (the National Society of Fundraising Professionals, now AFP, the Association of Fundraising Professionals) and CASE (the Council for the Advancement and Support of Education), but the heart of our Model Standards is found in the CANARAS Code."
While the Model Standards was widely embraced after their adoption by NCPG in 1991, not everyone agreed. Brown writes that the "National Association for Hospital Development (NAHD)," for example, "refused to endorse the Model Standards" on the basis that they might violate antitrust laws, leading members of NAHD to bring lawsuits alleging restraint of trade. Minton, NCPG's president at the time, wrote to assuage the health organization's concerns. "The remote possibility that the Federal Trade Commission may still find our statement unacceptable is, in our opinion, outweighed by the following considerations: 1) The I.R.S. has indicated that if we don't follow the CANARAS Code (which essentially agrees with our statement on fees), corrective action will be taken; 2) The payment of commissions on gifts may cause the Securities and Exchange Commission to regulate them as securities; 3) Commissions and fees as a condition for delivery of a gift lead to abuses which, in turn, result in adverse publicity."
Ron Brown says, "NCPG deserves a lot of credit for standing up and saying: to hell with possible lawsuits; we need to defend the central importance of charitable intent. If we don't take a strong stand, we're in danger of losing the charitable deduction." The IRS, he also notes, "appreciated that NCPG stood up and did that."
Ethical decision-making is never easy, but we can thank members of CANARAS and other early pioneers in our profession for providing a solid basis for us to make those decisions. And thanks to Ron Brown for writing an important history of how the Model Standards came about.
Looking Back with Ron Brown: Part I
Looking Back with Ron Brown: Part I
Establishing a code of ethics for gift planners was not easy. On his new website, Ron Brown, the senior director of gift planning at Fordham University and a long-time veteran of planned giving, devotes an essay to the origins of the Model Standards, the ethics code developed by the National Committee for Planned Giving (today, the National Association of Charitable Gift Planners). This month's question for Brown: Why was the project so difficult to get off the ground?
"It was not clear in 1990 that NCPG had the support of its members for issuing an ethical code intended for all gift planners – those working for charities as well as people like financial services professionals. The first policy initiative for NCPG, a national training and certification program, had been soundly rejected." At the second annual conference, in 1989, Alice Pinsley, another long-time and highly regarded gift planner, laid out a detailed proposal. Its intentions were good: to elevate planned giving to a new professional discipline, which meant demonstrating technical competence in specific areas as well as the ability and a willingness to adhere to ethical guidelines. "But," says Brown, "many people at that conference felt strongly that an organization set up to be a grass-roots federation of councils had no business proposing a long and expensive training and certification program controlled by NCPG, when they had no input in the planning process."
Brown describes how an Ethics Committee tried unsuccessfully from 1984 to 1989 to develop an effective and politically acceptable code of professional conduct. "Before the Model Standards, too many financial planners as well as charities were over-emphasizing the financial benefits of gifts, and not giving enough importance to charitable motivation. So we needed guidelines."
In the late 1980s there was sharp disagreement about whether it was ethical for charities to pay finders fees, and whether prohibiting those commissions constituted illegal restraint of trade. Brown reports that "the NCPG Ethics Committee drafted principles in 1990 that were too abstract" to be useful as a practical guide. "The policy breakthrough came about in response to a crisis over abuse of charitable remainder trusts as tax shelters. When people started selling charitable trusts as tax shelters, the community was forced to take a stand." Enough was enough. Brown says, "It took the CANARAS group, a member council of NCPG, to jump into the breach and say, ‘This is totally unacceptable.'"
NCPG established a new Ethics Committee in 1992 and its chair was Joseph Schreiber, who at the time was at Claremont McKenna College. He immediately ran into difficulties. Brown says, "The NCPG Board did not provide his committee with a clear mandate. Initially the Standards were completely voluntary, but within a year NCPG decided that all its councils had to subscribe to them." Most councils quickly adopted the Standards, but when Schreiber notified the Inland Empire Gift Planning Forum in California that it must subscribe to the Standards, "a group of for-profit financial planners there simply said they weren't going to do it. That led the NCPG Board to disaffiliate the Forum." (Inland Empire re-affiliated with NCPG in 1996.)
In next month's column, we'll look at the role of the CANARAS group and the impact of the Model Standards.
Fighting the Children
Fighting the Children
For a long time we have been waiting for a gift from someone's estate. The estate attorney sent a letter notifying us of the death of one of our donors. This is someone we knew about, and we have the relevant portion of his will in our files. The delay comes because one of the children claims that the donor never intended to include us in his will and that anything named for us was coerced by our staff. While it is true that we cultivated him, we never coerced him. In fact, the donor often told us how much he wanted to help. Our attorney says we should take legal action to get the money, but I don't want to create bad relations with the family – or worse, attract attention as a greedy charity that sues donors.
One of the considerations in making ethically based decisions is whether you would want to see your actions described on the front page of the newspaper, digital or physical, the following morning; or, these days, on Facebook, Twitter or a number of other emerging public ways for people, including the disgruntled, to let others know how they feel. No, you would not want to be seen as a greedy charity. (Who would?) But the front-page fear is only one consideration in the decision-making analysis, and it should often not be the most important, even in the age of social media.
As I see it, the first question involves the decedent's wishes. I will take your word that coercion was not part of the solicitation process and that the man wanted to make a gift through his will. So, the next question is: What is motivating the man's child? Before going there, though, gift solicitors – and in this type of situation, they tend to be those in the planned giving department – must understand the importance of documenting the gift, which you did, as well as affirming it. That is, in addition to a codicil that someone might later claim was coerced, it is always a good idea to have a letter from the donor that speaks to several aspects of the motive, and which includes something about the children or others who will not be receiving what is being given to charity. The more written evidence you have, the easier your position will be to defend. Of course, as attorneys are almost always part of the will-writing process, you already have an important advocate.
But the even messier issue, as you seem to instinctively know, is the one about your charity appearing to be greedy. And this is my response: So what? That's not as cavalier as it might sound. After ensuring that you've done everything correctly and you can show that the donor wanted to name you in his will, you have, in my view, an obligation to fight for what is yours. You have an obligation on the part of the people who depend on your services. That is the issue. While we all know about greedy children – death seems to bring long-lost relatives and acquaintances out of the woodwork – any feelings about their nefarious motives don't have to play a role in your defense.
Charities are not and should not be exempt from scrutiny – plenty have acted badly over the years – but looking out for their legitimate interests, even if the process is chronicled in the media or in court, should not be a shameful exercise. It's the opposite actually: an honorable exercise.
Yes. Pursue the gift. Vigorously. And don't worry about the newspaper's readers. A good reporter will get your side of the story. But even if that doesn't happen, you will know you did the right thing.
As always, an interesting ethical dilemma. And I agree wholeheartedly with your answer!
SEO, Rockville, MD; 7/31/13
I agree. Good question and thoughtfully answered, Doug,! This is also worth sharing with my colleagues -- many of our legacy members are also major donors!
DE, Arlington, VA; 8/22/2013
I agree with you 100%. I've seen it happen many times with my bequests and the greedy children and/or nephews and nieces do seem to come out of the woodwork claiming the bequestor was not of sound mind or was coerced. It always ends up in a settlement which is ok even though you end up getting a little less than you were supposed to. There is no reason the charity should have to give up the bequest intended for them. I wish them luck.
BSS, Clarksburg, MD; 8/22/2013
We help veterans' causes and are among a handful (I believe) of charities that have been offered royalties from a book that describes sensitive military operations – so sensitive, the Pentagon says, it contains classified information and that its publication might put our military personnel at risk. We are debating whether to accept the gift. On the one hand, the author celebrates the work of our military, which is consistent with our mission, but, on the other hand, the book may be violating military rules, which, of course, runs counter to our mission.
You have two considerations here. One is whether you are violating an ethical principle. For our purposes here, I'll assume that your charity is not breaking the law by accepting the fruits of what might be illegal or wrongfully put before the public; that is, what the government decides about the book's content is a separate matter. Even working within that framework, however, you must go through the process of ethical decision-making, which means that you must assess all the facts and determine a course of action based on your value system. If you are committed not only to helping veterans but also to doing so only when it is clear that the help is not the result of nefarious activity, then you will decline the gift. But the decision-making process requires you to examine the facts. So far (as you have described the situation), the Pentagon is the only entity that has complained, and its concerns have not been outlined in a legal challenge. Even so, for you, that might be enough to stay away. But it might not be. It's possible that you – or some of the other charities that are to receive royalties – can legitimately conclude that accepting the royalties is ethical as well as lawful.
You must also deal with a second consideration, which is deciding whether the money will further your mission. Alone, a cash gift doesn't taint your mission, but questions of its roots might. This is where you and your board must revisit your mission (as you regularly should anyway; you'd be surprised at how many boards don't do this). Is there anything in the mission statement, a statement of vision or of principles that speaks to this matter? Many charities are caught after the fact and must retrofit their policies to account for money that comes from a questionable source. A charity might decide to accept gifts from a tobacco company, for example, because, even though we all know smoking is unhealthful, those who make tobacco products aren't breaking the law. Neither are liquor companies. Neither is McDonald's. And so on. While a legal backstop might not sound sufficient for an ethics policy, it at least provides a framework. Your board might go through the same process of generally taking into account a gift's origins; it is not unrealistic to think that a veterans' charity should consider matters of national security in its gift acceptance policies.
One example of how the issue spawns several permutations is considering the author's apparent generosity. Some board members and staff might think the generosity alone would be reason to accept the gift; others however, might wonder if the offered donation is really masking a sense of guilt. Trying to get into a donor's head is usually pointless, but you can at least consider the motive.
I don't have a clear-cut answer. The work, as it always is in ethics decisions, is that of one charity – no broad templates here – that needs to weigh and contrast its own values. I do know, for what it's worth, that at least one of the others of the handful of charities that have been offered royalties from this book (you believe correctly) has accepted the gift. I don't, however, know if the staff or board examined the question fully.
Death Just Before the Payment
Death Just Before the Payment
One of our gift annuity donors died last year, just before his payment was due. He had chosen annual payments, and so almost a full year had passed after his prior payment. His family has asked that we send a pro-rata amount, which would equal almost 100 percent of the full amount. Apparently they were counting on that last check; his annual payments were several thousand dollars. My boss is lobbying to honor the family's wishes, but I'm conflicted. I wonder about this because the agreement is clear. At the same time I want to be compassionate.
Everyone wants to be compassionate. I don't blame your boss, or hers, for wanting to respond positively to the donor's family. Our donors are often like family to us as well. We get close and establish friendships with them that make our jobs enjoyable and rewarding.
But sometimes those friendships can border on the inappropriate. We must remember that in the middle of all our relationship-building we are tasked with an overriding purpose, and that purpose is to raise money for our organizations. The good causes we represent can't be confused with misplaced compassion.
The payment, even a partial one, should not be made. It is true that if the donor had chosen to receive his payments quarterly or monthly he would have received more. But he didn't choose that. And even if your policy is to pay annuitants only annually, he still made the choice to sign up. That is, he signed an agreement (which, by the way, is easy for a non-attorney to understand) that explicitly stated when payments would be made and the conditions under which they would one day stop. While it may be unfortunate that it seems as if he – and, by extension, his family – is somehow owed the money that represents the long time he was alive and didn't get paid, it would also be unfortunate for your charity to blatantly break the terms of the agreement. This is why, even though it may seem like one, this actually isn't an ethical issue: the charity clearly wants to violate a legitimate contract. Even though everyone would be happy with that, the charity shouldn't be happy – not its administrators, not its board and not its donors. That it would make its decision on the grounds of compassion is irrelevant.
It also should be said that the original deduction calculation took into account the annual payment. If you compare a gift annuity remainder value calculation with monthly payments and one with annual payments, you will see the difference. Your donor received a higher deduction for waiting the extra time. By giving away the pro-rated amount, you are in fact stealing from the United States Treasury. Congress gives up money lost to deductions in exchange for the good work charities do – not so that they can give it back to their donors. In the scheme of things, that might sound like a trivial argument – the government won't go broke because of that payment; as well, I don't think the "slippery slope" argument always has merit – but there's a reason that the calculation is constructed the way it.
But, for the moment, let's go down the slippery slope. If you send the pro-rated amount, you may as well consider emptying your treasury to give money to all your donors. Certainly some of them could use it. Ask your boss to recommend that and see how far everyone's compassion goes.
Promises Part II
Promises Part II
We accepted a gift – part outright, part deferred – for the construction and naming of a building. The building is estimated to cost $25 million. The total gift commitment is $10 million. This doesn't seem to make financial sense to me and I wonder if my organization isn't acting unethically, as well as financially irresponsibly. To me, the ethical issue is that we are accepting an offer that doesn't come close to meeting our needs while at the same time implying that it does. (Last month, the issue was the economics of a new building and its connection to philanthropy; this month, the ethical considerations of accepting current and deferred gifts that don't cover the costs of the project.)
Ethical decision-making requires professional technical competence – it is not simply a feel-good or gut- driven process – and in deciding whether to attribute a planned gift to a future program we need to assume certain things, a process with ethical underpinnings. The donor wants to name a building but the gift is small compared to the projected construction cost. In addition, the gift amount does not take into account the financial impact of maintenance. Can a deferred gifts fit into this picture?
As fundraisers we're highly inclined to say yes, but there are times when the rubber meets the road and we have to sober up. While deferred-gift donors ought to be credited with the full amount of their gift – because in their minds that amount is what they are parting with and because we have no real way to know what the gift will be worth when it becomes available – an important part of that recommendation is that the full amount be credited not in the current portion of the results (in a campaign or otherwise), but in the deferred portion. That is, instead of calculating a present value for deferred gifts for credit in an effort that recognizes only current values, divide fundraising results into two parts: current and deferred. Then, within the deferred section, credit the entire amount of the gift. Let the accountants worry about the present value for purposes of auditing the books. We should celebrate our donors' philanthropy as robustly as possible.
But, when it comes to lining up the gift's future value with the future (or current) need, how do you reconcile any differences between what actually ends up in the bank and the cost of the project? Even a reasonably calculated discounted future value is still no money at all. Unfortunately, the senior staff at far too many nonprofits don't care; they aren't going to be around when the issue becomes real. As we honor legacy so much in our world, however, we ought to apply the concept to our professional selves as well. What are we leaving our successors?
Even though not possible to know years in advance the value of the gift when it will be received or the future cost of the project it's associated with, it is possible to lay down guidelines by which assumptions are made. If you forecast a high investment growth rate or a low cost growth rate or a low discount rate, you'd better be able to explain why. Future trustees and senior staff will need to understand. The differences can be meaningful. A low discount rate means the projected amount will be higher in future years: a 4 percent discount rate over 25 years, for example, puts the value of $100,000 at about $37,500; a 5 percent rate makes the projected amount about $29,500.
This decision-making process is not merely math-centric; the math is actually the easy part. It begins with ethical considerations. Enough bogus assumptions, especially if they appear to be made only to satisfy people chasing large but vaporous fundraising numbers, can generate serious problems in the future – to say nothing of poor morale. Given all the considerations, perhaps we can begin with these two solid policies: 1) balance conservative with realistic; and 2) never permit a deferred gift to be credited to a project that needs money now.
Promises Part I
Promises Part I
We accepted a gift part outright, part deferred for the construction and naming of a building. The building is estimated to cost $25 million. The total gift commitment is $10 million. This doesn't seem to make financial sense to me and I wonder if my organization isn't acting unethically, as well as financially irresponsibly. To me, the ethical issue is that we are accepting an offer that doesn't come close to meeting our needs while at the same time implying that it does.
One planned giving director once said that his university has a policy that no ground is broken until all the money is in the bank. When I tell this to other fundraisers, I often hear the lament that they don't have that kind of luxury. They feel it's a luxury because the need for the building is pressing, and there is often no other choice but to rely on promises of future gifts even those that will materialize only after the lifetime of the donor. Let me address this issue in two parts: this month, the economics of a new building and its connection to philanthropy; next month, the ethical considerations of accepting current and deferred gifts that don't cover the costs of the project.
An important component of ethical decision-making is professional competence, so understanding the economics here is important. Put aside for a moment that the construction price at the beginning of a project is almost never equal to its final cost; that is, assume we're talking about the need to raise $25 million to build the building. But what does the building really cost? After it is completed, it must be maintained. It has everyday operating costs. In addition, it will eventually have deferred maintenance costs. The building will not actually have a $25 million price tag, but one that's much higher, which is rationale to insist on much more than for what most organizations sell their naming rights. It's a little like trying to raise money for administrative costs - no one, it seems, wants to include maintenance when approaching donors for something much more appealing.
A quick calculation: Assume the operating costs equal two percent of the construction costs. That means the organization must have an additional $500,000 per year into the indefinite future. Unfortunately, that, as a concept, is not always taken into account. Receiving even less attention is deferred maintenance. Again, assume two percent of the original building's cost another $500,000 for that. Even though that amount is not needed right now, it will be eventually and it must be figured into the equation. That amount is an estimate based on the future value of the deferred maintenance costs. It doesn't matter if, based on its budgeting, an organization uses different numbers, but they need to be considered.
Ideally, the organization will set aside enough to generate an additional $1 million every year. To endow that say, at a four percent spending rate an additional $25 million is needed. All of a sudden, the building costs twice as much as everybody thought $25 million to build it and another $25 million to properly endow it and that's not taking into account the inevitable increase in construction costs.
This is not a luxury. Whether an organization actually raises this amount and puts the funds where they should go is, of course, up to the trustees, but eventually the costs will be what they will be. The ethical question is, after they go through this process (although most boards don't), whether they decide to push off the costs and decisions on how to address them to future generations. How many serious donors, do you imagine, would be pleased to hear that?
Investment Conflict of Interest
Investment Conflict of Interest
One of our trustees is also an investment manager for our planned giving assets all of our gift annuities and some of our remainder trusts. His firm gets paid money to manage the assets and I know he's making a bundle. When at a board meeting another trustee brought up the issue of a possible conflict of interest, the investor trustee explained how his investments had done better than the market and had indeed performed better than the rest of the endowment portfolio. In addition, he clamed, the fees his firm collects are discounted because of his influence. My boss, the director of development, who attends board meetings, says I shouldn't worry because no one is being hurt financially or ethically. I'm not sure why I don't feel better about this.
It's quite possible that you can't shake the name Bernie Madoff, under whose name we often feel compelled to dump everything fraudulent when it comes to investments. Your question is far more nuanced than asking about someone who created a Ponzi scheme, but we're sensitized to connecting the dots now: when the person deciding who is to do the investing is the same person who actually does the investing, trouble might be brewing.
Or it might not. Someone has to do the work, and if you have a competent investor at your board table it might make sense to use his expertise. I'm not sure how large your organization or your board is, but investments at many small charities benefit greatly from someone who knows what he's doing. That is, just because he's on your board does not mean he should not do the work. Generally, however, the larger the organization, the larger the endowment and planned giving pools and so the more likely that an unconnected firm will be available and affordable, and the conflict made unnecessary. A conflict of interest is not in itself an evil. Problems arise when the conflict is not disclosed or relevant facts about the relationship are kept hidden. And it sounds, in your case, as if the trustee has provided transparency. The key thing is to be sure everything is known by the rest of the board: the professionalism and the fees must be constantly monitored. Also, every two or three years, the board should invite other investment companies to tell their story.
As it seems to often be overlooked, keep this in mind too: one argument that does not support the trustee is his investment successes. This might sound counter-intuitive, as we all want our investment managers to get the best returns possible. But, unless poor performance is the result of incompetence, investment results cannot be guaranteed or even reliably predicted by anyone. In addition to monitoring the results, your board and you, and then your donors whose gift money is tied up in those results must have faith that the underlying decisions are made properly. The board should develop guidelines that show the prudence of the decisions, taking into account the goals of each investment. Not all unitrust and annuity trust goals are the same (I take your charity is acting as trustee?), and few of them are the same as a gift annuity pool's goals. Another reason it is to the trustee's benefit not to base his argument on success: Would he want his firm to be fired if he had a down year, measured against either the previous year or the rest of the endowment?
Right now, it sounds as if everything is all right. But that doesn't mean it will be tomorrow. Any time a person close to an organization benefits from the organization, special care needs to be taken to be sure all conflicts are disclosed and dealt with.
The Mailbox Rule
The Mailbox Rule
We received a $10,000 gift check in the mail today. It was dated December 30, 2012 (which was a Sunday, by the way) and the postmark date was January 2, 2013. The donor enclosed a nice note saying, among other things, that he was glad to make his "2012 gift" and hoped we could use it in our annual fund. He is a consistent donor. I know that my thank-you letter and receipt letter the one about not providing any goods or services in return for the gift should include the date of the gift, but I know he thinks and wants the IRS to think that he completed the gift in 2012. Actually, I think he thinks he did exactly that. But I'm pretty sure the "mailbox rule" says the envelope has to be postmarked in the year of the deduction, which is by December 31. My boss says not to worry, that we can throw away the envelope and simply pretend that the postmark was in time, and no one will be the wiser. What should I do?
IRS Publication 526 says, "A check that you mail to a charity is considered delivered on the date you mail it." Treasury Regulation 1.170A-1(b) says, " . . . a contribution is made at the time delivery is effected. The . . . mailing of a check . . . will constitute an effective contribution on the date of . . . mailing." This is the mailbox rule, and most people think it means the envelope has to be postmarked by that date. But, when you read the Regulation, you don't see the word "postmark" anywhere. You see only the words "date of mailing." The donor could make the argument that he did mail the check in 2012. After all, when you drop something in the postbox you think it's gone.
But, of course, the donor could have dropped the check in the postbox on January 2, which would make it uncontestably a 2013 gift. If he took this to court, who would believe him and credibly speak on his behalf? Some random stranger walking by at the time he dropped off the envelope? With the one fact that can be proven, the IRS would almost certainly contend that this was a 2013 gift, and not eligible for deduction in 2012.
But you could do as your boss suggests: just throw the envelope away and consider it a day by thanking the donor for his 2012 gift erasing the IRS's one fact that can be proven. But that would be wrong, and neither of you believes otherwise. The right thing to do would be to acknowledge in your correspondence to the donor that the envelope bearing the gift as having been postmarked on January 2. I'd also call or visit to explain the issue. I'd tell him about the law and the impossibly small amount of wiggle room it leaves for those who contend they dropped their gift in the mailbox the day before the new year begins.
Your own legal council and maybe even the board should have a stated policy on this issue, both on when such a gift is deemed to have been made and how you acknowledge such gifts. Perhaps the policy should call for stating the postmark date of every gift sent by mail, no matter what time of year. Think of how much stronger your conversation with the donor would be if you could show a policy on the matter. (The idea of policies must be taken seriously. Their purpose, I infer from far too many of my consultations, seems to be more about providing a quick solution for a problem of the moment rather than a thought-out guide that reflects professionalism and ethics.)
You might want to make the mailbox rule part of your communications with donors. Most of the fall appeal letters I've seen say plenty about end-of-year giving but nothing on this particular point. And, given that this problem comes up every year for many organizations, I don't know why.
And, if you're inclined to throw away this advice, along with the donor's envelope, consider this possibility: the donor is an IRS agent who wants to see how you respond.
Suing Your Donor
Suing Your Donor
We have a donor who refuses to honor his multi-million dollar pledge. He pleads poverty right now, even though in my opinion he's not poor. He also signed a pledge agreement that requires him to pay $1 million per year for five years. He made the first two payments, but his attorney just called to tell us that his client is unable to make good on the remaining payments. We made a big deal of this when the donor committed himself to the gift, and we established a named professorship in his honor. We need this money. My board of trustees asked me to come in to present the facts of the case because, my boss says, they are considering legal action against the person. I am against suing the donor, but I don't know how to convince the board.
Refuses? Or is unable? It doesn't matter whether you think the donor is poor or not. And whether you need the money isn't the point. Now that I've gotten those particulars off my chest . . .
Lots of people have found themselves in a philanthropically generated financial bind by the recession. The most common tactic for charities was and continues to be in dealing with those supporters still reeling from their lessened economic circumstances to work out a longer payment plan, and to just generally stay in touch more frequently. I'm not aware of any organizations that jumped to the quick conclusion that they should sue. I understand that a signed pledge agreement outlining the terms of payment is legally binding, and so the path to suing donors or their estate if they have died is open to charities. But, really, who wants to go down this road if it is at all possible to avoid it? Charities are the good guys in our communities; going to court is . . . simply beneath them, to say nothing of the deadening effect such a move might have on future pledgers. No, not a good idea if you can avoid it.
But it's also true that, on a very real level, at least on their operational side, charities must be run like businesses. They can't run or cower when the winds of a donor's whim breeze by. A deal is a deal. I'm glad that you didn't break ground or incur many, if any, hard costs on the basis of that pledge, as so many charities foolishly do. Your financial commitment, in effect, was to shift expenses out of the program that was to be endowed to other parts of the university. While that's an inconvenience, it's less devastating than having to unexpectedly produce extra hard cash from the budget. Quite frankly, if I were a trustee or, even, if I were you (as I take it you were the one to get the gift?) I would want to know as many details as possible, a fundamental step in ethical decision-making. Your trustees might think this is a legal question, but it's really first and foremost a matter of ethics. (A discussion with your attorney on that point might better be held on another day.)
A call to the donor's attorney to have a frank discussion is not out of the question. In fact, it is your fiduciary duty. You want to know the circumstances of the donor's retreat. Don't be belligerent and don't be too accommodating. It's not a legal discussion, but it is a business inquiry. Don't mention the legal action being contemplated, for that is not your place. While yours might be the first call, as you are the person with whom the donor has had the most contact, it probably won't be the last he receives on this matter from your university. It should go without saying that you should first discuss this with your boss. I'd also lobby to meet with your general counsel to tell him or her the facts, as you know them, so that someone will eventually be able to approach the donor or his attorney with a viable demand. Only after as much inquiry as possible has been conducted, including asking you your opinion, should the trustees make their decision whether or not to pursue legal action.
While suing a donor should be your last option a process begun after even more investigation than might be the case in the for-profit world it is in fact not beneath charities. And it should not be off the table.
A law firm whose attorneys are often asked to refer worthwhile charities for their clients' estate plans recently approached us. That's normally a good call to get, but as I began explaining our programs to the woman who called, she seemed less interested in what we actually do we're a human service agency and interrupted to ask if we pay referral fees for gifts that are recommended by third parties. I said we don't, but I'm not sure if that's the right answer. If other charities do that, should we?
You should not pay referral fees.
In the early 1980s, this question was raised when several large charities on the east coast heard a similar come-on: pay us a fee and we'll ensure that you are named as a remainderman in a life-income trust. This ignited a robust discussion. Gift planners calculated the benefit, even weighing the difference between the immediately paid fee and the present value of the expected remainder. Why not do it, many wondered, if we can net a gift out of it? For an outright gift, the fee may be perceived as just the cost of doing business. Even if the charity is bending the rules, the good can outweigh the bad, right?
One of the bigger sources of angst in the fundraising community is acknowledging that while gift planners sign off on the Model Standards (whether they are actually read, understood and embraced is another matter), our partners in the for-profit world are not required, or even asked, to agree to them. We would like everyone to play by our rules, but of course not everyone does even within the nonprofit world. Unlike the influence the American Council on Gift Annuities has on payout rates, the Model Standards, for some reason, have less clout; when they become inconvenient, no one is around to actually enforce anything. Which, unfortunately as well as ironically and necessarily is the ethos in an ethics environment.
It's not a good idea to pay a finder's fee because the charity would be violating the spirit of the gift. Most charities that don't offer higher-than-recommended gift annuity rates feel that doing so would violate a community compact among charities, which basically says that we're not going to buy your gift, a purchase that would come at the expense of another charity. From my perspective, this trumps the reason many people think should be the driving force: that it would come at the expense of the pursuit of mission. This is because it could be argued that although the charity would end up with less by offering higher rates, the gift would still mean something.
But paying a fee in this case comes at no expense to another charity, assuming the law firm is eventually going to find one that pays, or ends up not recommending any charitable bequest for its client. The law firm might not be violating its ethical code, the Lawyers Code of Professional Responsibility, but the charitable community has the ability, right, and obligation to determine what is right for itself. And although "Article IV Compensation" in the Model Standards does not elaborate, it clearly says that charities should not pay a fee for gifts. Any coercion for payment is to be repelled. And why is that? As the article says, in alignment with the idea of the spirit of philanthropy, "Such payments lead to abusive practices."
And they often do. Although charities incur legitimate costs for doing business, they should not be confused with the surrendering of their values. Even a hint of taking part in a potential abusive practice should stop the charity from considering paying a finders fee.
Our One Percent World
Our One Percent World
The economy isn't doing really well right now, and one of the by-products is that interest rates are low. And, because of that, the charitable mid-term federal rate the CMFR is at an historic low of one percent. For the fall, I am preparing marketing materials pushing charitable lead trusts and want to point out that now is the best time to do a lead trust. The low interest rate will make the remainder value the amount calculated to be the present value of what will one day go to the donors' children or other heirs so small that the gift tax will be negligible or nothing at all. It's a win-win, no?
I would never want to block the path of a win-win. And of course, when you're selling something, now is always the best time. So go ahead. Parsing the language leading up to your question reveals nothing technically wrong with your desire to market lead trusts. It is a fact that the lower the CMFR some call it the discount rate the lower the remainder, which lowers the tax burden of the donor. In a lead trust, the tax is paid when the gift is made; no taxes are due when the asset is actually transferred. And it is a fact that the discount rate is at an historic low.
On second thought, though, you might want to consider a few of the complexities in a lead trust that might not make the message so simple. A charitable lead trust is a bona-fide but complex vehicle, more so than a remainder trust, because creating one involves the future transfer of assets to non-charitable beneficiaries; also, the trust is not a tax-exempt entity. But what makes it really dicey is your connection through marketing to an implied promise that may or may not be kept. I'm not talking about the remainder value; that's set in stone. I'm talking about what actually gets transferred 20 years (or whenever) down the line. The problem with most lead trust marketing is its emphasis on the remainder. Many charities have conscientiously worked to zero out the trust the payout is so high or the duration is so long, the remainder is zero. Fine, if you like simple math. But the reality is that the discount rate is where it is for a reason. And it's not because the economy is booming. Did you ever stop to consider the possibility that when the discount rate is low that the ultimate transfer (to beneficiaries) might also be low?
A lead trust is not just a question of the remainder value. The funding asset is perhaps the biggest question. Many lead trust are funded with family businesses that are meant to be transferred intact to the next generation, and so, while there won't be much investing, the long-term viability of the enterprise, as well as excess-income and dividend potential, must be taken into account. And if the business is sold during the trust's term, the trust will pay taxes on the gain. And, for trusts investing in the marketplace, while it's true that assets can grow quite independently from the way the bond markets work the discount rate is a function of the payment obligations the United States has on its mid-term bonds I wouldn't count on the two to be so separate that anyone should ignore the rate when predicting the trust's growth.
Look, a lead trust is a fine way to structure a gift. But it's the most complex of all planned gifts and, more than with other gifts, requires deep analysis by the donor, as well as by his or her advisor, before it should be made. The idea of getting the remainder to or near zero is only one small and, I would suggest, misleading component of the decision. What matters is that, upon careful examination of all the issues inherent in lead trust planning, that the donor make a gift, at least when the charity has a hand in the process, that makes sense to both charity and heirs. I would want to strike the prudent balance. It doesn't do anyone any good to push something that we know probably won't happen. Your marketing efforts need to do more than tout a zero remainder. We need to think of a lead trust or any other gift, for that matter as something other than a win-win.
Attorneys Who Include Bequests for Themselves
Attorneys Who Include Bequests for Themselves
We've recently learned that our organization is the residuary beneficiary of the estate of an individual who'd never married and had no children or other close relatives (and, for what it's worth, with whom we'd had no contact during his lifetime). The attorney who drafted the estate plan included rather sizeable pecuniary bequests for himself and for several of his family members provisions that, even if the attorney/attorney's family were close to the decedent (and we do believe they were fast friends), violate the rules of professional conduct in our state. The standard remedy for this misconduct, however, is not to invalidate the improper bequests but to disbar the attorney. The dilemma for us, then, is whether to bring this misconduct to the court's or the state bar's attention, which in either case is unlikely to increase our share of the estate and perhaps could have a chilling effect on the strong relationships we enjoy with most attorneys in our close-knit community. We have confirmed with counsel that we're under no obligation to report the misconduct. And yet . . . well, to say nothing simply seems "wrong." I doubt we're the only organization that's encountered this situation!
You're not. What the attorney did, as you describe it, might have been clearly unethical to the point that the action doesn't even qualify as a dilemma but deciding what you should do does qualify as a dilemma. One of the reasons we're concerned about doing the right thing and that others do the right thing is that future wrongs won't take place. In this case one goal in the equation would be to increase the charitable bequests, but that result, as you say, is unlikely. In your state, the "Rules for Professional Conduct for Attorneys" states that "A lawyer shall not solicit any substantial gift from a client, including a testamentary gift except where . . . the client is related to the donee . . . there is no reasonable ground to anticipate . . . a claim of undue influence or for the public to lose confidence in the integrity of the bar, and . . . the amount of the gift or bequest is reasonable and natural under the circumstances." It's frustrating when we have to rely on words like "substantial" and "reasonable" in legal language that's where ethics comes in but your description indicates the attorney failed in his obligations. This is why you feel his actions were wrong.
I understand that you don't want to upset the applecart with other attorneys. Besides, although you speak of the attorney and the deceased as "fast friends," you also admit that your charity and the deceased had no relationship at all; part of your reluctance to pursue this may be your own feelings that you have no business making waves. But bringing this issue to the attention of the bar association and being clear that your motive is not to get more money (in fact, to prove it, I'd be clear that the organization would disclaim any additional money) would not be upsetting the applecart. It would be an act of following through on a legitimate concern. It might turn out that an investigation would show that nothing improper took place, and life would go on. That the concern is legitimate, and not a money grab, should alleviate any concerns that you might have about being a good citizen of the community. By bringing this matter to public attention, wouldn't you all of you in the state be better off? Wouldn't that show attorneys that this kind of behavior is not to be tolerated? Of course your counsel will say that you have no obligation to report the matter they're attorneys, after all but this is where I distinguish between a legal and an ethical obligation. I note they don't say that you have an obligation not to report it. For what it's worth, I strongly feel that ethics-based decisions should not be made solely by attorneys.
As a legal matter, the bar association will do its work even if it is to ignore the complaint but as an ethical matter, as you feel so strongly that something is wrong, you have an obligation to at least ask the question before a group of people whose business it is to care.
I'm the planned giving director at a small university, and we just began the process of outsourcing our trust administration to a professional firm. We currently act as trustee of our trusts, but want to change that too. Until now, as the program has been relatively small, we've been preparing the trust's tax returns and making the payments ourselves. The firm we just hired notified us that for one of the trusts, we did not report a beneficiary's taxable income correctly (the donor is the income beneficiary), and we have learned that she 'owes' the IRS more than $50,000. The firm won't sign off on the administration or act as trustee of the trust until this is straightened out (although they haven't suggested the best way to straighten it out). My boss says that we should just let it go let the firm not take responsibility for this trust's history, but to make sure the tax notifications are done correctly from now on. He is adamant about not making this issue the donor's problem. He also says he would be fine with continuing to act as trustee for this trust (the donor is elderly another reason, he says, not to alarm her). This sounds fine to me, but I wonder if the IRS will notice the difference and then conduct an audit. I also wonder if that really is the right thing to do.
Most ethical dilemmas are choices between doing two right things or at least between what at first seem like two good but competing values. (If it were merely a choice between right and wrong, there would be no dilemma.) On the one hand, you want to protect the income beneficiary (the donor) from your mistakes; on the other, you want to do the right thing. Almost certainly, however, staying mute is not the right course of action. While it's good to avoid alarming old people, it's actually better to deal honestly with them.
You've got to come clean. The first course of action I'd recommend is to ask a knowledgeable attorney, after you have outlined the issue completely and thoroughly and without bias, what the legal ramifications are. Although in principle, the amount of money should not matter, $50,000 is enough to capture the IRS's and your donor's attention. But do not and let me repeat: do not permit your attorney to make ethical decisions for you. Consider his or her advice, but make this decision based on what is right; not what you can legally get away with, and not on the basis of whether anyone thinks that the IRS will ever notice. And what is right involves something you say your boss does not want: telling the donor. Will she be upset? Very possibly. But that cannot have anything at all to do with how you resolve this problem.
Your boss is wrong to want to brush this under the rug and pretend it never happened. While he couches his attitude in a concern for the donor, I strongly suspect he also wants to protect himself and others with supervisory responsibility (people in the accounting office?) for the administration of the program. You made a mistake and you need to fess up to it. And soon. A practical consequence, as you mention, is that the IRS might notice that the trust all of a sudden is paying taxable income. Whether those at the IRS who examine charitable trust returns are the type to correlate historical data is, however, only of academic concern. Now that you know the facts, doing nothing would be living a lie.
Your attorney might suggest ways to help the donor in this situation, but, as an attorney has already told me, the donor owes the money.
We, along with four other charities, just received the proceeds of a charitable remainder unitrust. Interestingly, the amount we received was just about the same as the amount put into the trust. While the value didn't increase (as was projected on the graph in the original proposal), it didn't decrease very much either. All told, after almost 20 years, we received about 95 percent of our portion of the original gift amount. The problem is determining what my organization is now going to do with the money. The notes from conversations my predecessor (three predecessors ago, actually) had with the donors clearly indicate that they wanted the money to be used to fund extra supplies for our clients (we are a community health provider), but my executive director, who, like me, wasn't here when the gift was made, says she needs the money for other purposes which I think basically means she needs it to balance the annual budget. Should we use the money as she thinks is best and, truth be told, probably is or should we follow the donors' wishes?
An executive director once told me that no donor will ever dictate his budget. Fair enough, but what does a charity do with gifts that were acquired because it agreed to do something specific with the money? This is a growing issue in American philanthropy, and may be one reason (among many others) that philanthropists are establishing family foundations more rapidly than ever before. More and more, charities are being flooded with requests from donors, as a condition of their support, to do something specific with the money.
I take it that the donors are dead, and so it may seem easy to ignore those notes. And of course it is. But it isn't right. If a charity accepts a gift on the condition that the money is to be used in a specific way, the charity needs to use the money in that way. The charity should always honor a donor's intent.
The problem with many deferred commitments in this regard is that most development professionals think of the trust document itself as the most important part of completing the process. And, from the perspective of the IRS, it is. But the trust document rarely outlines the use to which the money will be put when it becomes available. Direction on that issue should be provided by a gift agreement, which is a separate document from the trust agreement. In this case, the notes of two decades ago, clearly written, as you say they were, should provide sufficient guidance. An attorney I consulted advises that the notes by themselves don't constitute a legal obligation for the charity a signed agreement would have far more weight but that does not give a green light to use the money any way the head of an organization wants.
Donor rights and intentions command a lot of written attention in the nonprofit pantheon, mostly through the prism of legal opinion. But the basic idea, as I see it anyway, is less legal than ethical. The stinging question is, if we are to ask donors for their support on the basis that we will do what they ask of us because everyone agrees that what is asked is what is (or will be) needed then what purpose is served by reneging on the agreement no matter how absent of legal authority? I can tell you this: If I knew a charity had intentionally and unambiguously defied a donor's wishes, I would never support that organization again. And I imagine many of your donors would feel the same way. Your executive director may not want to be bound by a dead hand, but that's the deal her predecessor made, in the name of the organization, and it should be honored.
Truth be told, if you're not absolutely certain that you can and will use the money as a donor directs, now or in the future, you always have the option of not accepting the gift.
What a Deal
What a Deal
I know: it sounds too good to be true. But, really, even my skeptic's eye is caught on this one. It's about insurance. Our charity has a handful of policies that are in force and nothing is wrong. So the board, in large part because I've championed them over the years, sees insurance gifts as positive additions to our planned giving program's expectancy file. So last week a representative of an insurance firm told me that if we sell policies on the lives of our board members or if a donor buys or a few donors buy policies on our board members, and the charity would own the policies, of course then we could get an annual income, which, over time, would be significant. And, he said, the death benefit is just gravy; that the real benefit is the income our organization would receive every year for 20 years. The math is logical and the program makes sense, especially in a shaky economy. But a colleague told me not to touch it. Is there a possible ethical problem here?
You're describing "Charity-Owned Life Insurance," also known as "ChOLI." A few years ago, before the markets turned down so severely, I investigated this type of program on behalf of a firm perhaps similar to the one represented by the person who visited you and found, basically, that for this type of program to work, the underlying investments need to outperform the markets, or the interest rate on a bond that would collateralize the charity's loan. (Maybe the salesperson forgot to mention that detail.) While this could be accomplished with some alternative investment strategies before the recession, almost all of those strategies, those used to drive the program you describe, have been laid to waste. The complexity of the schematic I needed to develop just to understand which parties were in charge of which transactions, as well as the money flow, was staggering even with good eyesight. Which makes me wonder if your "skepticxs eye" is in need of an examination.
Don't do it. It's precisely the shaky economy that makes the program an even more probable bust than in a good investment environment. I couldn't possibly condense the idea into a short space and do it justice (although other would no doubt do a better job), so I refer you to the conclusion of an April 2010 report from the Treasury Department ("Report to Congress on Charity-Owned Life Insurance"): "It is apparent that there are a number of respects in which ChOLI arrangements may be viewed as inconsistent with the policies underlying the Federal income tax benefits for charities and life insurance." Even more deflating was this observation: "The magnitude of the investors' interests in the insurance policies, compared with the charities' interests, raises questions . . . that are critical to the charity's exempt status, including potentially significant conflicts with the requirement of organization and operation exclusively for an exempt purpose and with the prohibition on substantial private benefit." So, without even going to the ethics of the matter, the potential legal pitfalls are daunting.
But why go there? Why potentially destroy good will and relations in your community to say nothing of your place in the charitable world just to make a few bucks? I've not been able to follow programs that were established, but that, I think, is a reflection of their lack of success. (Who wants to open the books on investments that went bad?) I know that many people come through the doors of development offices all around the country every day with products and services that really do have a good chance of helping the charity. But many of those people actually have at least some idea of a charity's purpose. ChOLI schemes are too often marketed by people who have no idea what charities are about and whose main concern is a large payday for themselves. More important, however, is maintaining your institutional integrity by saying no especially when a transaction is so complicated no one understands how it really works.
At our university, we send out a lot of planned giving material to prospects and donors, in addition to what we put on our website. We are inclined to use pictures and personal stories because I feel that they make the most impact. Although most pictures are of happy donors whom we identify, we sometimes use people who are not identified. In fact, some of the pictures we use aren't even of donors. They're just good looking, happy people. We had a gift annuity advertisement in the alumni bulletin where we used stock footage and the woman was clearly quite young in her early 40s, I'd say. The problem is that the text described how an "eight percent payout is a very good return" for this donor and she looked too young for such a payout. My boss said that no one would know and so not to worry. Should I worry?
Unless that's a trick question, yes. Other than the dilemma inherent in the commercialism-tinged messages as charities promote high payout rates in this low-interest, low-yield economic environment, the issue you are directly hitting is whether it is ethical for a charity to use in its advertising the face of someone who has nothing to do with the ad's message. After all, we see stock footage all the time in those bucolic photos of students dreamily wandering around campus just contented as can be to attend college. Same at other nonprofits as well. But those ads are not person-specific, and I'd think that any ad where a person is front and center of the message ought to have something to do with the message. What, you couldn't take a photo of a real person?
Or wasn't the real donor photogenic enough? The idea of beautiful people adorning our advertising pages has its obvious logic, of course, but there are times many of them when reality ought to trump aesthetics. Placing a planned giving ad or message is clearly among those times. Unless the 45ish year old woman in question is prepared to admit that she's over 80 when rates rise to eight percent I suggest you have a problem.
And not just because you're asking her if she's 80. Even if "no one would know," as your boss so blithely suggests, the idea is not good. It doesn't matter that no one else knows the truth if you know it's not the truth. Besides, someone outside your office will notice. That's just one of the main laws of life: Whatever you think you can keep secret, you can't. But, as I say, you shouldn't want to cover something up, as you are at a charity a university where I imagine that you instill ideas of academic honesty in students.
And, another thing, something I mentioned recently in another column: Stop using the term 'return"' when it comes to what is paid to an annuitant. It is a 'payment.' A 'return' is a financial benefit obtained from an investment; an annuity payment is made regardless of the investment's success. I am adamant about this, but no more so than my (and that of many others of my vintage) dear and departed friend, Jim Potter. I am certain he smiles upon those who get this right.
Disclosing Deferred Gift Annuity Rates
Disclosing Deferred Gift Annuity Rates
I've gotten some flack from some people about how we advertise deferred gift annuity rates. I work at a small liberal arts college as the planned giving director and, during this economic crisis, gift annuities have been very attractive. In an effort to get more people to buy gift annuities, I decided about a year ago to approach younger people with the idea that they buy deferred gift annuities they don't need the money now and it's a great way to guarantee income for later years. I spoke to a 40-year old person the other day and told him that when he's 65 he would be receiving a 14.8% investment return on his $10,000 gift, which is far better than the 3.8% he'd be receiving if he bought an immediate gift annuity. He loved it! Who wouldn't? How can I tell the people giving me flack that they don't know what they're talking about?
Where to begin? Although ethics is largely about doing the right thing in the absence of legal restrictions, true ethical behavior requires applied intelligence as well. As we in planned giving are almost always talking about a time span between when the gift is established and when the gift is available to the charity (assume, for our purposes, that gift annuity assets are not used by the charity until the annuitants die), we really must understand how time affects the value of money. To be direct, and perhaps unkind: Your donor is receiving nothing near 15% on his gift. From a solely financial perspective, which seems to be your main marketing approach here, it's not a good deal for him.
Just assume for a moment that he put that $10,000 away into a real investment and earns 6% each year. By the end of 25 years, he'd have almost $43,000. A 3.8% payment against that is over $1,600; a 5.3% payment, which is the current immediate rate for a 65-year old, is over $2,200. And you're boasting about payments of less than $1,500?
But let's not get hung up on the numbers. The reason your donor is so ecstatic is that, essentially, you're not telling the truth. And not telling the truth has elements of being unethical (just sayin'). The important part of understanding this problem isn't the math; it's one of disclosure. The good news, if we can look at it this way, is that you're not alone. After I got your note, I went to an online presentation of deferred gift annuities. From my perspective, not good: No one, it seems, dare speak that scary truth: time erodes the value of a dollar.
Sure, tell me that the donor is thinking about the charity, and that whatever is lost compared to the gains the real investment world might produce is a measure of generosity. I could go with that. But let me ask you: Is it fair to impose generosity on someone without his knowledge? Let me ask you: Is such a misunderstood financial erosion generosity at all?
No one at a charity should permit a donor to establish a deferred gift annuity without a discussion of the present value of money. What would this asset be worth tomorrow in the absence of a gift commitment today? If, presented with honest assumptions, the donor understands, then go for it. Otherwise, you're cheating him. And, by the way, this topic really ought to be part of your disclosure statement.
A couple of (relatively) minor points: You don't "sell" and your donor doesn't "buy" a gift annuity. Despite all the marketing hype to the contrary, making a charitable gift is first and foremost a charitable act, not a commercial transaction, and your vernacular should reflect that. Also, an annuity gift or commercial is not an investment; it's a payment in exchange for transferring an asset. What happens to the asset after the exchange is irrelevant to the promise of payment.
I know a development director who ingratiated himself with an elderly donor. When the donor died, she left the development director, personally, some hundreds of thousands of dollars in her will. I don't like that part at all, but I like even less that it seems that he took extra care to make sure he would get something from her estate. In fact, I think she told him that she would leave the money and that's why he took such good care of her which, to me, is an injustice. And, on top of that, her prior will called for three charities to receive bequests; while the bequests were not canceled, the charities were left with a lot less than they would have been. I work at one of those charities and feel good work will now not be done because of someone's greed. There's something really wrong here.
I feel your pain. When we do the work to cultivate a prospect and are told that he or she intends to leave a bequest, it feels almost as if someone is stealing something that we've earned. My first question is: Would you feel the same way if you knew the donor decided to reduce your bequest so that another charity would benefit? While you might be upset, I doubt you would feel the same level of injustice. You might feel you could have cultivated the person better or that she may have changed her charitable passions, but I sense that what you feel now would be different. The anger may stem, therefore, from knowing that an individual not a charity edged his way into her life to such a degree that she wanted to do something nice for him.
This happens all the time welcome to the world of recently deceased rich people. The law is clear that people can leave their assets to whomever or whatever they want. This is not just a nod to a law to avoid an ethical question the law is a function of a solid ethic: what is ours (don't think about the estate tax for this situation) can be directed wherever we wish, during life and at death. There's nothing wrong with that. And that a fundraiser benefited from an individual's gift is, quite frankly, none of your business. (Much discussion has taken place on this point, and most people contend they wouldn't agree with me on this.) It is the business of the person and, to some extent, the charity, however, and the charity might rightly have a policy that discourages accepting estate gifts from donors. (But even there, if the recipient took it to court he or she would probably be told the gift is acceptable.) The ethic you're looking for, therefore, is that which resides within the individual. But who are you to tell someone else what an acceptable gift is? What if someone whom you knew before she was a donor, became a donor, died, and then left you money in her will? Would that be different? Either way, the person is making up her own mind. The key is that the decedent has made a decision that is not only lawful, but also ethical. Or is allowing someone to make up his or her own mind a problem?
And on the matter of ingratiating himself to the donor, I'd be careful before throwing stones. Fundraisers, and in particular planned giving officers, are famous for doing nice things behavior that is intended to gain favor for prospects and donors. It wouldn't take much for an outside observer to conclude that such behavior is the same as ingratiating. When we breezily throw around the phrase 'friend raising' as one prism through which to understand what good fundraising is, we might take care to predict the consequences of a job well done.
Of course, if the person in question didn't make up her own mind, but was unduly persuaded, or was non compos mentis, we have a whole different kettle of fish. A person taking advantage of that would be unethical and would be, I believe, in most states, acting unlawfully.
Ethics of Discounting
Ethics of Discounting
I know we need to discount gifts to calculate remainder values; but, from what I can tell, it's not black and white, even though I always thought the IRS method was an absolute valuation process. When we aren't valuing the present value of a unitrust, annuity trust, or gift annuity, however, how should we discount expectancies? My financial director says we should use a high discount rate because that makes the present value conservative. I understand that an amount due in the future must be discounted but I always thought it should be connected to inflation. How should we discount future values?
Unfortunately, most people think that when a mathematical process is involved, if the formula is correct, the result is certain. In fact, most of the time the opposite is the case. While it may seem difficult to discount a value by, say, 10 percent a year for five years, that process is actually quite simple. We can all agree on the number that emerges 59 percent. But who's to say everybody agrees on the factors in this case, 10 percent and five years? The IRS's calculation takes into account actuarial tables for one of those factors life expectancy and no one seems to have much problem with those assumptions, but what about the discount rate? (Ever wonder about what's being discounted, especially as the deduction is higher when the discount rate is higher? Short answer: for annuities, the income value; unitrusts and pooled income funds work slightly differently.)
The bone of contention lies in the discount rate. The IRS dictates the rate we use for split-interest gifts, but nothing guides us when discounting values for other purposes. Should we discount at the rate of inflation (which has been rather low lately)? Or a charity's actual increase in spending (which is often higher because the cost of programs has traditionally been higher than inflation)? Or what about something called "opportunity cost" (the amount the charity does not earn because the amount is not being invested, often the highest rate of the three)? Deciding the rate to discount an expectancy is fraught with subjectivity, and, if the result steers anyone into analyzing the success of a planned giving program and certainly if salaries become dependent on it the process is very much ethics-based.
I once had to deal with a finance person who insisted that the entire planned gift expectancy portfolio be discounted by the average market growth over the past five years. This was in the mid-1990s, when the stock markets were soaring. And you are right: the higher the discount rate, the lower the resulting present value. The difference between using the inflation rate and the opportunity cost rate was a whopping (and disheartening) $50 million. That is, the finance person claimed that the planned giving effort resulted in $50 million less than everyone thought. And this was already a fairly sophisticated group.
That story ended with the charity using a rate something above inflation and below its annual cost rise. The staff documented why and how the rate would be determined, which is most of the battle when it comes to making subjective decisions. It also mattered to the trustees if not to the finance person that using the opportunity cost made no sense because the money was never available to invest in the first place. Some finance officers think that a deferred gift is an option, that the donor merely chooses not to give the whole amount outright, that if fundraisers were really doing their job donors would just give it all at once, now.
But that can go the other way, too. If you don't like 59 cents on the dollar, just use a discount rate of five percent: your work is all of a sudden worth 77 cents.
Benefits to the Charity
Benefits to the Charity
My boss reports our planned giving numbers on the basis of realized bequests, and not on the gifts that have been established during the year. Last year was particularly good from that perspective seven people died and left us more than $1 million but it doesn't represent the work that I did. But if I reported out the numbers based on what gifts were established, I wouldn't look very good. I feel like I should keep my mouth shut, and let the trustees think I'm doing great, but something tells me that they should know the truth.
Truth, when it doesn't put anyone's life in danger, is a good thing. In this case, however, as with so much about planned giving and, let's face it, life itself truth can be complex. The trustees are getting the wrong impression about your abilities if they think that you brought in that you "raised" over $1 million last year. You didn't. Unless you were responsible for the demise of any of your donors, all you did was take phone calls and open letters that informed you that the money was coming your way. Quite frankly, you're being rewarded for the wrong things. Anyone can open a letter. If anyone should be congratulated for a realized planned gift, it's the person who was in your office 20 years ago, the guy or gal who was responsible for securing the commitment. Or the person who stewarded the donor after. Or the person who stewarded the donor after that . . .
It's not all that complicated, but far too many executives and trustees don't understand the difference between what comes in to a charity as a result of someone's death and what is established by the work planned giving officers do each year. Just because we probably won't be around when the fruits of our labors are eventually evident doesn't mean that planting the seed should play second fiddle to a check coming through the door.
Your daily toils should be rewarded. In today's metrics-crazed nonprofit management environment, you should be able to report out the number of visits and proposals you create each year, as well as the number of gifts both irrevocable and revocable you are responsible for securing. That information, along with the amount that was actually realized, should be part of the reported planned giving progress at your charity. And don't let anyone tell you that getting a bequest commitment is unimportant. That it is revocable should be irrelevant:
- you're doing your job,
- almost all bequest commitments are realized as intended, and;/li>
- the vast majority of realized planned gifts are bequests and not trusts or gift annuities. There's money in bequests, and it is the foolish charity that doesn't reward efforts to secure them.
Many deferred gift commitments also have a dollar value attached to them. And again, more than meets the eye ought to be reported: the current value of the amount that funds the commitment as well as its present value will provide the best picture; that is, to say only that you raised a million dollars when a donor funded a unitrust for $1 million is disingenuous. What you actually raised in gift commitments is a matter of some opinion, but the results of a legitimate growth and discounting process such as the methodology the IRS uses to determine a remainder value are certainly not beyond the comprehension of anyone who really cares. Trustees and senior vice presidents of development are in that group, and they need to engage in understanding the realities and results of fundraising.
The ethics of the actual process are not the concern here (next time). What is important is that organizations are truthful about reporting what they raise. You are right to be concerned . . . and you are not right to keep your mouth shut.
How Much Salary
How Much Salary
The fundraisers, including planned giving officers, in our organization receive a bonus every year. This past year the bonus was small but most people, as far as I know, got one. Whatever the amount is, however, it always seems to be correlated to the amount of money we've raised over the year. My concern is, after reading the fourth point in the Model Standards of Practice for the Charitable Gift Planner, whether our bonuses are really commissions, as they are tied to what we bring in. Is this right?
The average person might wonder why anyone raising money for a charity should get anything above his or her salary. The argument that there was enough left over that, in effect, the organization was flush after the end of the year doesn't always resonate with people who are told that charities never have enough money, which is the explicit message in a fundraising drive. (Some people wonder why people at charities are paid anything at all but that's a different kettle of fish.) Fundraisers are hardly average people, however, and many are quite used to receiving a bonus for a job well done.
Each charity has to live with itself. Its leaders must weigh the value of money to be used for programs against honoring and incentivizing those who bring in the money. A bonus is a very capitalistic as distinct from a nonprofit concept. Even though fundraisers work for nonprofits, it's still a jungle out there for those who sell the product.
It could be that the word 'bonus,' when everyone's is related to what was raised, is simply a substitute for the dreaded word 'commission.' It's a fine line. The concern when both the CGP (then NCPG) and the AFP (Keeping track?) ethics committees were originally meeting was that donors get the correct impression that charities don't squander their money on salaries and other forms of payment to individuals at the expense of programs. A commission is seen as especially unseemly more so than a high salary because the fundraiser presumably has an incentive to scalp unsuspecting donors to line his or her own pocket, the point of the exercise furthering the mission lost in the heated greed of it all.
Another issue, especially for planned giving officers, is that the money raised is not equal to the money placed in hand. The money in hand is often zero, so how do you pay a bonus based on that? And, yes, bonuses, if they are to be, should be paid from money in the bank and not based on imprecise promises to be made good well into the future. Major gift officers face a similar dilemma: pledges.
In a pure world, there would be no bonuses. Salaries would reflect good work; dismissals would reflect poor work. But the search for ethics cannot require purity in all, or even most, cases. So, in the end, a bonus, properly evaluated, even though it may be connected to the performance of the fundraiser, can be a legitimate way to say thank you. A solution might be to calculate the bonus amount from all the charity's revenues and what the budget will bear, and grant everyone the same dollar bonus. Or delineate two or three categories of amounts. Or go to work for New York Life.
A determination at the end of the year separates the amount from the success of any one transaction, and that determination can take into account the work if not the amount actually realized fundraisers perform to acquire commitments of both current and future gifts. (And, no, a bonus should not be tied to the bequest from the billionaire who died last winter, the one who was originally cultivated eleven planned giving officers ago.)
Gift Annuity Reserves
Gift Annuity Reserves
We've had several gift annuities go south south of south, actually, to the point where we have used up the original gift amount and now must make payments from other sources from within our gift annuity pool. That is, from other people's gift assets. Is this right? How can we avoid doing this, as we are obligated by law to make payments, even if the original money is all gone?
This shines a different light on the question about offering rates higher than those recommended by the American Council on Gift Annuities (see the July 2009 - 'Gift Annuity Rates' column). When I was introduced to planned giving (in the 1970s), everyone, as I recall it, said that a gift annuity was the 'easy' gift, the gift that requires only a simple one- or two-page agreement and no messy trust language. There is no confusing four-tier taxation system, and the gift annuity generated a predictable income (it's not 'income' those checks represent 'payments,' but that's another matter). Simple, no fuss planned giving.
Until it got complicated. Like when all those growth predictions went south.
Today, I know of many gift annuities that are, like many mortgages, under water; the asset base will ultimately not withstand the payments. For example, a seven percent payment on an asset that is now half as large as it was originally because of depleted investment returns is now a 14 percent payment. The life span of the asset representing the gift may be shorter than the life span of the annuitant. Why we get into these messes is a topic for another day, however; the issue now is what to do.
Whatever is done ought to be the result of a policy that addresses this situation. Most organizations don't have such extensive policies, however, and, like you, are stuck between the need to make payments and the need to find a source for those payments.
If you pay from the reserve pool, you effectively reduce everyone else's gift. All donors are affected and will eventually make a lesser gift than would otherwise be expected. How right is that? Perhaps that would be the best policy, however, bad as it may seem, if there were a policy that clearly spelled that out. That way everyone knows the deal before the gift is made. (Want to bet how many gift annuity disclosure statements address this issue?) Another possibility is to make the payments from another source, from somewhere in the operating budget not that it would be a popular choice among those depending on the charity's budget to fund their programs.
But what else can you do? The constant in the decision-making process is the absolute need to make the payments. From there you have options but whatever you choose, you should do so with a rationale with which you are comfortable and which is outlined in a policy.
We have a donor who has publicly disgraced himself. He has been accused of stealing and the local papers have gone wild. Six years ago, he made a substantial gift to our organization several million dollars in exchange for our naming a building after him. Now, most members of our board want to remove his name from the building. One board member, an attorney, however, says we can't do that the original gift agreement says nothing about such an eventuality, and so the donor has the right to keep the name on the building. The rest of the board thinks that if his name associated with us, it will make us look bad. What should we do?
You need to be more careful when writing those gift agreements. The idea of donors' rights has grown over the past several years and will probably always be with us. And it should be. Charities need to honor the promises they make to donors; if they can't, they shouldn't make the promise to begin with. The problem is, we don't know what will happen in the future.
On one level, should the donor object to his name being removed (although he very well might not), this is for a court to decide, or at least for two attorneys to try to find an amicable legal solution. But why go there if you don't have to? As I say, the donor may be willing to go along with removing his name from the building. Even though he may be a crook, he may still want the best for the charity.
One nuance to keep in mind here (some might think of it as a tiny, insignificant detail) is that he has not been convicted of anything only indicted. While the papers are going wild, he has the right to a presumption of innocence, a legal right in court and a moral one from the public, which would include you. At the very least, I would wait until the conclusion of the legal proceedings.
But what if he is found guilty? Or what if he isn't, but his reputation is so tarnished you don't want anything to do with him? He might want to rely on the gift agreement that said you would name the building in exchange for his money. No exceptions. You might want to see what your legal options are in the case, but an attorney in New York tells me that he thinks there aren't many. That is, you could be stuck.
The answer, of course, is to build this eventuality into the gift agreement: If the donor is ever found guilty merely accused might be too harsh, but that's the charity's call then the charity has the option of unilaterally removing the donor's name. And that wouldn't be just for a building; it could be for anything that has a donor's name on it, including an endowed fund.
But to the board members who are so sure of themselves about staying clean: How would they feel about returning those millions of dollars? As it stands, from what I infer in your question, the board appears to want the best of both worlds, to cleanse its reputation without any sacrifice. Telling your community that you wash your hands of a scoundrel is one thing; to back that up by invading your bank account is quite another and a stronger statement.
Now or Later?
Now or Later?
I work at a social services agency and went on a visit a few weeks ago with my boss to see an elderly donor who had been giving generously to our annual fund. He was also a planned giving prospect and indicated that he would be interested in establishing a very large life-income gift a multi-million dollar remainder trusts. Even though there was no indication that he would then reduce or eliminate his annual support, my boss said to him that she would rather he continue with his annual giving and basically forego any planned giving commitment. (She knows nothing, it seems, about planned giving.) Not wanting a confrontation in the prospect's presence, I waited until we got back to tell my boss that she is a fool that not only did the man not say he would no longer make annual gifts, a deferred commitment of that magnitude is exactly the kind of thing we need to secure our future. She retorted that not only was I out of line to criticize her, but that we might not have a future if we don't secure current gifts. I'm fuming at her and at the lost opportunity. Would it be ethical to call the man and restart the life-income trust conversation without my boss's knowledge?
You told your boss that she's a fool? You may want to polish up your resume. While your boss may need to learn more about planned giving, you need to learn something about grace a kissing cousin to ethics. You never should go behind your boss's back for any reason. By doing that, you may destroy the one thing you want most: a planned gift. But because you want it most does not mean it is in the best interests of the organization. Your boss, and hers at least as the organization chart is currently configured are in a better place to make that decision. Forget about a clandestine communiqué with the prospect: you are, first and foremost, a representative of your organization. And you should undertake that role a lot more seriously than you are right now.
What you should do is make time, in a calm unhurried setting, for you and your boss to discuss planned giving. At that point you can tell her that studies show that those who support organizations on an annual basis don't typically stop that support once they have established a deferred gift. You can also tell her that creating a list of expectancies is also good for the organization's future that the angst over the difference between long-term and short-term gains is a classic dilemma one of the 'right vs. right' dilemmas in the canon of ethical decision-making. If you are mathematically able, you might want to show the present value of the deferred gift as compared with the present value of the annual gifts, all the while explaining that the one does not have to sacrifice the other. But while you impart that to her, you must also realize you are at the same time acknowledging the wisdom of her decision: significant current gifts, after all, are valuable and meaningful.
She's not the bad guy here. In fact, if one must be found, it's you. The real goal here, begun with that meeting with her, is to develop policies that outline your organization's commitment to planned giving within the overall development goals that you have. You should be at the table during that policy formulation. That's of course if you can refrain from calling anyone a fool.
The Dead Hand
The Dead Hand
We are struggling with our gift acceptance policies, particularly the area where we cover how we will use endowed funds to be established after a deferred gift matures. I honestly don't know where to come down on this one, but I've been told by my boss, by the trustees that our charity needs to be able to use the money any way we want if the purpose of the gift doesn't exist someday. But the donor is insisting that she won't make the gift unless we promise that the money will be used forever in the way we agree today. What do we do?
You think long and hard about what you can promise. The world of philanthropy is growing more donor-centered than ever, and in many, many ways that's a good thing. The aspect of partnership in philanthropy is, in my view, critical to the essence of a charity's purpose. But that's not what you write about (another time, perhaps).
You've heard of the Princeton case? You've heard of the Sophie Newcomb case at Tulane? You've heard of several other stories where donors more relevantly, their heirs are suing charities for not honoring the wishes of their parents, their grandparents, or those of even earlier generations? This is not a small issue and you are right to pay attention to it. A charity, by promising something in perpetuity a word that has a meaning whose clarity has a fair chance of holding up in court generally promises more than it can deliver. Not always, but many times. And so charities ought to be cautious.
The best way to be cautious is to insert an escape clause into the gift agreement, something that permits the charity to change the use of the gift's future income if the purpose that motivated the gift no longer is part of what a charity does. When a college accepts an endowment gift for the teaching of English, what happens when America's predominant national language in the year 2110 is Mandarin and no one teaches English any more? We still teach Latin, but who knew back then it would die as a commonly spoken language? Certainly Julius Caesar might have had your head for such a suggestion. (Although there are no surviving records of any of the charitable gift agreements Caesar signed.)
How could Josephine Newcomb or the trustees of Tulane University ever have predicted that a major hurricane would inflict so much damage on the university twelve decades after the gift was made that it would become financially necessary to close the school? That's troubling enough, but an attorney close to the case I spoke with also wonders why Tulane didn't go other routes applying for a cy pres exception, for example before unilaterally deciding to shut the school down. The university explains that nothing changed, that the women are still being honored and educated, but part of the gift was to honor the donor's daughter's name Sophie Newcomb forever.
The concept of forever does battle with a donor's wishes and a charity must make clear this grave fact to donors. Most donors I've dealt with on this topic, once the issue is explained to them, are willing to compromise: "Okay, not forever, but what about 50 years?" Or, "Okay, go ahead and put my gift to some other good use if you guys are ever crazy enough to stop teaching English." Something like that. Most people understand that the dead hand, even theirs, has to loosen its grip sometime. My advice is to make sure you can honor a donor's wishes and I mean, make sure. If you can't, don't accept the gift. By all means, however, because you never know how a future court will decide, be sure to do your compromising before the gift is made.
A Matter of Degree
A Matter of Degree
I'm an attorney with many years of experience practicing estate tax law. Recently I took a job as a planned giving officer at a prestigious, national charity. In correspondence and in my email signature I write J.D. after my name. I'm an attorney after all and, more to the point, I feel it makes me better at my job and it helps establish my credentials with prospective donors. I mean, if they know that I know what I'm talking about, they should feel more comfortable making a gift. My boss has no problem with it, but the reason I'm asking is that one of my donors said that my degree has no relevance, and that it could be seen as offering a legal service that I cannot provide. Should I remove the J.D. after my name?
I can't tell you what to do, but your donor's concern has merit.
My lawyer friends assure me that you are not technically in trouble you've earned your degree and, like many planned giving officers, you display that fact when you sign your name in formal correspondence. The question is whether you are violating a trust with your prospects and donors by implying that your law degree will enable you to assist them with the legal aspects of making a gift decision. Alas, it will not, and you should do whatever you can to make sure they don't get that idea. To that end, at first blush, it would seem that listing this particular credential after your name is not a good idea.
But that isn't the entire consideration here. I don't think that the designation has to send the message that you're signing up to be the donor's attorney. It merely says that you have an educational credential. More than with non-attorney planned gift solicitors (itself a word with legal undertones), you need to make sure prospects realize that not only can you not act as an attorney for them, but that no one compensated by the organization where you work can act in that capacity. Not even your chief legal counsel. Demonstrating your brilliance on all the relevant legal matters may be impressive when you solicit a gift, but you must also make clear that your brilliance is owned by the charity you work for, that it's not for sale to donors. That is, the designation is far more important to the charity than to the donor.
Why that is, by the way, I don't know. Whether, as you allege, your legal background makes you a better gift solicitor is another issue altogether. Many of the best planned giving officers in the United States have never seen the inside of a law school and many of them would contend that they are the better for it. And the evidence I've seen over the decades doesn't dispute that. While it may be comforting for a donor to know that you understand the difference between a remainder trust and a lead trust although many attorneys don't the key to success in this field has a lot less to do with your technical expertise than your ability to connect your donor's passions with your charit'xs mission. And they don't teach that at law school.
Avoiding Marital Wrath
Avoiding Marital Wrath
Years ago I was approached by a donor who wanted to set up a single-life charitable gift annuity. He told me even though he was married, they only lived under the same roof (in separate bedrooms) and had their own assets. He made other statements indicating the marriage was rocky. Within 6 months of setting up a $100K gift annuity he died. The widow hired a lawyer and claimed that his decision left her destitute. The charity decided to continue the payments (at a two-life rate) to avoid unwanted negative publicity. Now, when I am faced with a similar scenario, I ask the non-donor spouse to sign a document stating that he or she understands that there will be no continuing annuity payments after the donor spouse dies.
The question is . . . What is our obligation to keep our charities out of potential litigation? Does a signed disclosure make a difference knowing that this has never been "tested" in the courts? What if a spouse refuses to sign it?
Have you mentioned this to the IRS? The people there might be interested in learning that you unilaterally made the donor a tax cheat. The deduction for a one-life annuity is higher than it is for a two-life annuity. The companion idea behind the one-life calculation is that the charity will be relieved of payment obligations sooner. By trying to do the right thing by assuaging the (allegedly) destitute woman's claims you ended up doing the wrong thing. Other than responding to (what may have been) a blowhard attorney's threats, what makes you think it's all that saintly to change the contractual terms of a gift?
Because the terms of a will are often confusing, a probate court is needed to ensure that the decedent's wishes are carried out. A gift annuity agreement, by contrast, is simple and clear: In exchange for an asset $100,000 in your case the charity promises to pay an amount each year for a specifically measured period of time. In this case, it was for his life not for both his and his wife's lifetimes. That he died within six months of making the gift is irrelevant. Whatever the charity has paid to the donor's wife represents money that is lost to the charity. Reducing the payment level to the two-life amount was not the solution. Adhering to your donor's wishes and to a contract's language would have been. Ethics demands far more than doing what feels right, especially under pressure
The other challenge, as you point out, is doing what is possible to make sure that the gift is right for the donor. As with any major charitable commitment, making sure that the donor's attorney takes part in this decision is best. Development officers are neither equipped nor authorized to play a role beyond suggesting that the donor seek competent advice from those who know how to merge their client's charitable interests with his or her other interests. Although it may be going a bit far to require the non-annuitant spouse to sign the kind of statement you describe, every planned gift should be accompanied with full disclosure. Your disclosure statement might be written to make this particular point clear. (Keep in mind that the disclosure statement is as much an ethical statement as it is a legal document; conscience is our principal guide.)
On the matter of the absence of conjugality . . . I'm imagining the questions veering from the likes of "And what asset would you like to use to fund your gift?" to "Now, because we want to avoid trouble with your wife when she becomes a widow, do you sleep together?" Going down that path, you might end up taking the concept of disclosure to a whole different level.
Haunted by the Past
Haunted by the Past
We just discovered something awful. A donor established a gift annuity several years ago and it just came to our attention that the donor has not been paying taxes on what should have been reported as capital gain income. (In what was intended to be a spot check, our auditors recalculated the original remainder and payment values of a few annuity agreements.) We have been administering our own program and have not hired an outside firm to do the work. The original calculation for this donor showed an amount for capital gain income, but we've been incorrectly reporting that amount to her and the IRS as tax-free income. My executive director thinks we could easily not tell her, or tell anyone for that matter, and that from now on we should just give her the correct 1099R. Otherwise she might sue us, he said, and then where would we be? Besides, he also said, the auditors didn't care. But they were concerned only with our payment liabilities. What should I do?
The first layer of this is legal, and you should immediately today, not tomorrow alert your organization's attorney of this problem and ask for advice.
My advice, from an ethical perspective: You must tell the donor that you screwed up. Your organization has made an egregious mistake. But as we all know, or should know, the real test of character is not in whether a mistake is made, but in how the mistake is dealt with. You must come clean with the unreported taxable amount due to your mistake.
She then must take this information to her own advisors her accountant for certain, but also her attorney because she then must decide how to deal with it. In a perfect world, she would say, 'No problem. I understand.' And then she'd just pay what she owes. As that probably won't happen, you must provide her with complete information.
But I get ahead of myself: Most likely she's going to be upset with you. And I wouldn't blame her. Planned giving isn't for the incompetents; as easy as it is to administer a gift annuity, the process still takes some brains and dedication. (By the way, I'd begin a full examination of all your agreements.) And your executive director needs to better deal with his fears. Putting your head in the sand is never the way to solve a problem. What was he thinking? That the donor wouldn't notice that her 1099R has a new line showing she now has capital-gain income?
Could she sue you? She can, and an attorney I have consulted with on this matter says that, although the law is not clear, she might have a good case. But the best way to avoid that is with complete honesty. Can you offer to reimburse her? Yes, I'm told, but you'd have to be clean about the transaction and provide a 1099 reporting that benefit. (I'd try to avoid that; as bad as this is, as innocent as she is, she was not paying taxes she in fact owed.)
Look, we all make mistakes. The technical and legal issues are complex, but they pale to the moral imperatives that are required when times are tough.
In the aftermath of the Madoff scandal, several donors have asked who we invest our planned gifts and endowment gifts with. They want to know how we know that we have not invested with an unscrupulous organization, and for that matter, why our organization doesn't disclose all relevant investment information to our planned giving donors. One person I'm thinking of in particular is a donor who established a unitrust with us five years ago and his income has dropped more than 40 percent in the last two years. What should I tell him?
After I testified in 1995 with Barry Barbash, the then head of the investment division of the SEC, in support of the Philanthropy Protection Act, I asked him about disclosure. Under the PPA (the first one), disclosure to donors became part of the requirement when taking in commingled assets, such as gift annuity assets or trust assets from several donors. The question I had for him was, "No problem with the requirement, Mr. Barbash, but can you tell us all what is required to properly disclose?" He said, "I can't tell you the ingredients of a disclosure statement, as it's subjective, but I can tell you this: If your 85 year old grandmother doesn't understand it, it's not disclosing anything."
I've seen young, intelligent, and financially sophisticated board members fall asleep when the investment report is trotted out at meetings; it's certainly a challenge to communicate to donors the appropriate amount of information on anything, including investments. Yet, after the fact, everybody wants to know, for example, if there are any other Bernie Madoffs hanging around.
I think all charities with endowments and planned gifts under management ought to re-visit the question of disclosure. Too many disclosure statements read like legal briefs, when, in the end, deciding what to tell the public what's going on is an ethics-based decision-making process. (Board members also need to work on what they tell one another, but that's a different matter.) Tell people whether you were in any way connected with Madoff either directly or through a feeder fund and be certain that it's true. You also might want to mention the safeguards you have in place to ensure that you won't be ensnared in scandalous investment activity. In addition, I'd communicate the investment policies (and translate them into English, if necessary) to share with donors. They have the right to know.
The process isn't easy because it's so subjective, so a good guide to start would be: What would I or should I want to know if I were a donor? And then, don't let the lawyers screw it up.
Is That Donor Your Donor?
Is That Donor Your Donor?
As many charities do, we market planned gifts to our prospects. We have found that the best message comes from our current donors in the form of testimonials. We always try to get a quote in which the donor explains why he or she is pleased with the gift, and we also always try to get a picture. We can't always get a quote we can use, however, and so I wonder if I can make it up. But, so as not to give the wrong impression, I avoid attribution. The quote is close enough to what others say, and, to be honest, I think I generate better copy than some of my prospects. The marketing piece is the better for it too.
The world of marketing has never been confused for a safe haven for full and honest disclosure, but that doesn't mean advertisements are licensed to invent untrue information. Many people think the unattributed quote is the same as creating words that someone might have said if only he or she had been asked. But unattributed quotes are still quotes. The quotation marks mean someone said the words between them. Those who market have an obligation to adhere to some standard of honesty, and companies that violate that standard may ultimately hurt themselves if not in their stock price, in their public perception and sales. Charities must rely heavily on public perception when soliciting funds and so must do more than meet some minimum standard for marketing; that the mad men of marketing don't always follow that standard is no excuse for not doing so.
Every quote we attribute, even if it is to a person not specifically identified, should be true and accurate. The difference between saying, "Our donors love our gift annuities" is fundamentally different from quoting someone as saying, "I love the gift annuity I established with this charity."
And, for heaven's sake, if you do attribute the quote to someone, that person really ought to be the person quoted. The same goes for a picture: no beautiful model types when the real person may not look as attractive or young (besides, even though 80 is now the new 60, young isn't the look we should look for in ads that ask people to do something when they die).
Truly I know it's a worn-out cliché, but striving for the principle really is worthwhile honesty is the best policy.
Acting as Trustee
Acting as Trustee
I've heard a lot about whether a charity should act as a trustee. I am a donor who, once I get a sense that the economy will pick up again, is thinking of establishing a charitable remainder trust,and wonder if charities can ethically act as a trustee of a remainder trust because they have an inherent interest in the trust. Although the people at the university I will be donating to don't insist, they do say it's normal for the organization to be the trustee. I'm not talking about a charity's ability to do or hire out the work I've talked with many people, including my legal advisor, about that but I'm asking if charities don't have a conflict of interest here.
The concept of "split-interest" the key characteristic of remainder trusts gives rise to all sorts of ethical issues. As remaindermen, charities do have a dog in the fight, but that does not mean they have a conflict of interest. Even if you think they do, however, the key issue is whether the university can act in the interests of both parties the income beneficiary (which would probably include you) and the remainderman (itself) in an able and open manner. And, if I read between your lines a little, that many good and honest charities act as trustee ("everybody does it") is by itself no defense of the argument.
The defense is in the realities. Acting as trustee of a reminder trust is a specialty assignment. In considering the interests of both parties, the trustee needs to be competent in or be able to supervise another organization's competence in arcane tax law, investments that, while they are tax free, must take into consideration tax issues, and the growth and income objectives for the charity and income beneficiary.
And even if the charity hires out the day-to-day work that is, it does not make specific investment decisions, does not send beneficiary checks, and does not complete IRS forms it still must have a solid understanding of all the component parts and make strategic decisions as it partners with whatever organization it hires. Lacking that, the charity should not act as trustee.
Although it composes one half of the affected parties in a remainder trust, a charity that possesses and employs the relevant competence, and is aware of its responsibilities to act as trustee, is not acting unethically.
An Outright Gift?
An Outright Gift?
My job is to solicit planned gifts, specifically deferred gifts, but a few weeks ago my boss actually my boss's boss told me that I needed to forget about asking people for estate and other deferred commitments and begin concentrating on asking people for outright gifts instead. He said we need the money now and, because of our financial situation, we don't have the luxury to wait until later. He said to first talk to the people who were considering a planned gift because "they're the ones that are most ready." Aside from being asked to do a job I wasn't hired to do, I wonder about the ethics of the bait and switch tactic he is encouraging me to employ.
While I sympathize with your sense of job responsibility, you must understand that there is nothing unethical about what your employer as asking you to do. Right now, many charities are in your situation and they are doing what they feel they need to do to keep their cash flows and programs afloat.
One category of conflict within the world ethical dilemmas is that of right vs. right; in this case, I'd say the dilemma is that of weighing long-term consequences and short-term consequences. Each is a real concern and each is ethical. While it would be nice for you to be able to speak only to people about deferred commitments, bequests in particular and these days, especially, that's a wonderful, and wonderfully safe, conversation you are part of a larger concern and your job is to take part in whatever way the development office deems necessary.
That is not to say that a program designed to solicit deferred gifts is a luxury. Even though the tangible support from deferred commitments can be measured only in future terms, the future is real; it is coming. It has already come for donors who made planned gifts long ago and charities are today reaping the benefit of those gifts; they are providing needed resources.
Deferred gift donors are important and many donors, even armed with loyalty and donative intent, simply don't have the capacity to give now. But while your instincts have honorable roots, playing them out without taking into consideration the whole picture would be detrimental to your organization. Your boss is asking you to do nothing improper.
Gift Annuity Rates
Gift Annuity Rates
In these poor economic times, I am trying to distinguish my charity from others, and the way I want to do that is by offering higher rates for gift annuities than other programs offer. That is, I'd like to offer more than the maximum rates than what the American Council on Gift Annuities recommends. It would be modest; something along the lines of one- or two-tenths of a point higher. I assume you'd be against this, but why? If it brings more money to my charity, what's the harm?
Oh, let me count the ways. Since you assume I'm against it, something inside you must be telling you something's wrong. One tenth. Two tenths. It doesn't matter. It's not the amount it's the idea.
Your first stop is learning the legal restrictions in your state. California has strict rules regarding these matters and although many states do not require this, in yours you must apply to have a higher rate structure approved.
But that's just the law. Ethics is a higher calling. There's a reason that the ACGA has recommended rates since March 24, 1927 (back then it was the Committee on Gift Annuities). Not only did charities need to band together on collecting investment and actuarial advice, they also wanted to ensure that nobody offered an economic advantage to donors at the expense of charitable intent; that is, a central idea behind the rates is to emphasize the donor's connection with the charity's mission by taking the financial factor (advantage) out of the equation. (Does the term Texas Lawsuit ring any bells? If it doesn't I'd recommend learning about it.)
But let's say, for argument's sake, that you get the legal green light and offer higher annuity rates. What will you have done? You will simply have acknowledged that your mission isn't worthy enough to stand on its own. It needs an artificial boost. You want an advantage that others don't have. One of the key elements in the ethical decision-making process is determining whether you are making an exception for yourself. I had this discussion with someone back in the mid-1990s, the high-flying, there's nothing-but-up investment days; he said his charity was able to invest better than everybody else. Right.
I'd bet that the charities that routinely offer higher rates than the recommended maximum don't have very good programs and that their gift annuity pools are not very healthy. (I'd like to see a study on this.) When charities are worried that the current system, with a legitimate structure, isn't enough to keep some annuitant pools from going below zero, offering more, especially now, will only exacerbate the issue.
Ours is a community of charities, not a dog-eat-dog world. If you want to distinguish your charity, distinguish your mission.
At a church, I was very surprised to see a handout promoting the organization's legacy society and offering the services from a group of attorneys (15 names were listed), who were church members and who have generously volunteered to draft codicils free of charge, if you name the church in your will. The flyer said that you must have a will and anything else besides the codicil that you discuss with the attorney is your own business. Is this practice of offering a group of volunteer attorneys from your organization to draft free codicils sound right?
It sounds benevolent, doesn't it? The attorney, who often costs an arm and a leg, is willing to perform this duty adding a codicil to a will so that the church will be included in a person's estate plan - for free. Presumably the church isn't fronting the cost, so no one is hurt: the church establishes a future gift and the donor doesn't pay. Furthermore, the church, by providing a list of 15 names, isn't favoring any one attorney. Ethically, this is as good as it gets, right?
Not exactly. It shouldn't take much to see what's really going on: the attorneys are using the church to establish business through a loss leader. The brochure indicts itself: " . . . anything else besides the codicil that you discuss with the attorney is your own business.: That's really big of the church - to permit the donor to discuss a private matter with an attorney. But, it's actually worse than merely granting grotesquely unauthorized permission. The brochure is actually inviting new and remunerative business for the attorneys. While no one disputes the need for people to have solid estate plans or the need for attorneys to be paid well for designing them, whose loyalty does the attorney have in mind when there is a conflict? The church, to which the attorneys have already evidenced loyalty by offering to take part in the process of increasing its legacy gifts? Or the donor, who, after paying for "anything else besides the codicil," has the right to expect impartiality on every matter of his or her estate plan including whether to leave a bequest to the church?
This is no mere theoretical exercise; the likelihood of a conflict is too great to dismiss. Anyone who remembers the Texas Lawsuit in the 1990s or who has been following the drama of the Brooke Astor estate feud in New York knows the realities of how careful attorneys must be when deciding who their clients are. The conflict, as described in this situation, should be avoided as it trumps the good that the church is trying to do.
The Unitrust Graph
The Unitrust Graph
I've gotten into the habit of providing a graph for prospects to show how a unitrust's income, as well as the trust's corpus, may go up over time. As far as I'm concerned, this is an effective tool to help people understand the concept of unitrusts. With the market decline over the past several months, however, am I wrong to show a graph where the income and corpus rise? At this point I don't know what the future holds.
You never did know what the future holds. Neither you nor I nor anyone else ever will which is perhaps the biggest problem with those graphs. The graphs often are a wonderful marketing and educational tool and they vividly show what may happen given certain assumptions. A picture when compared to the complexity of verbiage needed to fully and properly describe a unitrust really is worth a thousand words.
But the graph you describe and, from what I can gather, all those offered up by the people I've spoken with over the past two decades since they became commonplace in computer illustrations omit a few words, some of which are important. Showing a graph with an ever upwardly curving line is far more powerful than the words, often muttered quickly and dismissively (almost as an unimportant afterthought), " . . . although your income could also go down." The issue at hand is not, strictly speaking, the use of the graph, but the context in which we put it. The assumptions will never hold. They never have. Reality is too unpredictable. Even if income does rise over time, it won't rise as smoothly as shown. At the least, donors have to be prepared for a rocky ride. And, as we've seen, income can drop and continue to drop for far longer than anyone might have thought.
While a graph that illustrates the characteristics of a unitrust is a useful tool, as ethics calls for balance and context, it needs to be accompanied by the whole relevant message, and all of it, not just the potentially good news, needs to make an impact. (Yes, the possibility of an income drop is relevant information.) What about showing a partner graph where the income is shown to drop? (No one I've ever spoken with has done this.) Also, if you can input the data (your software provider might be able to help with this), you might want to show the actual gains and losses of the markets, with an asset allocation as close as possible to the one you will use for a donor's trust, for a number of years in the past approximately equal to the life expectancy of the trust's beneficiaries. That would be more complex, but we would all have better prepared beneficiaries.
There are a number of things you can do to disclose a full and accurate picture of how a unitrust works. Unfortunately, predicting the future isn't one of them.
Blowing the Whistle on Madoff
Blowing the Whistle on Madoff
Over the past few months, the subject of how Bernard Madoff's Ponzi scheme has affected charities' investments has frequently been the topic of interest in several discussions in my nonprofit ethics and governance classes at New York University. After one of the classes, one student, who is in the development office of a charity, privately said to two professors that her charity had been asked to invest in the Madoff funds but, after conducting due diligence, the charity's finance committee determined that Madoff was doing something wrong. One of the professors said that she had dodged a bullet and congratulated her board for doing the due-diligence all charities should but often don't. But the other professor asked her why, after she learned of Madoff's way of doing business, she didn't tell everyone else in the charitable community. Didn't she feel an ethical responsibility to blow the whistle? She then asked me what she should have done.
She had no obligation to blow the whistle. As context plays a large role in ethical decision-making, we have to remember that many people had questions about Madoff before the news broke, but only a few went to any lengths to expose him and those efforts went largely unnoticed. Furthermore, according to one attorney I spoke with, had the charity sent out a letter to other charities or in any other way took their concern public the charity took the chance of being sued by Madoff under the legal doctrine of 'slander per se,' which is intended to curb untruthful statements made to the public. In this litigious society, I can't blame the charity for not communicating its concerns in writing to the charitable community.
But Bill Josephson, the former head of the Charities Bureau at the New York State attorney general's office, as well as a colleague of mine on the NYU faculty, says that anyone could report potential misgivings to the attorney general's office in the state where the charity resides or in those it does business without fear of improperly accusing the potential offending party in the way that 'slander per' se is intended to prevent. The attorney general is the protector of the public's interest, he says, when it comes to issues like this. He also confessed that neither he nor anyone else he knows in the regulation world had ever even heard of Bernard Madoff before December 2008 so under the radar Madoff kept himself.
Despite the hindsight that tells us charities that knew better about Madoff's Ponzi scheme, or who even had legitimate doubts about his investment (or lack thereof) methods, had an obligation to shout it from the rafters, the woman's charity chose correctly in not doing that. But for those concerned about this kind of thing in the future, don't overlook the option of reporting your concerns to your attorney general.
Why is "commissions" such a dirty word when it comes to paying fundraisers? The for-profit world, in almost every sector, pays its salespeople based on what they earn for their companies. I know the ethics codes of the National Association of Charitable Gift Planners and the Association for Fundraising Professionals say that paying fundraisers is wrong. But why? The reason I ask is that, in this economic crisis, I've been offered a job by a charity that says it will pay me based on what I raise; they have made it clear that it is a commission-based position. I was recently let go from another job and I need to do something. I've pretty much decided to take the job, but I still want to know what you have to say about this matter.
While no one can force you not to take the job or prevent the charity from offering it there is a reason that charity groups have concluded that commission-based fundraising by employees of charities is wrong. At its highest, the principle is part of what I have come to call the "nonprofit ethos," a philosophy that distinguishes the way business is done at charities from the way it is done at for-profit companies. While the donor certainly expects employees of charities to be paid, the amount of payment should not be a function of the amount of the gift. A restaurant server's gratuity is appropriately a function of the total bill (this enhances his or her meager salary), but a donor who is considering a larger gift will, with reason, deplore the idea that the increased amount will line the pockets of the solicitor and not fully help the charity. People who professionally migrate from the for-profit world into the nonprofit world find this ethos particularly difficult to grasp, but the difficulty of understanding a concept that has merit is no argument to abandon it.
There are also practical factors at work here. What about a pledge? For accounting purposes charities often record, not only the amount that the charity receives in that year, but the whole pledge. If a donor eventually does not pay the amount he or she has promised, even though the pledge was in a written document, how can anyone claim that the solicitor who was paid on the basis of the pledge amount and who may no longer work at the charity has been properly compensated? Even when the pledge is paid, the solicitor may be paid ahead of the time when the charity gets the money. With deferred gifts the idea of commissions is even worse. Even if the charity pays based on the remainder value of an irrevocable gift, which some charities have suggested to me, the fact is, aside from gift annuities (which, of course, are not deferred gifts), the charity physically doesn't have the money and won't for a long time. All of this dilutes the amount available for the charity to serve its community. (High salaries and bonuses, as well as hired outside solicitors, are fodder for other questions and responses.)
A quote comes to mind (translated from Bertolt Brecht's Threepenny Opera): "First grub, then ethics." Of course economic considerations often play a role in how we decide to behave (Jean Valjean comes to mind), but when a charity makes the claim that it is better off collecting part of a gift than collecting nothing, I hear a specious and convenient line of reasoning. Is the only alternative to a commission . . . no gift at all? No. Good practice and success at charities over the decades prove that. A first-rate charity and a first-rate fundraiser will adhere to high and principled conduct. If a principle is solid and the argument against paying commissions to charity employees who solicit charitable gifts is then it cannot be watered down, even when times are tough.
Going to the Concert
Going to the Concert
At the organization where I work we don't have natural partners, such as alumni, and therefore I'm creating relationships from scratch. I strive to get to know my donors' interests, to keep them informed, and to plain old keep in touch, but there's an aspect to the process that feels artificial: it's not really a "relationship" in the traditional way we view relationships, and sometimes I feel they cross a professional boundary. For example, a donor couple has invited me to join them at a concert. I feel uncomfortable (that good old belly test), even though I would very much enjoy the event, I would genuinely enjoy the donors' company, and it would further the relationship. What is appropriate?
Many organizations don't have what you describe as natural relationships, yet, even though you have to work harder than those that do, such as colleges and universities, the relationships that you do create are still very real.
In either case, the question of getting too close is always an issue. In the situation you describe, though, there's nothing wrong with going to the concert. Even if your hosts pay, they are asking you as their guest. Why should you avoid what a neighbor or friend can enjoy just because you represent an organization they support or because you want them to support it? Being a planned giving officer doesn't mean you have to give up what you appropriately enjoy. The problem would have more potential for complication if it were the other way around: if you invited them all over the place, spending money on them in hopes they will support your organization.
The ideas of "balance" and "appropriate" in ethics are subjective, not easily defined and not defined the same for everyone. If you met these people through your position you want to be careful that you don't personally benefit inappropriately. But the cost of concert tickets, while high these days, certainly won't assuage any guilt built up because someone doesn't make a charitable gift. As they are donors, however, the occasional time together should pose no problem. And, if you're concerned about being bought, the price of concert tickets is pretty paltry ransom for a seat on the board or other major perks that your organization might offer. (As question of cost, as I presume you wouldn't have any problem accepting a free cup of coffee at their home.)
If the feeling in your belly makes you uncomfortable, by all means feel free to insist on paying your share or to decline. If they wonder why, you should be prepared to explain. You need say no more than "It doesn't feel right to accept such a generous gift from you." It may hurt their feelings generous people like other people to enjoy the generosity but forthright honesty, despite its potential for awkwardness, is almost always the best policy. Perhaps developing a written policy on this point where you work could help you in the future. If you do that, you would be able to say that your organization's policies don't permit a gift of any kind.
Paying the Attorney
Paying the Attorney
I was having a conversation with two professional advisors (an attorney and a CPA) and three gift planners on the subject of mailings. One gift planner presented his idea to address a letter to a 'filtered' group of donors who had indicated a desire to do an estate plan and to make bequests to certain charities. It was the gift planner's understanding that most of the donors in that filtered group did not implement plans for various reasons. Therefore, one advisor, the CPA, suggested that the charity include in the mailing wording to the extent saying, "If you have no personal attorney and no desire to visit an attorney's office, that for X-amount of dollars you can have a complete estate plan prepared by an attorney by mail."
The document preparation fee was significantly less than typical fees and the charity would use its gift planner to do the planning form to provide to the attorney. I have often thought of doing this but it just does not 'feel' clean. I know these people very well. I am confident the planner and the attorney would have the donors' best interests in mind with the paramount agenda of hoping the donor will remember the charity.
My sense is yours: no one is trying to do anything wrong here. In the situation you describe the issue is whether the charity ought to be involved with providing actual lines to a specific attorney.
Personally, I think that anyone who wants legal work performed should be adult enough to understand that he or she should go to an attorney. It's hard to believe that those in this group, filtered precisely for their interest in estate planning, would have such an aversion to seeing an attorney. If I needed an operation, you can bet I'd go to a doctor; and I'd expect the doctor to be paid.
Furthermore, the issue of whether the donor might avoid seeing an attorney in connection to creating an estate plan is absurd, and the charity should have no part of such a suggestion. And the idea of estate planning by mail doesn't sit right either. Even though a lot can be communicated through the mails (information by email, originals and copies of important documents by snail-mail), I'm still old school enough to think that the process of deciding what to do with one's estate to whom it should be parceled out, at what intervals, and the like is far too important to cut out a competent and trained human being. I too would feel less than 'clean' if I were part of this plan.
Why not send the mailing to that group explaining the benefits of a bequest designation, with the suggested language to take to a qualified attorney (I'd be clear about what a 'qualified' attorney means)? If the person wants to do something and does not have an attorney (which is more common than a lot of people think), you might include a statement to the effect that you'd be glad to provide a list of three to five estate-planning attorneys in the donor's geographic area. I would go no further than that.
The Free Ride
The Free Ride
I am the development director of a university in the northeast and several of my donors I know this is not unusual live in Florida. Last month one donor asked if I wanted to save on plane fare by offering me a ride in her private jet. She said she needed to come back north after our meeting and that there was no reason for me to spend the money unnecessarily. I couldn't make the meeting here. She was coming north anyway, so why not? because I must meet with other people, some of them her advisors, as part of my trip. Should I take advantage of this offer? Although she is unaware of it, for a variety of reasons (her wealth is just one positive characteristic, as she is also a business leader and a good strategic thinker) I have put forth her name as a potential nominee to join our board of directors.
Are you wondering that if she didn't know about the potential board appointment that she would be trying to bribe you? As we select trustees, especially in an era where charities need to be responsive to the public's perception of how we do our business, (which should be in all eras, by the way) we need to be careful about motives. Even though most charities, including yours (I looked it up), have a policy of not paying their trustees, a seat on the board can mean much, such as increased status or influence over who receives certain contracts, that has little to do with selfless service.
Yet you say the donor is unaware of this possibility so she cannot be thinking anything untoward, at least as far as a board seat is concerned, and other than a jealousy-induced riotous reaction from your colleagues, I'd take the trip. At least I wouldn't refuse it on the basis of characterizing the experience as an undue benefit.
The real and perceived value of what we get from our donors is always a question, and the answer to that question, like many of the specific answers in ethics (unlike the principles we need to apply to those questions), is not always the same. Jeff Comfort, the Executive Director of Planned and Principal Gifts at Georgetown University, tells me that the policy at Georgetown is simple: If you can't consume it on the spot (such as dinner, for example), it cannot be accepted by the gift planning officer or any other fundraiser. In that case, the trip would be out.
The problem isn't so often that a policy is too rigid or too lenient, but that it doesn't do a good job of addressing fundamental questions or, worse, there is no policy that covers difficult circumstances. If you think the Georgetown policy is too rigid or too simple, it at least covers a variety of questions that never get the chance to become uncomfortable. That, of course, isn't to say that a different policy would necessarily permit our plane trip, but any policy covering this situation should deal with the perception of undue influence, as well as, if saving money is a consideration, with the finances of a situation. In your case, given the facts as you've put forth, take the trip. That said, whenever anyone does anything that could be perceived as questionable, that person ought to record for the file what took place and why. Just because a question exists doesn't mean you don't do something, but having a record of the process by which the decision was made is always a good idea.