Through the eyes of the gift planner

The job of the gift planner may seem relatively easy sometimes. An "off the radar" donor leaves your organization a whopping bequest - how hard is that? Sign the release and receive the money!

Or, like the call I received this week from an estate planning attorney going to set up a $1 mil+ CRT for his client - sounds easy enough. Think again.

Then the conversation starts with the attorney. He wants our sample form CRT doc's - Harvard gave him some for the previous CRT his did for this donor. Easy enough - I get two vetted samples from a bank - the bank we could use if need be to manage the trust.

Who is going to be trustee? The charity involved doesn't manage any planned gifts, yet. At first, the attorney says he'll take care of it - but in the second conversation, it becomes clear that they (donor and attorney) expect the charity to really do most of the lifting. OK - does this charity kick off its own planned giving program or does it bring the CRT to its system parent (which has a program for its constituents and the bank ready to manage)?

Then the conversation continues. The donor is going to be purchasing wealth replacement life insurance through an Irrevocable Life Insurance Trust (ILIT). The attorney asks me if I have any samples of these? I start to wonder?

I check with the bank that would end up trustee'ing the CRT if they choose to bring it to the system parent. They have personal trust services that do it. What is "it" that needs to be done with an ILIT? Actually, what is an ILIT? In short, it is a device for keeping life insurance death proceeds outside of one's taxable estate by making the ILIT the irrevocable owner of a life insurance policy. Gift transfers happen when the insured contributes annually to the ILIT for the policy premiums - potentially taxable gifts if over various limits. In theory, you could put $1 mil into a CRT, give the income from the CRT to your ILIT which owns a policy for $1 mil - add it up, kids get $1 mil with no estate taxes, charity hopefully gets its $1 mil, donor rec'd an immediate income tax deduction, avoided cap gains on funding stock, maybe gets some extra income in later years, lowered his taxable estate by $1 mil. But, these have to be done right or the whole point could be lost. Annual "crummy" (the legal term from a case by a guy named Crummy) notices letting kids know that they received a gift need to be sent and saved, etc...the IRS loves to knock off these in estates, easy money for them. No charity should ever be involved - it is a personal estate planning tool and risky if not handled right.

This started as "easy as pie" and all of a sudden, it is really complex. You see, we have an attorney that might not be able to do everything his client needs. We have a donor who wants to see this done without big legal bills and fast (even though it has been many years in the making). We have a charity that might have a finance person with the idea that they can kick off a planned giving program with a snap. And, we have an established parent system program with a bank ready to handle everything (wink, wink), even the ILIT for the donor.

The challenge for me is to guide the client and the attorney/donor to a successfully closed gift that makes sense for everyone. From my experience, everything is telling me that we should bring this donor to the parent system's bank and they will do everything - and at reasonable fees. But, it isn't my decision to make (especially since I am only a consultant - a stand-in planned giving director).

On top of everything, the attorney wasn't set on which type of CRT. CRAT or CRUT? In my head, everything is telling me CRAT. I call this "seeing the future." I know what usually happens - CRUTs sound great at first but donors get aggravated when the income fluctuates from year to year, especially when it goes down. And, I am imagining this charity trying to run a CRUT themselves in-house. I don't even want to go there. Yes, these situations are why I am in business but it is still my job help avoid foreseeable problems.

To be in continued next week!

Have a great weekend!