Avoiding Marital Wrath
(Added 1/11/2010)
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.