Morals Clause - Added 5/11/2010
We have a donor who has publicly disgraced himself. He has been accused of stealing and the local papers have gone wild. Six years ago, he made a substantial gift to our organization – several million dollars – in exchange for our naming a building after him. Now, most members of our board want to remove his name from the building. One board member, an attorney, however, says we can’t do that – the original gift agreement says nothing about such an eventuality, and so the donor has the right to keep the name on the building. The rest of the board thinks that if his name associated with us, it will make us look bad. What should we do?
 You need to be more careful when writing those gift agreements. The idea of donors’ rights has grown over the past several years and will probably always be with us. And it should be. Charities need to honor the promises they make to donors; if they can’t, they shouldn’t make the promise to begin with. The problem is, we don’t know what will happen in the future.
On one level, should the donor object to his name being removed (although he very well might not), this is for a court to decide, or at least for two attorneys to try to find an amicable legal solution. But why go there if you don’t have to? As I say, the donor may be willing to go along with removing his name from the building. Even though he may be a crook, he may still want the best for the charity.
One nuance to keep in mind here (some might think of it as a tiny, insignificant detail) is that he has not been convicted of anything – only indicted. While the papers are going wild, he has the right to a presumption of innocence, a legal right in court and a moral one from the public, which would include you. At the very least, I would wait until the conclusion of the legal proceedings.
But what if he is found guilty? Or what if he isn’t, but his reputation is so tarnished you don’t want anything to do with him? He might want to rely on the gift agreement that said you would name the building in exchange for his money. No exceptions. You might want to see what your legal options are in the case, but an attorney in New York tells me that he thinks there aren’t many. That is, you could be stuck.
The answer, of course, is to build this eventuality into the gift agreement: If the donor is ever found guilty – merely accused might be too harsh, but that’s the charity’s call – then the charity has the option of unilaterally removing the donor’s name. And that wouldn’t be just for a building; it could be for anything that has a donor’s name on it, including an endowed fund.
But to the board members who are so sure of themselves about staying clean: How would they feel about returning those millions of dollars? As it stands, from what I infer in your question, the board appears to want the best of both worlds, to cleanse its reputation without any sacrifice. Telling your community that you wash your hands of a scoundrel is one thing; to back that up by invading your bank account is quite another – and a stronger – statement.
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Now or Later? - Added 4/11/2010
I work at a social services agency and went on a visit a few weeks ago with my boss to see an elderly donor who had been giving generously to our annual fund. He was also a planned giving prospect and indicated that he would be interested in establishing a very large life-income gift – a multi-million dollar remainder trusts. Even though there was no indication that he would then reduce or eliminate his annual support, my boss said to him that she would rather he continue with his annual giving and basically forego any planned giving commitment. (She knows nothing, it seems, about planned giving.) Not wanting a confrontation in the prospect's presence, I waited until we got back to tell my boss that she is a fool – that not only did the man not say he would no longer make annual gifts, a deferred commitment of that magnitude is exactly the kind of thing we need to secure our future. She retorted that not only was I out of line to criticize her, but that we might not have a future if we don't secure current gifts. I'm fuming – at her and at the lost opportunity. Would it be ethical to call the man and restart the life-income trust conversation without my boss's knowledge?
You told your boss that she's a fool? You may want to polish up your resume. While your boss may need to learn more about planned giving, you need to learn something about grace – a kissing cousin to ethics. You never should go behind your boss's back – for any reason. By doing that, you may destroy the one thing you want most: a planned gift. But because you want it most does not mean it is in the best interests of the organization. Your boss, and hers – at least as the organization chart is currently configured – are in a better place to make that decision. Forget about a clandestine communiqué with the prospect: you are, first and foremost, a representative of your organization. And you should undertake that role a lot more seriously than you are right now.
What you should do is make time, in a calm unhurried setting, for you and your boss to discuss planned giving. At that point you can tell her that studies show that those who support organizations on an annual basis don't typically stop that support once they have established a deferred gift. You can also tell her that creating a list of expectancies is also good for the organization's future – that the angst over the difference between long-term and short-term gains is a classic dilemma – one of the “right vs. right” dilemmas in the canon of ethical decision-making. If you are mathematically able, you might want to show the present value of the deferred gift as compared with the present value of the annual gifts, all the while explaining that the one does not have to sacrifice the other. But while you impart that to her, you must also realize you are at the same time acknowledging the wisdom of her decision: significant current gifts, after all, are valuable and meaningful.
She's not the bad guy here. In fact, if one must be found, it's you. The real goal here, begun with that meeting with her, is to develop policies that outline your organization's commitment to planned giving within the overall development goals that you have. You should be at the table during that policy formulation. That's of course if you can refrain from calling anyone a fool.
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The Dead Hand - Added 3/15/2010
We are struggling with our gift acceptance policies, particularly the area where we cover how we will use endowed funds to be established after a deferred gift matures. I honestly don’t know where to come down on this one, but I’ve been told – by my boss, by the trustees – that our charity needs to be able to use the money any way we want if the purpose of the gift doesn’t exist someday. But the donor is insisting that she won’t make the gift unless we promise that the money will be used – forever – in the way we agree today. What do we do?
You think long and hard about what you can promise. The world of philanthropy is growing more donor-centered than ever, and in many, many ways that’s a good thing. The aspect of partnership in philanthropy is, in my view, critical to the essence of a charity’s purpose. But that’s not what you write about (another time, perhaps).
You’ve heard of the Princeton case? You’ve heard of the Sophie Newcomb case at Tulane? You’ve heard of several other stories where donors – more relevantly, their heirs – are suing charities for not honoring the wishes of their parents, their grandparents, or those of even earlier generations? This is not a small issue and you are right to pay attention to it. A charity, by promising something in perpetuity – a word that has a meaning whose clarity has a fair chance of holding up in court – generally promises more than it can deliver. Not always, but many times. And so charities ought to be cautious.
The best way to be cautious is to insert an escape clause into the gift agreement, something that permits the charity to change the use of the gift’s future income if the purpose that motivated the gift no longer is part of what a charity does. When a college accepts an endowment gift for the teaching of English, what happens when America’s predominant national language in the year 2110 is Mandarin and no one teaches English any more? We still teach Latin, but who knew back then it would die as a commonly spoken language? Certainly Julius Caesar might have had your head for such a suggestion. (Although there are no surviving records of any of the charitable gift agreements Caesar signed.)
How could Josephine Newcomb or the trustees of Tulane University ever have predicted that a major hurricane would inflict so much damage on the university – twelve decades after the gift was made – that it would become financially necessary to close the school? That’s troubling enough, but an attorney close to the case I spoke with also wonders why Tulane didn’t go other routes – applying for a cy pres exception, for example – before unilaterally deciding to shut the school down. The university explains that nothing changed, that the women are still being honored and educated, but part of the gift was to honor the donor’s daughter’s name – Sophie Newcomb – forever.
The concept of forever does battle with a donor’s wishes and a charity must make clear this grave fact to donors. Most donors I’ve dealt with on this topic, once the issue is explained to them, are willing to compromise: “Okay, not forever, but what about 50 years?” Or, “Okay, go ahead and put my gift to some other good use if you guys are ever crazy enough to stop teaching English.” Something like that. Most people understand that the dead hand, even theirs, has to loosen its grip sometime. My advice is to make sure you can honor a donor’s wishes – and I mean, make sure. If you can’t, don’t accept the gift. By all means, however, because you never know how a future court will decide, be sure to do your compromising before the gift is made.
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A Matter of Degree - Added 2/15/2010
I’m an attorney with many years of experience practicing estate tax law. Recently I took a job as a planned giving officer at a prestigious, national charity. In correspondence and in my email signature I write J.D. after my name. I’m an attorney after all and, more to the point, I feel it makes me better at my job and it helps establish my credentials with prospective donors. I mean, if they know that I know what I’m talking about, they should feel more comfortable making a gift. My boss has no problem with it, but the reason I’m asking is that one of my donors said that my degree has no relevance, and that it could be seen as offering a legal service that I cannot provide. Should I remove the J.D. after my name?
I can’t tell you what to do, but your donor’s concern has merit.
My lawyer friends assure me that you are not technically in trouble – you’ve earned your degree and, like many planned giving officers, you display that fact when you sign your name in formal correspondence. The question is whether you are violating a trust with your prospects and donors by implying that your law degree will enable you to assist them with the legal aspects of making a gift decision. Alas, it will not, and you should do whatever you can to make sure they don’t get that idea. To that end, at first blush, it would seem that listing this particular credential after your name is not a good idea.
But that isn’t the entire consideration here. I don’t think that the designation has to send the message that you’re signing up to be the donor’s attorney. It merely says that you have an educational credential. More than with non-attorney planned gift solicitors (itself a word with legal undertones), you need to make sure prospects realize that not only can you not act as an attorney for them, but that no one compensated by the organization where you work can act in that capacity. Not even your chief legal counsel. Demonstrating your brilliance on all the relevant legal matters may be impressive when you solicit a gift, but you must also make clear that your brilliance is owned by the charity you work for, that it’s not for sale to donors. That is, the designation is far more important to the charity than to the donor.
Why that is, by the way, I don’t know. Whether, as you allege, your legal background makes you a better gift solicitor is another issue altogether. Many of the best planned giving officers in the United States have never seen the inside of a law school – and many of them would contend that they are the better for it. And the evidence I’ve seen over the decades doesn’t dispute that. While it may be comforting for a donor to know that you understand the difference between a remainder trust and a lead trust – although many attorneys don’t – the key to success in this field has a lot less to do with your technical expertise than your ability to connect your donor’s passions with your charity’s mission. And they don’t teach that at law school.
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Avoiding Marital Wrath - Added 1/11/2010
Years ago I was approached by a donor who wanted to set up a single-life charitable gift annuity. He told me even though he was married, they only lived under the same roof (in separate bedrooms) and had their own assets. He made other statements indicating the marriage was rocky. Within 6 months of setting up a $100K gift annuity he died. The widow hired a lawyer and claimed that his decision left her destitute. The charity decided to continue the payments (at a two-life rate) to avoid unwanted negative publicity. Now, when I am faced with a similar scenario, I ask the non-donor spouse to sign a document stating that he or she understands that there will be no continuing annuity payments after the donor spouse dies.
The question is . . . What is our obligation to keep our charities out of potential litigation? Does a signed disclosure make a difference knowing that this has never been "tested" in the courts? What if a spouse refuses to sign it?
Have you mentioned this to the IRS? The people there might be interested in learning that you unilaterally made the donor a tax cheat. The deduction for a one-life annuity is higher than it is for a two-life annuity. The companion idea behind the one-life calculation is that the charity will be relieved of payment obligations sooner. By trying to do the right thing – by assuaging the (allegedly) destitute woman’s claims – you ended up doing the wrong thing. Other than responding to (what may have been) a blowhard attorney’s threats, what makes you think it’s all that saintly to change the contractual terms of a gift?
Because the terms of a will are often confusing, a probate court is needed to ensure that the decedent’s wishes are carried out. A gift annuity agreement, by contrast, is simple and clear: In exchange for an asset – $100,000 in your case – the charity promises to pay an amount each year for a specifically measured period of time. In this case, it was for his life – not for both his and his wife’s lifetimes. That he died within six months of making the gift is irrelevant. Whatever the charity has paid to the donor’s wife represents money that is lost to the charity. Reducing the payment level to the two-life amount was not the solution. Adhering to your donor’s wishes – and to a contract’s language – would have been. Ethics demands far more than doing what feels right, especially under pressure.
The other challenge, as you point out, is doing what is possible to make sure that the gift is right for the donor. As with any major charitable commitment, making sure that the donor’s attorney takes part in this decision is best. Development officers are neither equipped nor authorized to play a role beyond suggesting that the donor seek competent advice from those who know how to merge their client’s charitable interests with his or her other interests. Although it may be going a bit far to require the non-annuitant spouse to sign the kind of statement you describe, every planned gift should be accompanied with full disclosure. Your disclosure statement might be written to make this particular point clear. (Keep in mind that the disclosure statement is as much an ethical statement as it is a legal document; conscience is our principal guide.)
On the matter of the absence of conjugality . . . I’m imagining the questions veering from the likes of “And what asset would you like to use to fund your gift?” to “Now, because we want to avoid trouble with your wife when she becomes a widow, do you sleep together?” Going down that path, you might end up taking the concept of disclosure to a whole different level.
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Haunted by the Past - Added 12/10/2009
We just discovered something awful. A donor established a gift annuity several years ago and it just came to our attention that the donor has not been paying taxes on what should have been reported as capital gain income. (In what was intended to be a spot check, our auditors recalculated the original remainder and payment values of a few annuity agreements.) We have been administering our own program and have not hired an outside firm to do the work. The original calculation for this donor showed an amount for capital gain income, but we’ve been incorrectly reporting that amount to her and the IRS as tax-free income. My executive director thinks we could easily not tell her, or tell anyone for that matter, and that from now on we should just give her the correct 1099R. Otherwise she might sue us, he said, and then where would we be? Besides, he also said, the auditors didn’t care. But they were concerned only with our payment liabilities. What should I do?
The first layer of this is legal, and you should immediately – today, not tomorrow – alert your organization’s attorney of this problem and ask for advice.
My advice, from an ethical perspective: You must tell the donor that you screwed up. Your organization has made an egregious mistake. But as we all know, or should know, the real test of character is not in whether a mistake is made, but in how the mistake is dealt with. You must come clean with the unreported taxable amount due to your mistake.
She then must take this information to her own advisors – her accountant for certain, but also her attorney – because she then must decide how to deal with it. In a perfect world, she would say, “No problem. I understand.” And then she’d just pay what she owes. As that probably won’t happen, you must provide her with complete information.
But I get ahead of myself: Most likely she’s going to be upset with you. And I wouldn’t blame her. Planned giving isn’t for the incompetents; as easy as it is to administer a gift annuity, the process still takes some brains and dedication. (By the way, I’d begin a full examination of all your agreements.) And your executive director needs to better deal with his fears. Putting your head in the sand is never the way to solve a problem. What was he thinking? That the donor wouldn’t notice that her 1099R has a new line showing she now has capital-gain income?
Could she sue you? She can, and an attorney I have consulted with on this matter says that, although the law is not clear, she might have a good case. But the best way to avoid that is with complete honesty. Can you offer to reimburse her? Yes, I’m told, but you’d have to be clean about the transaction and provide a 1099 reporting that benefit. (I’d try to avoid that; as bad as this is, as innocent as she is, she was not paying taxes she in fact owed.)
Look, we all make mistakes. The technical and legal issues are complex, but they pale to the moral imperatives that are required when times are tough.
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Disclosure? - Added 11/12/2009
In the aftermath of the Madoff scandal, several donors have asked who we invest our planned gifts and endowment gifts with. They want to know how we know that we have not invested with an unscrupulous organization, and for that matter, why our organization doesn't disclose all relevant investment information to our planned giving donors. One person I’m thinking of in particular is a donor who established a unitrust with us five years ago and his income has dropped more than 40 percent in the last two years. What should I tell him?
After I testified in 1995 with Barry Barbash, the then head of the investment division of the SEC, in support of the Philanthropy Protection Act, I asked him about disclosure. Under the PPA (the first one), disclosure to donors became part of the requirement when taking in commingled assets, such as gift annuity assets or trust assets from several donors. The question I had for him was, “No problem with the requirement, Mr. Barbash, but can you tell us all what is required to properly disclose?” He said, “I can't tell you the ingredients of a disclosure statement, as it's subjective, but I can tell you this: If your 85 year old grandmother doesn't understand it, it's not disclosing anything.”
I’ve seen young, intelligent, and financially sophisticated board members fall asleep when the investment report is trotted out at meetings; it's certainly a challenge to communicate to donors the appropriate amount of information on anything, including investments. Yet, after the fact, everybody wants to know, for example, if there are any other Bernie Madoffs hanging around.
I think all charities with endowments and planned gifts under management ought to re-visit the question of disclosure. Too many disclosure statements read like legal briefs, when, in the end, deciding what to tell the public what's going on is an ethics-based decision-making process. (Board members also need to work on what they tell one another, but that's a different matter.) Tell people whether you were in any way connected with Madoff – either directly or through a feeder fund – and be certain that it's true. You also might want to mention the safeguards you have in place to ensure that you won't be ensnared in scandalous investment activity. In addition, I'd communicate the investment policies (and translate them into English, if necessary) to share with donors. They have the right to know.
The process isn't easy because it's so subjective, so a good guide to start would be: What would I or should I want to know if I were a donor? And then, don’t let the lawyers screw it up.
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Is That Donor Your Donor? - Added 10/12/2009
As many charities do, we market planned gifts to our prospects. We have found that the best message comes from our current donors in the form of testimonials. We always try to get a quote in which the donor explains why he or she is pleased with the gift, and we also always try to get a picture. We can’t always get a quote we can use, however, and so I wonder if I can make it up. But, so as not to give the wrong impression, I avoid attribution. The quote is close enough to what others say, and, to be honest, I think I generate better copy than some of my prospects. The marketing piece is the better for it too.
The world of marketing has never been confused for a safe haven for full and honest disclosure, but that doesn’t mean advertisements are licensed to invent untrue information. Many people think the unattributed quote is the same as creating words that someone might have said if only he or she had been asked. But unattributed quotes are still quotes. The quotation marks mean someone said the words between them. Those who market have an obligation to adhere to some standard of honesty, and companies that violate that standard may ultimately hurt themselves – if not in their stock price, in their public perception and sales. Charities must rely heavily on public perception when soliciting funds and so must do more than meet some minimum standard for marketing; that the mad men of marketing don’t always follow that standard is no excuse for not doing so.
Every quote we attribute, even if it is to a person not specifically identified, should be true and accurate. The difference between saying, “Our donors love our gift annuities” is fundamentally different from quoting someone as saying, “I love the gift annuity I established with this charity.”
And, for heaven’s sake, if you do attribute the quote to someone, that person really ought to be the person quoted. The same goes for a picture: no beautiful model types when the real person may not look as attractive or young (besides, even though 80 is now the new 60, young isn't the look we should look for in ads that ask people to do something when they die).
Truly – I know it's a worn-out cliché, but striving for the principle really is worthwhile – honesty is the best policy.
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Acting as Trustee - Added 9/14/2009
I’ve heard a lot about whether a charity should act as a trustee. I am a donor who, once I get a sense that the economy will pick up again, is thinking of establishing a charitable remainder trust, and wonder if charities can ethically act as a trustee of a remainder trust because they have an inherent interest in the trust. Although the people at the university I will be donating to don’t insist, they do say it’s normal for the organization to be the trustee. I’m not talking about a charity’s ability to do or hire out the work – I’ve talked with many people, including my legal advisor, about that – but I’m asking if charities don’t have a conflict of interest here.
The concept of “split-interest” – the key characteristic of remainder trusts – gives rise to all sorts of ethical issues. As remaindermen, charities do have a dog in the fight, but that does not mean they have a conflict of interest. Even if you think they do, however, the key issue is whether the university can act in the interests of both parties – the income beneficiary (which would probably include you) and the remainderman (itself) in an able and open manner. And, if I read between your lines a little, that many good and honest charities act as trustee (“everybody does it”) is by itself no defense of the argument.
The defense is in the realities. Acting as trustee of a reminder trust is a specialty assignment. In considering the interests of both parties, the trustee needs to be competent in – or be able to supervise another organization’s competence in – arcane tax law, investments that, while they are tax free, must take into consideration tax issues, and the growth and income objectives for the charity and income beneficiary.
And even if the charity hires out the day-to-day work – that is, it does not make specific investment decisions, does not send beneficiary checks, and does not complete IRS forms – it still must have a solid understanding of all the component parts and make strategic decisions as it partners with whatever organization it hires. Lacking that, the charity should not act as trustee.
Although it composes one half of the affected parties in a remainder trust, a charity that possesses and employs the relevant competence, and is aware of its responsibilities to act as trustee, is not acting unethically.
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An Outright Gift? - Added 8/12/2009
My job is to solicit planned gifts, specifically deferred gifts, but a few weeks ago my boss – actually my boss’s boss – told me that I needed to forget about asking people for estate and other deferred commitments and begin concentrating on asking people for outright gifts instead. He said we need the money now and, because of our financial situation, we don’t have the luxury to wait until later. He said to first talk to the people who were considering a planned gift because “they’re the ones that are most ready.” Aside from being asked to do a job I wasn’t hired to do, I wonder about the ethics of the bait and switch tactic he is encouraging me to employ.
While I sympathize with your sense of job responsibility, you must understand that there is nothing unethical about what your employer as asking you to do. Right now, many charities are in your situation and they are doing what they feel they need to do to keep their cash flows and programs afloat.
One category of conflict within the world ethical dilemmas is that of right vs. right; in this case, I’d say the dilemma is that of weighing long-term consequences and short-term consequences. Each is a real concern and each is ethical. While it would be nice for you to be able to speak only to people about deferred commitments, bequests in particular – and these days, especially, that’s a wonderful, and wonderfully safe, conversation – you are part of a larger concern and your job is to take part in whatever way the development office deems necessary.
That is not to say that a program designed to solicit deferred gifts is a luxury. Even though the tangible support from deferred commitments can be measured only in future terms, the future is real; it is coming. It has already come for donors who made planned gifts long ago and charities are today reaping the benefit of those gifts; they are providing needed resources.
Deferred gift donors are important and many donors, even armed with loyalty and donative intent, simply don’t have the capacity to give now. But while your instincts have honorable roots, playing them out without taking into consideration the whole picture would be detrimental to your organization. Your boss is asking you to do nothing improper.
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Gift Annuity Rates - Added 7/9/2009
In these poor economic times, I am trying to distinguish my charity from others, and the way I want to do that is by offering higher rates for gift annuities than other programs offer. That is, I’d like to offer more than the maximum rates than what the American Council on Gift Annuities recommends. It would be modest; something along the lines of one- or two-tenths of a point higher. I assume you’d be against this, but why? If it brings more money to my charity, what’s the harm?
Oh, let me count the ways. Since you assume I’m against it, something inside you must be telling you something’s wrong. One tenth. Two tenths. It doesn’t matter. It’s not the amount – it’s the idea.
Your first stop is learning the legal restrictions in your state. California has strict rules regarding these matters and although many states do not require this, in yours you must apply to have a higher rate structure approved.
But that’s just the law. Ethics is a higher calling. There’s a reason that the ACGA has recommended rates since March 24, 1927 (back then it was the Committee on Gift Annuities). Not only did charities need to band together on collecting investment and actuarial advice, they also wanted to ensure that nobody offered an economic advantage to donors at the expense of charitable intent; that is, a central idea behind the rates is to emphasize the donor’s connection with the charity’s mission by taking the financial factor (advantage) out of the equation. (Does the term Texas Lawsuit ring any bells? If it doesn’t I’d recommend learning about it.)
But let’s say, for argument’s sake, that you get the legal green light and offer higher annuity rates. What will you have done? You will simply have acknowledged that your mission isn’t worthy enough to stand on its own. It needs an artificial boost. You want an advantage that others don’t have. One of the key elements in the ethical decision-making process is determining whether you are making an exception for yourself. I had this discussion with someone back in the mid-1990s, the high-flying, there’s nothing-but-up investment days; he said his charity was able to invest better than everybody else. Right.
I’d bet that the charities that routinely offer higher rates than the recommended maximum don’t have very good programs and that their gift annuity pools are not very healthy. (I’d like to see a study on this.) When charities are worried that the current system, with a legitimate structure, isn’t enough to keep some annuitant pools from going below zero, offering more, especially now, will only exacerbate the issue.
Ours is a community of charities, not a dog-eat-dog world. If you want to distinguish your charity, distinguish your mission.
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Free Codicils - Added 6/10/2009
At a church, I was very surprised to see a handout promoting the organization's legacy society and offering the services from a group of attorneys (15 names were listed), who were church members and who have generously volunteered to draft codicils free of charge, if you name the church in your will. The flyer said that you must have a will and anything else besides the codicil that you discuss with the attorney is your own business. Is this practice of offering a group of volunteer attorneys from your organization to draft free codicils sound right?
It sounds benevolent, doesn’t it? The attorney, who often costs an arm and a leg, is willing to perform this duty – adding a codicil to a will so that the church will be included in a person’s estate plan - for free. Presumably the church isn’t fronting the cost, so no one is hurt: the church establishes a future gift and the donor doesn’t pay. Furthermore, the church, by providing a list of 15 names, isn’t favoring any one attorney. Ethically, this is as good as it gets, right?
Not exactly. It shouldn’t take much to see what’s really going on: the attorneys are using the church to establish business through a loss leader. The brochure indicts itself: “ . . . anything else besides the codicil that you discuss with the attorney is your own business.” That’s really big of the church - to permit the donor to discuss a private matter with an attorney. But, it’s actually worse than merely granting grotesquely unauthorized permission. The brochure is actually inviting new – and remunerative – business for the attorneys. While no one disputes the need for people to have solid estate plans or the need for attorneys to be paid well for designing them, whose loyalty does the attorney have in mind when there is a conflict? The church, to which the attorneys have already evidenced loyalty by offering to take part in the process of increasing its legacy gifts? Or the donor, who, after paying for “anything else besides the codicil,” has the right to expect impartiality on every matter of his or her estate plan – including whether to leave a bequest to the church?
This is no mere theoretical exercise; the likelihood of a conflict is too great to dismiss. Anyone who remembers the Texas Lawsuit in the 1990s or who has been following the drama of the Brooke Astor estate feud in New York knows the realities of how careful attorneys must be when deciding who their clients are. The conflict, as described in this situation, should be avoided as it trumps the good that the church is trying to do.
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The Unitrust Graph - Added 5/12/2009
I’ve gotten into the habit of providing a graph for prospects to show how a unitrust’s income, as well as the trust’s corpus, may go up over time. As far as I’m concerned, this is an effective tool to help people understand the concept of unitrusts. With the market decline over the past several months, however, am I wrong to show a graph where the income and corpus rise? At this point I don’t know what the future holds.
You never did know what the future holds. Neither you nor I nor anyone else ever will – which is perhaps the biggest problem with those graphs. The graphs often are a wonderful marketing and educational tool and they vividly show what may happen given certain assumptions. A picture – when compared to the complexity of verbiage needed to fully and properly describe a unitrust – really is worth a thousand words.
But the graph you describe– and, from what I can gather, all those offered up by the people I’ve spoken with over the past two decades since they became commonplace in computer illustrations – omit a few words, some of which are important. Showing a graph with an ever upwardly curving line is far more powerful than the words, often muttered quickly and dismissively (almost as an unimportant afterthought), “ . . . although your income could also go down.” The issue at hand is not, strictly speaking, the use of the graph, but the context in which we put it. The assumptions will never hold. They never have. Reality is too unpredictable. Even if income does rise over time, it won’t rise as smoothly as shown. At the least, donors have to be prepared for a rocky ride. And, as we’ve seen, income can drop and continue to drop for far longer than anyone might have thought.
While a graph that illustrates the characteristics of a unitrust is a useful tool, as ethics calls for balance and context, it needs to be accompanied by the whole relevant message, and all of it, not just the potentially good news, needs to make an impact. (Yes, the possibility of an income drop is relevant information.) What about showing a partner graph where the income is shown to drop? (No one I’ve ever spoken with has done this.) Also, if you can input the data (your software provider might be able to help with this), you might want to show the actual gains and losses of the markets, with an asset allocation as close as possible to the one you will use for a donor’s trust, for a number of years in the past approximately equal to the life expectancy of the trust’s beneficiaries. That would be more complex, but we would all have better prepared beneficiaries.
There are a number of things you can do to disclose a full and accurate picture of how a unitrust works. Unfortunately, predicting the future isn’t one of them.
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Blowing the Whistle on Madoff - Added 4/8/2009
Over the past few months, the subject of how Bernard Madoff’s Ponzi scheme has affected charities’ investments has frequently been the topic of interest in several discussions in my nonprofit ethics and governance classes at New York University. After one of the classes, one student, who is in the development office of a charity, privately said to two professors that her charity had been asked to invest in the Madoff funds but, after conducting due diligence, the charity’s finance committee determined that Madoff was doing something wrong. One of the professors said that she had dodged a bullet and congratulated her board for doing the due-diligence all charities should but often don’t. But the other professor asked her why, after she learned of Madoff’s way of doing business, she didn’t tell everyone else in the charitable community. Didn’t she feel an ethical responsibility to blow the whistle? She then asked me what she should have done.
She had no obligation to blow the whistle. As context plays a large role in ethical decision-making, we have to remember that many people had questions about Madoff before the news broke, but only a few went to any lengths to expose him – and those efforts went largely unnoticed. Furthermore, according to one attorney I spoke with, had the charity sent out a letter to other charities – or in any other way took their concern public – the charity took the chance of being sued by Madoff under the legal doctrine of “slander per se,” which is intended to curb untruthful statements made to the public. In this litigious society, I can’t blame the charity for not communicating its concerns in writing to the charitable community.
But Bill Josephson, the former head of the Charities Bureau at the New York State attorney general’s office, as well as a colleague of mine on the NYU faculty, says that anyone could report potential misgivings to the attorney general’s office in the state where the charity resides or in those it does business without fear of improperly accusing the potential offending party in the way that “slander per” se is intended to prevent. The attorney general is the protector of the public’s interest, he says, when it comes to issues like this. He also confessed that neither he nor anyone else he knows in the regulation world had ever even heard of Bernard Madoff before December 2008 – so under the radar Madoff kept himself .
Despite the hindsight that tells us charities that knew better about Madoff’s Ponzi scheme, or who even had legitimate doubts about his investment (or lack thereof) methods, had an obligation to shout it from the rafters, the woman’s charity chose correctly in not doing that. But for those concerned about this kind of thing in the future, don’t overlook the option of reporting your concerns to your attorney general.
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Commissions - Added 3/10/2009
Why is “commissions” such a dirty word when it comes to paying fundraisers? The for-profit world, in almost every sector, pays its salespeople based on what they earn for their companies. I know the ethics codes of the Partnership for Philanthropic Planning and the Association for Fundraising Professionals say that paying fundraisers is wrong. But why? The reason I ask is that, in this economic crisis, I’ve been offered a job by a charity that says it will pay me based on what I raise; they have made it clear that it is a commission-based position. I was recently let go from another job and I need to do something. I’ve pretty much decided to take the job, but I still want to know what you have to say about this matter.
While no one can force you not to take the job – or prevent the charity from offering it – there is a reason that charity groups have concluded that commission-based fundraising by employees of charities is wrong. At its highest, the principle is part of what I have come to call the “nonprofit ethos,” a philosophy that distinguishes the way business is done at charities from the way it is done at for-profit companies. While the donor certainly expects employees of charities to be paid, the amount of payment should not be a function of the amount of the gift. A restaurant server’s gratuity is appropriately a function of the total bill (this enhances his or her meager salary), but a donor who is considering a larger gift will, with reason, deplore the idea that the increased amount will line the pockets of the solicitor – and not fully help the charity. People who professionally migrate from the for-profit world into the nonprofit world find this ethos particularly difficult to grasp, but the difficulty of understanding a concept that has merit is no argument to abandon it.
There are also practical factors at work here. What about a pledge? For accounting purposes charities often record, not only the amount that the charity receives in that year, but the whole pledge. If a donor eventually does not pay the amount he or she has promised, even though the pledge was in a written document, how can anyone claim that the solicitor who was paid on the basis of the pledge amount – and who may no longer work at the charity – has been properly compensated? Even when the pledge is paid, the solicitor may be paid ahead of the time when the charity gets the money. With deferred gifts the idea of commissions is even worse. Even if the charity pays based on the remainder value of an irrevocable gift, which some charities have suggested to me, the fact is, aside from gift annuities (which, of course, are not deferred gifts), the charity physically doesn’t have the money – and won’t for a long time. All of this dilutes the amount available for the charity to serve its community. (High salaries and bonuses, as well as hired outside solicitors, are fodder for other questions and responses.)
A quote comes to mind (translated from Bertolt Brecht’s Threepenny Opera): “First grub, then ethics.” Of course economic considerations often play a role in how we decide to behave (Jean Valjean comes to mind), but when a charity makes the claim that it is better off collecting part of a gift than collecting nothing, I hear a specious and convenient line of reasoning. Is the only alternative to a commission . . . no gift at all? No. Good practice and success at charities over the decades prove that. A first-rate charity and a first-rate fundraiser will adhere to high and principled conduct. If a principle is solid – and the argument against paying commissions to charity employees who solicit charitable gifts is – then it cannot be watered down, even when times are tough.
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Going to the Concert - Added 1/30/2009
At the organization where I work we don’t have natural partners, such as alumni, and therefore I'm creating relationships from scratch. I strive to get to know my donors' interests, to keep them informed, and to plain old keep in touch, but there's an aspect to the process that feels artificial: it’s not really a "relationship" in the traditional way we view relationships, and sometimes I feel they cross a professional boundary. For example, a donor couple has invited me to join them at a concert. I feel uncomfortable (that good old belly test), even though I would very much enjoy the event, I would genuinely enjoy the donors’ company, and it would further the relationship. What is appropriate?
Many organizations don't have what you describe as natural relationships, yet, even though you have to work harder than those that do, such as colleges and universities, the relationships that you do create are still very real.
In either case, the question of getting too close is always an issue. In the situation you describe, though, there's nothing wrong with going to the concert. Even if your hosts pay, they are asking you as their guest. Why should you avoid what a neighbor or friend can enjoy just because you represent an organization they support – or because you want them to support it? Being a planned giving officer doesn't mean you have to give up what you appropriately enjoy. The problem would have more potential for complication if it were the other way around: if you invited them all over the place, spending money on them in hopes they will support your organization.
The ideas of "balance" and "appropriate" in ethics are subjective, not easily defined and not defined the same for everyone. If you met these people through your position you want to be careful that you don’t personally benefit inappropriately. But the cost of concert tickets, while high these days, certainly won’t assuage any guilt built up because someone doesn’t make a charitable gift. As they are donors, however, the occasional time together should pose no problem. And, if you’re concerned about being bought, the price of concert tickets is pretty paltry ransom for a seat on the board or other major perks that your organization might offer. (As question of cost, as I presume you wouldn’t have any problem accepting a free cup of coffee at their home.)
If the feeling in your belly makes you uncomfortable, by all means feel free to insist on paying your share or to decline. If they wonder why, you should be prepared to explain. You need say no more than “It doesn’t feel right to accept such a generous gift from you.” It may hurt their feelings – generous people like other people to enjoy the generosity – but forthright honesty, despite its potential for awkwardness, is almost always the best policy. Perhaps developing a written policy on this point where you work could help you in the future. If you do that, you would be able to say that your organization’s policies don’t permit a gift of any kind.
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The Free Ride - Added 1/30/2009
I am the development director of a university in the northeast and several of my donors – I know this is not unusual – live in Florida. Last month one donor asked if I wanted to save on plane fare by offering me a ride in her private jet. She said she needed to come back north after our meeting and that there was no reason for me to spend the money unnecessarily. I couldn’t make the meeting here – She was coming north anyway, so why not? – because I must meet with other people, some of them her advisors, as part of my trip. Should I take advantage of this offer? Although she is unaware of it, for a variety of reasons (her wealth is just one positive characteristic, as she is also a business leader and a good strategic thinker) I have put forth her name as a potential nominee to join our board of directors.
Are you wondering that if she didn’t know about the potential board appointment that she would be trying to bribe you? As we select trustees, especially in an era where charities need to be responsive to the public’s perception of how we do our business, (which should be in all eras, by the way) we need to be careful about motives. Even though most charities, including yours (I looked it up), have a policy of not paying their trustees, a seat on the board can mean much, such as increased status or influence over who receives certain contracts, that has little to do with selfless service.
Yet you say the donor is unaware of this possibility so she cannot be thinking anything untoward, at least as far as a board seat is concerned, and other than a jealousy-induced riotous reaction from your colleagues, I’d take the trip. At least I wouldn’t refuse it on the basis of characterizing the experience as an undue benefit.
The real and perceived value of what we get from our donors is always a question, and the answer to that question, like many of the specific answers in ethics (unlike the principles we need to apply to those questions), is not always the same. Jeff Comfort, the Executive Director of Planned and Principal Gifts at Georgetown University, tells me that the policy at Georgetown is simple: If you can’t consume it on the spot (such as dinner, for example), it cannot be accepted by the gift planning officer or any other fundraiser. In that case, the trip would be out.
The problem isn’t so often that a policy is too rigid or too lenient, but that it doesn’t do a good job of addressing fundamental questions or, worse, there is no policy that covers difficult circumstances. If you think the Georgetown policy is too rigid or too simple, it at least covers a variety of questions that never get the chance to become uncomfortable. That, of course, isn’t to say that a different policy would necessarily permit our plane trip, but any policy covering this situation should deal with the perception of undue influence, as well as, if saving money is a consideration, with the finances of a situation. In your case, given the facts as you’ve put forth, take the trip. That said, whenever anyone does anything that could be perceived as questionable, that person ought to record for the file what took place and why. Just because a question exists doesn’t mean you don’t do something, but having a record of the process by which the decision was made is always a good idea.
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Paying the Attorney - Added 1/30/2009
I was having a conversation with two professional advisors (an attorney and a CPA) and three gift planners on the subject of mailings. One gift planner presented his idea to address a letter to a “filtered” group of donors who had indicated a desire to do an estate plan and to make bequests to certain charities. It was the gift planner’s understanding that most of the donors in that filtered group did not implement plans for various reasons. Therefore, one advisor, the CPA, suggested that the charity include in the mailing wording to the extent saying, "If you have no personal attorney and no desire to visit an attorney's office, that for X-amount of dollars you can have a complete estate plan prepared by an attorney by mail."
The document preparation fee was significantly less than typical fees and the charity would use its gift planner to do the planning form to provide to the attorney. I have often thought of doing this but it just does not “feel” clean. I know these people very well. I am confident the planner and the attorney would have the donors’ best interests in mind with the paramount agenda of hoping the donor will remember the charity.
My sense is yours: no one is trying to do anything wrong here. In the situation you describe the issue is whether the charity ought to be involved with providing actual lines to a specific attorney.
Personally, I think that anyone who wants legal work performed should be adult enough to understand that he or she should go to an attorney. It's hard to believe that those in this group, filtered precisely for their interest in estate planning, would have such an aversion to seeing an attorney. If I needed an operation, you can bet I'd go to a doctor; and I’d expect the doctor to be paid.
Furthermore, the issue of whether the donor might avoid seeing an attorney in connection to creating an estate plan is absurd, and the charity should have no part of such a suggestion. And the idea of estate planning by mail doesn’t sit right either. Even though a lot can be communicated through the mails (information by email, originals and copies of important documents by snail-mail), I’m still old school enough to think that the process of deciding what to do with one’s estate – to whom it should be parceled out, at what intervals, and the like – is far too important to cut out a competent and trained human being. I too would feel less than “clean” if I were part of this plan.
Why not send the mailing to that group explaining the benefits of a bequest designation, with the suggested language to take to a qualified attorney (I’d be clear about what a “qualified” attorney means)? If the person wants to do something and does not have an attorney (which is more common than a lot of people think), you might include a statement to the effect that you'd be glad to provide a list of three to five estate-planning attorneys in the donor’s geographic area. I would go no further than that.
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