Hall of Fame CGA - Interesting Alabama CGA Case

This recent case doesn't have wide-spread legal significance as it is from Alabama and the facts are rather unique. But, the facts provide some worthwhile ethical guidance when dealing with similar cases.

http://coa.courts.mi.gov/documents/OPINIONS/FINAL/COA/20090709_C282979_61_282979.OPN.PDF

Let me sum up the case: Mentally incapacitated elderly mom, son looking to enrich himself at the expense of his deceased brother's children. Son donates $300,000 of mom's funds, in his role as conservator/guardian, to the Alabama Sports Hall of Fame for a charitable gift annuity. 8%, two-life, mom first income beneficiary, son the second income beneficiary. It wasn't so clear if he really had a right to do this or not. Lots of various arguments proffered, as lawyers will do.

Listen to the court's reason in deflecting the son's argument that he could make such a "gift" of 67% of his mother's assets: "Furthermore, there is no evidence that Roosen (the mom) might have been expected to make a charitable gift in the amount of $300,000 to the Alabama Sports Hall of Fame."

In other words, in situations where a conservator/guardian wants to make a significant charitable gift such as a gift annuity, there better be a history between the "donor" and the institution. And, the size of the gift has to make sense within the entire estate of the older person.

Getting back to basic ethics, should the Alabama Sports Hall of Fame have accepted this gift in the first place? This one should have not passed the "smell" test - son creates really big CGA with mom's money to benefit his mom AND HIMSELF. Maybe the institution didn't know that his brother had died 4 years earlier, had left a few children, mom wasn't there mentally anymore and that the son's right to do this was in question (even if he was officially the conservator/guardian at the time). The Hall for sure had to return any funds left of the CGA - maybe the entire $300,000 (that wasn't clear from the ruling).

Another tidbit. Even if the Mom loved the Alabama Sports Hall of Fame, gift planners should always be on the look out for future litigation. Here is the general rule: if children or other relatives would receive funds from an estate if the decedent didn't have a will, that person has standing to sue. Standing is everything in these cases. It could also be established by a preceding will (if it's found). Once someone has standing to contest a will or other things in an estate, out of the ordinary charitable gifts will be ripe for scrutiny. I think if they had known of the general facts surrounding this donor, they should have stayed away.

I had a situation a few years back with a client and FORMER planned giving director. The former planned giving director was pushing a donor in her 80s to do an irrevocable life estate gift to the charity (multi-millions in value). The FORMER employee's reasoning: the daughter might challenge the estate and it puts the charity in a better position. The FORMER employee actually admitted that she suggested that the donor name the charity as executor of the estate - also to help against litigation. My response: what a disaster the FORMER employee was creating and she was even limiting their chances of receiving a bequest. I told the client - good thing it was a former employee and to take the high road as to everything they were doing with this donor. In other words, I advised them to strengthen their legal position vis-à-vis this donor (give proper public recognition, back off pushing anything that could be seen as overly aggressive, reach out to the child in friendly terms, etc.) because the entire giving was a risk by the overly aggressive actions of their previous planned giving director.

Once you realize that a child in particular may not be interested in the gifting of the elderly parent, you better think twice before pushing large, irrecoverable gift arrangements. And, a child making a gift for an incapacitated parent should also raise a red flag. Maybe all children or other beneficiaries should be consulted prior to considering such a gift?