The Planned Giving Moment

Not every organization has an obvious or natural planned giving constituency. We see it all the time in consulting. That is not to say “forget about planned giving.” Before making a conclusion as to your planned giving viability or not, you have to literally look around to see if there are places and segments within the framework of your organization that connect to potential planned giving segments of supporters and friends.

For example, while visiting an upstate New York, community college and after having discussed the various ways this campus could somehow infuse some planned giving into their fundraising program (not an easy task on a tight budget, tiny staff, pretty small and relatively young graduate base), our last stop was a special dining room run by their culinary arts program (just part of the campus tour).

As we approached the dining room, I noticed four planned giving prospects leaving the dining room for the elevator (i.e...four senior ladies who happened to look like they were really enjoying themselves). And, then we entered the dining room – passing very tastefully designed windows where spectators could watch some of the cooking and baking of the students.

Sure enough, the room was full of planned giving prospects enjoying their tasty meals in a great atmosphere (the dining room had been the dining room from a grand old hotel that was given to the school and now tastefully decorated and hanging various art works on loan on the walls). The staff told me that getting reservations for the once or twice a week lunch times was extremely difficult – it was a first call, first serve reservation system and it booked up almost immediately every week. It turned out that this dining room was a major sensation in the area for people of the right age, who get a wonderful dose of good feelings at the campus on a regular basis, and probably feel like the campus is a second home.

I turned to the chief fundraiser who I had been meeting with and told her that this is where her planned giving events needed to be and these are the people she needs to invite (in addition to older graduates, longtime donors, board, etc…).

This was my planning giving moment: when I saw clearly that this college had a special relationship and platform for connecting with their mostly older local residents.

You never know – you have literally look around at the happenings of your organization. You may have a natural planned giving group right in front of you.

At my first full-time job in planned giving at the Anti-Defamation League, I had a similar planned giving moment when attending a New York regional lunch/current affairs update – just another run of the mill ADL guest speaker talking about civil rights or whatever. For reasons unbeknownst to the planned giving staff, they started scheduling these for lunch (not the usual 8 am slot for busy execs). I walked in the door to the first one and lo and behold, a room full not only of planned giving prospects, but many of our actual planned giving donors in the room.

It turns out that the general fundraising staff lost patience pretty quickly with these “cultivation” events – all they saw was rooms full of older people, many taking home sandwiches but no new major gift donors.

My thought at the time: Excuse me short term thinkers – where do you think your 100+ new bequests a year and $4-$5 million+ in actual bequest dollars annually come from?

They discontinued these luncheon update events pretty quickly from what I remember. What a shame. For virtually no cost, and little staff effort, they could fill a room with up to 100 older residents of New York, mostly from Manhattan itself, on a monthly basis.

Were these people ever going to be major gift donors, if they weren’t already so? No.

Were they going to become annual donors? Maybe yes, maybe no.

But, were they candidates for 6 and 7 figure bequests? Definitely.

Beware of Dilettante Attorneys

dilettante - noun: 1. An amateur or dabbler; especially, one who follows an art or a branch of knowledge sporadically, superficially, or for amusement only.

I just couldn't resist a post on one of the more ludicrous pieces of legal advice I heard about last week.

Art/tangible property gift - will be displayed (for three years, no less) but since it wasn't a museum and the piece had nothing to do with the institution, there were concerns whether this could qualify for related use and provide the donor with a full fair market value deduction (see other posts under Art and Tangible Property).

Initially, when this came up, I recommended - as I typically do for these types of situations - to get an opinion from outside legal counsel. Somehow, they ended up getting an opinion from one of the in-house lawyers from one of the planned giving marketing providers out there.

What was the opinion? The "lawyer" told this institution that since they planned to put the art work on the walls (ie..display it), it should be exempt as a furnishing.

OK, here is the reg section on related use which does exempt furnishings from this rule:

Reg. 1.170A-4(b)(3)(i)...If furnishings contributed to a charitable organization are used by it in its offices and buildings in the course of carrying out its functions, the use of the property is not an unrelated use.

I am not going to even bother to research if we can interpret this sentence in the IRS regulations to mean this - it's a waste of time because there is no way in ... that you can classify a work of art as a furnishing by virtue of hanging it on the wall (and rendering the entire related use question mute).

So here is the lesson. There are a lot of dilettante attorneys in the planned giving universe (some of whom have no clue what they are really doing). I am talking about people who have legal degrees but may never have practiced law, let alone anything remotely associated with estate planning or gift planning. They could be financial salesmen, consultants, in-house experts, etc... And, they could actually be providing very useful information and guidance.

But, when it comes down to a real legal opinion or drafting of a real legal document, the litmus test is whether this attorney is in the practice of law and has his/her malpractice insurance to back-up his/her work.

Using a lawyer, in the actual practice of law, is an insurance policy in case anything goes wrong. I used to draft all CRTs for the first in-house planned giving job I had. Then, as a legal consultant to Jewish federations across the country, I witnessed some very disastrous situations and the question always came down to: who drafted the trust? That is when I realized that trust documents and other truly legal things are best left to attorneys in the practice of law.

So, I am admitting - at least for now - you should put me in that category too since I don't currently practice law in a law firm. Pretty hard for me to write this but it has to be said. Be careful about your sources of information. Guys like me provide very useful educational information and we might even walk practicing attorneys through creating various gift plans. But, at the end of the day, I don't have the level of legal responsibility a lawyer in a law firm has.

The trick is to know when you need an actual practicing attorney and when you can rely on us "consultants." And, the other trick is to figure out when the advice is completely bogus. If it is too good to be true...

Madoff, Clawbacks and Charities

For those in the philanthropic world, seeing stories in the press about the bankruptcy trustee in the Madoff mess and his attempts to recover assets has to make us wonder what will be with charities potentially involved in clawback suits. The Forward and Bloomberg have already started to mention this issue in recent articles (see below for links).

What about charities that withdrew funds in the normal course of business and happened to exceed their initial investment in Madoff? Or, what about non-profits that divested their Madoff or Madoff feeder fund investments well before the discovery of the massive fraud? Or, what about charitable beneficiaries of Jeffry Picower's Foundation during the last few years? (Note: Jeffry Picower passed away yesterday, another sad chapter in Madoff tragedy.)

Thanks to the law firm of Drinker Biddle, I now have some idea how claw back suits work (see below link to their article on the topic). Here is a summary of the rules based on the Drinker Biddle memo:

1. Charities have to be treated like any investor - there is no point in discussing the ethics of clawbacks against charities. The trustee has an obligation to recover funds for those defrauded, starting with the biggest and closest who benefited. Where is the logic or ethics in agreeing to allow a charity to benefit at the cost of other defrauded investors?

2. All withdrawals made within 90 days of a bankruptcy petition are subject to full recovery by the trustee, whether or not the money taken was from "principal" or "earnings." Insiders under some circumstances may be required to return any withdrawals within a year.

3. Next comes withdrawals of "fictitious" profits made within 6 years of the filing (for Madoff, the date is 12/16/2008). Federal bankruptcy law actually proscribes 2 years but New York fraudulent conveyance law extends the clawback period to 6 years. Not being an expert in this area, I am guessing that attorneys may fight to get out of applying New York's law on jurisdictional grounds - possibly a way to save clients some money but for sure a serious legal battle.

4. How do we define "fictitious" profits? Very simple. Any penny withdrawn in excess of your original investment is fictitious profit. From reading the Drinker Biddle memo, it seems clear that if it can be established that you had already withdrawn your full investment in Madoff prior to December 16, 2002, then you would be obligated to return every penny withdrawn during the period of December 16, 2002 to December 16, 2008. That is pretty frightening for a place like Hadassah which all but admitted that they had long recovered their initial investments.

5. If you never reached the fictitious profit level, and you didn't withdraw any funds within 90 days (assuming you are not an insider), you should not have any clawback concerns. If you received a letter from Picard demanding return of funds, it would be time to seek legal counsel as soon as possible.

6. One last point for those who knew or should have known of the fraud taking place - the trustee in theory can seek to recover for even non-fictitious principal withdrawals in these cases. These will be a totally different kind of legal case and probably very weak if the trustee can't place you as a co-conspirator. If the SEC and the rest of the world didn't notice, how can the government claim that a non-conspirator should have known? My guess is that the trustee will not pursue these but for clear insiders who most likely knew something was wrong (ie..family).

With the sad passing of Jeffrey Picower, a huge philanthropist, I am wondering about indirect charitable beneficiaries of the Madoff scheme. Bloomberg.com reported that Picower made a $50 million donation in 2002 to fund a brain-research center at MIT. Was it early in 2002 or after December 16? Can these funds somehow be traced to Madoff profits?

What about charities that had invested with Madoff indirectly (through one of the "feeder" funds)? And, what if they had wisely chosen to send their investments to other managers and taking along fictitious profits, too?

In the end, Picard the trustee will have to pick his battles carefully based on size and likelihood of success. Big targets, charities or not, watch out.


http://www.theworldlawgroup.com/docs%5CUnited%20States-Clawbacks%20in%20the%20Aftermath%20of%20Madoff.pdf

http://www.forward.com/articles/116262/

http://www.forward.com/articles/112466/

http://www.bloomberg.com/apps/news?pid=20601103&sid=azCKA1yuc6sg

Schervish Still Touting Ridiculous Wealth Transfer Claims

If you haven't seen the latest Wealth Transfer lunacy from Paul Schervish, here is an article in Forbes about how Schervish and his partner still claim that some trillion something or other will be changing hands over the next 20+ years:

http://www.forbes.com/2009/10/02/estate-tax-bill-gates-boston-college-personal-finance-bc.html?partner=artctrlinboxmain

I am bit negative on the subject for two reasons: 1. The numbers for charities are already impossible - never going to happen (I'll have to do the math again soon); and 2. Especially after I just wrote a 16 page paper for the upcoming NCPG (now PPP) conference presentation that two of my colleagues at Changing Our World are presenting this week looking at various demographic projections (life expectancies, changing family structures, impact of this past year's drop in retirement savings, etc..). Looking at the big picture future for America in general and philanthropy in particular is pretty sobering.

I am working on getting the paper linked to this blog as a PDF (or you can download it if you attending NCPG).

Planned Giving Made Simple for Smaller Institutions

One of the readers of this blog reminded me today of what I considered the best small charity planned giving effort story. It is simple and worth thinking about if you are trying to get a planned giving program going at a smaller place.

Early in my consulting work for United Jewish Communities, I visited with a group of smaller Jewish charities in the Catskills area for an open discussion about starting planned giving programs.

I was the guest speaker and didn't expect to be impressed by the planned giving efforts they were discussing.

But, one of the participants was from a synagogue that had made a consistent effort and to my surprise, it dawned on me how successful they were.

What was this great program? It was a simple "Tree of Life" effort that focused on estate commitments. What is so special about that?

Well, their board went through the pains of developing a plan to seek deferred commitments. They gave those who made bequest/estate plan commitments significant recognition in their lobby (on the brass leaves to the tree). They created an annual event with promotion within their community celebrating the new members to their Tree of Life campaign.

Bottom line: they created an ongoing program to seek these types of commitments (nothing complex) that worked year in and year out. Their volunteer accountants had some idea of the potential sizes of many of the gifts so their board had an idea of what the pipeline might be. They added charitable bequest planning to the culture and activities of the institution and their participation rate was very high.

That is all you need. Almost every synagogue I have seen has a Tree of Life but they never have anything to do with encouraging bequest commitments (except this one, of course). Sadly, I have watched as older members of various synagogues pass away in my community and never hear about bequests.

It takes more foresight than you think for a small, older institution make a long term commitment to encouraging estate plan commitments. That one in the Catskills told me that they had about half a million in expectancies and an unknown dollar amount, probably greater than the known amounts. They basically ensured their future by giving up a bit of today.

It is just a matter of getting it on the agenda and sticking to it.

Endowments and Naming Opps Written in Stone?

A really good question came to me through a client situation. It involved a big naming opportunity on an existing building. The donor was solicited for close to a 7 figure gift, and he was ready to make the commitment. Problem came up - the board started having second thoughts about permanently naming this building for the price asked (make sure your board officially approves your naming opps list BEFORE making the asks). My colleague's job was to help save the gift - if you go back to the donor, after the ask was already done, what do think he is going to do? Not a good scenario.

My role was to finesse some language that could give the board the confidence that they could change the name on this building at some point in the future without disrupting the donor and the gift.

The answer came to me pretty quickly. Variance Power. This is the important clause that community foundations in particular use in their permanent gift agreements. It gives the non-profit the ability to change purposes of a fund or other donor agreement should circumstances change. Otherwise, technically you might be required to seek attorney general approval and/or a Cy Pres action in court to make the change. Of course, if a donor is still alive, it always makes sense to ask the donor to consent to a change.

Here the are samples I came up with (based on old samples I had in my old files from my days working with Jewish Federations):

Variance Provision (long version)

While it is absolute aim and obligation of the Board of XYZ to fulfill the intentions of all written pledges and designated gifts to the ABC campaign, in the event of changed conditions, laws or other circumstances in the future, whereby any gift’s purpose may no longer exist or may be impossible to continue or perform, the Board of XYZ requires that this Variance Provision be included in every gift agreement. This provision permits the Board of Trustees to vary, when necessary, from the donor’s original stated purpose or naming opportunity to a similar new purpose or naming opportunity. Any new purpose or naming opportunity shall be as closely aligned to the donor’s original intent as possible. The Board of XYZ will notify any donors and/or surviving family members of the donor if this provision is ever exercised.

Shortened Version for Pledge Agreements

All pledges and commitments to the campaign are subject to the Variance Policy of the Board of Directors. This policy allows the Board to vary, when required to due to changed circumstances, from the original stated purpose from a gift or pledge agreement to one that is as closely aligned to the donor’s original intent as possible.

Shortest Version for Pledge Agreements

Should the purposes and/or intent of this pledge be impossible or impractical to perform/maintain, the Board of XYZ reserves the power to vary the use or naming opportunity created by this pledge to one as closely aligned to the donor’s original intent as possible.

After going through this exercise, it dawned on me that use of this type of clause in all gift agreements, especially ones that involve permanent naming opportunities, is a really good idea.

Message To Readers

Thank you for reading my blog! As more people visit and sign up for email updates, the more inspired I get to stick with it (and I have fun anyway). The posts on this site are a combination of planned giving related news, training and background pieces, and commentary on various planned giving issues. And, I promise never to over blog!

This effort is still a work in progress but my goals are coming together. I have trained, advised and coached easily over 200 fundraisers in planned giving over the years. Goal number one: get as many of my previous trainees to be linked in (thank you those who have already signed up!). Ultimately, I hope to somehow make this an ongoing training module and a way to stay connected to my planned giving friends. Goal number two: to those who don't know me personally, my approach to guiding people since law school has always been to share info and/or give it away free (within reasonable limits, of course). So take advantage of it, read the blog, submit questions.

Lastly, you will see that my articles are based on pretty broad experiences throughout the non-profit world. But, there is also an approach behind the musings. I learned it not in law school, but rather from several years of in-depth Talmud study (not intended of course to be applied for non-religious purposes but very useful for lawyers nevertheless).

I can still remember the phone call I received from my first legal opponent - a middle aged BMV driving couch potato lawyer. He had just read my brief and was somewhat stunned about what I wrote and he called to ask me something like "what the heck is this?" Well, he found out the answer when the judge told him to sit down and be quiet and proceeded to read directly from my brief (a sign I quickly learned that meant we win) and granted our client our motion for summary judgement. The secret I learned from my Talmudic training is pretty simple - keep digging, keep questioning, keep trying to understand how legal issues work, and understand the concepts behind the rules. I have been talking with the best attorneys in the planned giving area for years and I can confidently say that they all have this in common - they make sure to understand how particular laws and rules came into being and what the drafters were trying to accomplish; they understand the concepts behinds the laws. No good attorney memorizes rules - they understand the rules to the point where they can apply them.

So, after all of these years in planned giving, I am still trying to better understand why these gifts work the way they do. And, while you (the readers) don't necessarily need to become tax experts, the more you understand the various legal issues involved in planned giving, the more confident you will feel when speaking with donors, the more planned gifts you will be able to close. All of us, myself included, need to be able to tell a prospect that we have to check with others before answering a question. But, you may never get to that point if you avoid the conversation or can't confidently lead the direction of the conversation towards a potential planned gift.

So, there you have it. Please stick with this site - I promise to get better organized (I plan to compile relevant posts into a book on planned giving some day). And, forward posts around!

Second Thoughts on Forbes Article

Like most articles in the mainstream press about planned giving, attempts to create a catchy/interesting story end up doing a real chop job on the truth.

The Forbes article is no different.

http://www.forbes.com/2009/09/29/charitable-gift-annuity-crescendo-personal-finance-marketing.html

Basically, the accusation is that by using canned planned donor stories, you are guilty of making a "Dubious Annuity Pitch" or "Canned come-ons cite yields unavailable to most buyers."

Come on writers!!! The only crime or misdeed involved is shoddy marketing!!! It doesn't take a genius to figure out that real stories, with pictures of real donors, will go a lot further than some obviously canned stuff (spot-table a mile away).

But, as this article is in a major publication, we have to give it some due and think about the issue it is hitting on (however skewed and misapplied it is).

It actually reminds me about the Wall Street Journal article this past spring talking about how CGA programs are going under and how it was so bad for donors (when in reality, it was just one CGA program going under and the donors should have known better than to do a CGA with that so-called organization).

Why? That notorious Wall Street Journal article actually did hint to a larger problem of potentially faltering CGA programs due to investment losses (which seems to have turned around).

The Forbes article also hits on a topic often discussed in this blog: fodder for plaintiffs' attorneys. A good friend and attorney made this point to me as I complained about the article and on second thought, I agree.

The chances of a charity being sued over a CGA arrangement are low, very low. But, they aren't so low that it will never happen. Any marketing that your charity engages in while promoting CGA programs in particular can come back to haunt you. Attorneys representing disgruntled donors or family members will look at any means to challenge a gift, especially your own marketing efforts. Fraud in the inducement is pretty powerful. And, even if you can fight off that particular legal challenge, the attorney has just biased the judge or jury against your organization for being sleazy.

I am not trying to be overly nuts on this issue - go ahead and market planned gifts. The point is that as your institution proceeds into the public realm with various promotional materials, it is a good idea to think about whether you are stepping over boundaries that could later haunt you. I tell clients to stay away from using canned donor stories. I also tell anyone willing to listen to avoid use of investment terminology when promoting CGAs.

Have a great weekend and thanks for sticking with my blog!! (please forward stories to friends!)

Interesting Forbes Article Attacking Typical CGA Marketing

This story is making the rounds in the planned giving world:


http://www.forbes.com/2009/09/29/charitable-gift-annuity-crescendo-personal-finance-marketing.html

In short, Forbes has taken up the cause of attacking generic planned giving marketing (using fake donor stories) - particularly focusing on canned Crescendo web pieces. They have a point. What they described is deceptive but I am not sure it so deceptive to actually have any legal or even ethical significance.

I just wonder why they picked this topic. There are much greater issues in CGA marketing like their potential classification as investment products in litigation or by the SEC.

And, it seems like they are unfairly picking on Crescendo, a very honest and ethical company as far as I know.