I am a major fan of irrevocable bequest pledges (another $1+ million one closed last week for a client:) - with the strong caveat to be careful!
Anyway, the topic is really pledges, enforceable or not. If enforceable, what about when the donor dies?
I just wrote a white paper on this general topic (which I will post soon), and plan to also write on the sub-topic of using pledges for bequest intentions.
But, as a preview for my blog readers, check out this bequest story:
http://www.crainsdetroit.com/article/20100120/FREE/100129999#
In short, a NY charity is "suing" (or, probably more like filing a claim in the probate court and forcing the court to overrule the executor's decision to deny the claim) the estate of late Detroit Pistons owner Bill Davidson on an unpaid "pledge" of $5 million.
There are a bunch of stories in the press on this one but only the linked article got a little further into the facts. If I were the judge, I would want to see the written pledge agreement. I would also want clear proof beyond a piece of paper that the charity put this binding obligation on their books, provided sufficient recognition in exchange for the promise, really relied on these funds to their detriment...
I don't pretend to know the legal standard in Michigan on pledge enforceability. In New York, you better have at least given him naming recognition for the pledge.
Anyway, the Crain's story mentions a contingency to the "pledge" that a number of other families needed to be on board before the pledge would be a real pledge. But, if that contingency is not in the written agreement, and the charity really has a clear, written agreement, I don't blame them for suing. I wish them luck, though.
The point of this piece, and future ones on the topic, is that it is a good idea to think about what a judge someday will want to see to enforce a pledge (in the absence of being in the will or other testamentary device). Partially, it depends on the law of the state in which the donor resides (and where his/her estate will be probated). If the state courts held that you need "consideration", you better make sure you gave the donor something and leave proof of it (pictures, of course) in the file. If the state uses the "detrimental reliance" theory, you better show that you really relied on this gift, to your financial detriment.
The other point you should be getting is that legally enforceable pledges, ones that you might actually go after someday, are not necessarily appropriate for high quantities of gifts. It's the special ones.
Showing posts with label irrevocable bequest pledge. Show all posts
Showing posts with label irrevocable bequest pledge. Show all posts
Thursday, January 21, 2010
Wednesday, December 23, 2009
Planned Giving Legal Tidbits - Bequest Pledges
This post is one that I've been itching to write since last week. Please read it carefully and think it over (even if you are not a New York fundraiser - these discussions are always relevant and they at least give you something to ask counsel in your own state)
I mentioned in the previous Legal Tidbits post that pledge agreements in New York that involve naming recognition are legally enforceable, binding commitments. Technically binding out of one's estate, too. And, naming recognition would include a named scholarship in addition to an actual name on a plaque somewhere.
The follow-up question I had as a direct result of hearing this info is what about bequest pledges where the naming only takes place upon the receipt of the pledged funds at death?
Surprisingly, top notch counsel said that case law in New York supported what he termed a contract to make a will as also being a binding obligation upon the parties (namely the estate to pay the pledge).
In legal terms, we are looking for consideration (more simply understood as value exchanged) in a contract context. New York courts not only agree that receiving a named honor in exchange for a pledged gift is consideration to create a binding contract, but the courts agree that a pledge to include a charity in your will that creates an agreed upon naming honor when the bequest matures (gotta love planned giving talk) is also a binding agreement (albeit contingent on both sides fulfilling their promises).
What I am getting at is that in New York, a pledge agreement whereby the donor agrees in writing to include a charity in his or her estate plan in some form or another to receive a naming honor at the time funds reach the charity is ENFORCEABLE as a binding pledge (whether you are included in the estate documents or not).
Long sentences, I know, but you have to say wow.
Sign on the dotted line and it's a gift? One of my clients - closing this fall alone over $5 million of these - said they didn't plan to actually list these commitments on their books. Funny thing - from both the accounting and legal points of view, they should be on the books.
OK, I would advocate some substantiation - like are we really in the will or does this donor really have these assets or is there an estate fight brewing. I would keep these for older donors generally. But, they are not only good planned gifts, but they are bookable (at least at present value).
Stay tuned for part 2 about bequest pledges entitled Don't try these at home. Just a word of caution before you go out and have hundreds of folks sign up.
I mentioned in the previous Legal Tidbits post that pledge agreements in New York that involve naming recognition are legally enforceable, binding commitments. Technically binding out of one's estate, too. And, naming recognition would include a named scholarship in addition to an actual name on a plaque somewhere.
The follow-up question I had as a direct result of hearing this info is what about bequest pledges where the naming only takes place upon the receipt of the pledged funds at death?
Surprisingly, top notch counsel said that case law in New York supported what he termed a contract to make a will as also being a binding obligation upon the parties (namely the estate to pay the pledge).
In legal terms, we are looking for consideration (more simply understood as value exchanged) in a contract context. New York courts not only agree that receiving a named honor in exchange for a pledged gift is consideration to create a binding contract, but the courts agree that a pledge to include a charity in your will that creates an agreed upon naming honor when the bequest matures (gotta love planned giving talk) is also a binding agreement (albeit contingent on both sides fulfilling their promises).
What I am getting at is that in New York, a pledge agreement whereby the donor agrees in writing to include a charity in his or her estate plan in some form or another to receive a naming honor at the time funds reach the charity is ENFORCEABLE as a binding pledge (whether you are included in the estate documents or not).
Long sentences, I know, but you have to say wow.
Sign on the dotted line and it's a gift? One of my clients - closing this fall alone over $5 million of these - said they didn't plan to actually list these commitments on their books. Funny thing - from both the accounting and legal points of view, they should be on the books.
OK, I would advocate some substantiation - like are we really in the will or does this donor really have these assets or is there an estate fight brewing. I would keep these for older donors generally. But, they are not only good planned gifts, but they are bookable (at least at present value).
Stay tuned for part 2 about bequest pledges entitled Don't try these at home. Just a word of caution before you go out and have hundreds of folks sign up.
Wednesday, December 16, 2009
Planned Giving Legal Tidbits - Pledges and State Tax Implications for IRA Rollover Gifts
I just returned from the annual planned giving quiz given by one of my favorite planned giving lawyer/guru in the field (He doesn't use the internet so I'll leave his name out but it should be pretty easy to figure out).
I learned two ideas - really important ones.
1. New Jersey will tax your New Jersey donors for making IRA charitable rollover gifts! Income tax, that is, on the IRA withdrawal.
That's what I heard. It's really too late to do anything about it if you have been encouraging donors from this state. It has to do with the fact that New Jersey doesn't offer a charitable income tax deduction... New York and Connecticut are fine.
I am wondering if there is a mechanism for New Jersey tax authorities to be notified when someone makes an IRA rollover gift?
My suggestion: cross your fingers regarding the past; confirm for the future (if it gets extended again) and put a caveat on all of your marketing materials that mention this option (especially if you are a NJ charity or have a lot of NJ prospects).
2. My favorite planned gift this year is the irrevocable bequest pledge. Why? Well, let's say that with life income gift business down, I can still look to many millions of closed gifts with these arrangement this past year.
Yes, the person sitting to my right today was from an Ivy League school which has a policy to do no binding pledges - fine if you are in the Ivy League. And, yes, they are tricky - and quite often very problematic when they mature.
Here is what I learned: in New York, all "naming pledges" are legally binding, including named scholarships. That might seem like an obvious point but hearing it from a top attorney puts it on another level for me. You don't need particularly special language - just something in writing where the charity says that it will name something in exchange for this gift.
Of course, the repercussions of this point can be negative. The problem that occurs is when a donor agrees to give the money for some naming opportunity, most often no one has the chutzpah to ask about the source of those funds. Technically, once the pledge is made, the donor (in theory) can't have his or her private foundation pay off that pledge.
The other long standing issue with all pledges, particularly one's that are likely to be fulfilled from someone's estate, is their enforceability. It's a nightmare if you are not actually named in the estate.
A topic for future posts.
I learned two ideas - really important ones.
1. New Jersey will tax your New Jersey donors for making IRA charitable rollover gifts! Income tax, that is, on the IRA withdrawal.
That's what I heard. It's really too late to do anything about it if you have been encouraging donors from this state. It has to do with the fact that New Jersey doesn't offer a charitable income tax deduction... New York and Connecticut are fine.
I am wondering if there is a mechanism for New Jersey tax authorities to be notified when someone makes an IRA rollover gift?
My suggestion: cross your fingers regarding the past; confirm for the future (if it gets extended again) and put a caveat on all of your marketing materials that mention this option (especially if you are a NJ charity or have a lot of NJ prospects).
2. My favorite planned gift this year is the irrevocable bequest pledge. Why? Well, let's say that with life income gift business down, I can still look to many millions of closed gifts with these arrangement this past year.
Yes, the person sitting to my right today was from an Ivy League school which has a policy to do no binding pledges - fine if you are in the Ivy League. And, yes, they are tricky - and quite often very problematic when they mature.
Here is what I learned: in New York, all "naming pledges" are legally binding, including named scholarships. That might seem like an obvious point but hearing it from a top attorney puts it on another level for me. You don't need particularly special language - just something in writing where the charity says that it will name something in exchange for this gift.
Of course, the repercussions of this point can be negative. The problem that occurs is when a donor agrees to give the money for some naming opportunity, most often no one has the chutzpah to ask about the source of those funds. Technically, once the pledge is made, the donor (in theory) can't have his or her private foundation pay off that pledge.
The other long standing issue with all pledges, particularly one's that are likely to be fulfilled from someone's estate, is their enforceability. It's a nightmare if you are not actually named in the estate.
A topic for future posts.
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