Market Turmoil
(Added 9/2/2015)
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.