Death Just Before the Payment
(Added 6/4/2013)
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.