Who’s Who? - Added 9/19/2011
At our university, we send out a lot of planned giving material to prospects and donors, in addition to what we put on our website. We are inclined to use pictures and personal stories because I feel that they make the most impact. Although most pictures are of happy donors whom we identify, we sometimes use people who are not identified. In fact, some of the pictures we use aren’t even of donors. They’re just good looking, happy people. We had a gift annuity advertisement in the alumni bulletin where we used stock footage and the woman was clearly quite young – in her early 40s, I’d say. The problem is that the text described how an” eight percent payout is a very good return” for this donor – and she looked too young for such a payout. My boss said that no one would know and so not to worry. Should I worry?
 Unless that’s a trick question, yes. Other than the dilemma inherent in the commercialism-tinged messages as charities promote high payout rates in this low-interest, low-yield economic environment, the issue you are directly hitting is whether it is ethical for a charity to use in its advertising the face of someone who has nothing to do with the ad’s message. After all, we see stock footage all the time in those bucolic photos of students dreamily wandering around campus just contented as can be to attend college. Same at other nonprofits as well. But those ads are not person-specific, and I’d think that any ad where a person is front and center of the message ought to have something to do with the message. What, you couldn’t take a photo of a real person?
Or wasn’t the real donor photogenic enough? The idea of beautiful people adorning our advertising pages has its obvious logic, of course, but there are times – many of them – when reality ought to trump aesthetics. Placing a planned giving ad or message is clearly among those times. Unless the 45ish year old woman in question is prepared to admit that she’s over 80 – when rates rise to eight percent – I suggest you have a problem.
And not just because you’re asking her if she’s 80. Even if “no one would know,” as your boss so blithely suggests, the idea is not good. It doesn’t matter that no one else knows the truth if you know it’s not the truth. Besides, someone outside your office will notice. That’s just one of the main laws of life: Whatever you think you can keep secret, you can’t. But, as I say, you shouldn’t want to cover something up, as you are at a charity – a university – where I imagine that you instill ideas of academic honesty in students.
And, another thing, something I mentioned recently in another column: Stop using the term “return” when it comes to what is paid to an annuitant. It is a “payment.” A “return” is a financial benefit obtained from an investment; an annuity payment is made regardless of the investment’s success. I am adamant about this, but no more so than my (and that of many others of my vintage) dear and departed friend, Jim Potter. I am certain he smiles upon those who get this right.
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Disclosing Deferred Gift Annuity Rates - Added 7/1/2011
I’ve gotten some flack from some people about how we advertise deferred gift annuity rates. I work at a small liberal arts college as the planned giving director and, during this economic crisis, gift annuities have been very attractive. In an effort to get more people to buy gift annuities, I decided about a year ago to approach younger people with the idea that they buy deferred gift annuities – they don’t need the money now and it’s a great way to guarantee income for later years. I spoke to a 40-year old person the other day and told him that when he’s 65 he would be receiving a 14.8% investment return on his $10,000 gift, which is far better than the 3.8% he’d be receiving if he bought an immediate gift annuity. He loved it! Who wouldn’t? How can I tell the people giving me flack that they don’t know what they’re talking about?
Where to begin? Although ethics is largely about doing the right thing in the absence of legal restrictions, true ethical behavior requires applied intelligence as well. As we in planned giving are almost always talking about a time span between when the gift is established and when the gift is available to the charity (assume, for our purposes, that gift annuity assets are not used by the charity until the annuitants die), we really must understand how time affects the value of money. To be direct, and perhaps unkind: Your donor is receiving nothing near 15% on his gift. From a solely financial perspective, which seems to be your main marketing approach here, it’s not a good deal for him.
Just assume for a moment that he put that $10,000 away into a real investment and earns 6% each year. By the end of 25 years, he’d have almost $43,000. A 3.8% payment against that is over $1,600; a 5.3% payment, which is the current immediate rate for a 65-year old, is over $2,200. And you’re boasting about payments of less than $1,500?
But let’s not get hung up on the numbers. The reason your donor is so ecstatic is that, essentially, you’re not telling the truth. And not telling the truth has elements of being unethical (just sayin’). The important part of understanding this problem isn’t the math; it’s one of disclosure. The good news, if we can look at it this way, is that you’re not alone. After I got your note, I went to an online presentation of deferred gift annuities. From my perspective, not good: No one, it seems, dare speak that scary truth: time erodes the value of a dollar.
Sure, tell me that the donor is thinking about the charity, and that whatever is lost compared to the gains the real investment world might produce is a measure of generosity. I could go with that. But let me ask you: Is it fair to impose generosity on someone without his knowledge? Let me ask you: Is such a misunderstood financial erosion generosity at all?
No one at a charity should permit a donor to establish a deferred gift annuity without a discussion of the present value of money. What would this asset be worth tomorrow in the absence of a gift commitment today? If, presented with honest assumptions, the donor understands, then go for it. Otherwise, you’re cheating him. And, by the way, this topic really ought to be part of your disclosure statement.
A couple of (relatively) minor points: You don’t “sell” and your donor doesn’t “buy” a gift annuity. Despite all the marketing hype to the contrary, making a charitable gift is first and foremost a charitable act, not a commercial transaction, and your vernacular should reflect that. Also, an annuity – gift or commercial – is not an investment; it’s a payment in exchange for transferring an asset. What happens to the asset after the exchange is irrelevant to the promise of payment.
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Unjust Rewards - Added 5/10/2011
I know a development director who ingratiated himself with an elderly donor. When the donor died, she left the development director, personally, some hundreds of thousands of dollars in her will. I don’t like that part at all, but I like even less that it seems that he took extra care to make sure he would get something from her estate. In fact, I think she told him that she would leave the money and that’s why he took such good care of her – which, to me, is an injustice. And, on top of that, her prior will called for three charities to receive bequests; while the bequests were not canceled, the charities were left with a lot less than they would have been. I work at one of those charities and feel good work will now not be done because of someone’s greed. There’s something really wrong here.
I feel your pain. When we do the work to cultivate a prospect and are told that he or she intends to leave a bequest, it feels almost as if someone is stealing something that we’ve earned. My first question is: Would you feel the same way if you knew the donor decided to reduce your bequest so that another charity would benefit? While you might be upset, I doubt you would feel the same level of injustice. You might feel you could have cultivated the person better or that she may have changed her charitable passions, but I sense that what you feel now would be different. The anger may stem, therefore, from knowing that an individual – not a charity – edged his way into her life to such a degree that she wanted to do something nice for him.
This happens all the time – welcome to the world of recently deceased rich people. The law is clear that people can leave their assets to whomever or whatever they want. This is not just a nod to a law to avoid an ethical question – the law is a function of a solid ethic: what is ours (don’t think about the estate tax for this situation) can be directed wherever we wish, during life and at death. There’s nothing wrong with that. And that a fundraiser benefited from an individual’s gift is, quite frankly, none of your business. (Much discussion has taken place on this point, and most people contend they wouldn’t agree with me on this.) It is the business of the person and, to some extent, the charity, however, and the charity might rightly have a policy that discourages accepting estate gifts from donors. (But even there, if the recipient took it to court he or she would probably be told the gift is acceptable.) The ethic you’re looking for, therefore, is that which resides within the individual. But who are you to tell someone else what an acceptable gift is? What if someone whom you knew before she was a donor, became a donor, died, and then left you money in her will? Would that be different? Either way, the person is making up her own mind. The key is that the decedent has made a decision that is not only lawful, but also ethical. Or is allowing someone to make up his or her own mind a problem?
And on the matter of ingratiating himself to the donor, I’d be careful before throwing stones. Fundraisers, and in particular planned giving officers, are famous for doing nice things – behavior that is intended to gain favor – for prospects and donors. It wouldn’t take much for an outside observer to conclude that such behavior is the same as ingratiating. When we breezily throw around the phrase “friend raising” as one prism through which to understand what good fundraising is, we might take care to predict the consequences of a job well done.
Of course, if the person in question didn’t make up her own mind, but was unduly persuaded, or was non compos mentis, we have a whole different kettle of fish. A person taking advantage of that would be unethical and would be, I believe, in most states, acting unlawfully.
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Ethics of Discounting - Added 2/10/2011
I know we need to discount gifts to calculate remainder values; but, from what I can tell, it’s not black and white, even though I always thought the IRS method was an absolute valuation process. When we aren’t valuing the present value of a unitrust, annuity trust, or gift annuity, however, how should we discount expectancies? My financial director says we should use a high discount rate because that makes the present value conservative. I understand that an amount due in the future must be discounted but I always thought it should be connected to inflation. How should we discount future values?
Unfortunately, most people think that when a mathematical process is involved, if the formula is correct, the result is certain. In fact, most of the time the opposite is the case. While it may seem difficult to discount a value by, say, 10 percent a year for five years, that process is actually quite simple. We can all agree on the number that emerges – 59 percent. But who’s to say everybody agrees on the factors – in this case, 10 percent and five years? The IRS’s calculation takes into account actuarial tables for one of those factors – life expectancy – and no one seems to have much problem with those assumptions, but what about the discount rate? (Ever wonder about what’s being discounted, especially as the deduction is higher when the discount rate is higher? Short answer: for annuities, the income value; unitrusts and pooled income funds work slightly differently.)
The bone of contention lies in the discount rate. The IRS dictates the rate we use for split-interest gifts, but nothing guides us when discounting values for other purposes. Should we discount at the rate of inflation (which has been rather low lately)? Or a charity’s actual increase in spending (which is often higher because the cost of programs has traditionally been higher than inflation)? Or what about something called “opportunity cost” (the amount the charity does not earn because the amount is not being invested, often the highest rate of the three)? Deciding the rate to discount an expectancy is fraught with subjectivity, and, if the result steers anyone into analyzing the success of a planned giving program – and certainly if salaries become dependent on it – the process is very much ethics-based.
I once had to deal with a finance person who insisted that the entire planned gift expectancy portfolio be discounted by the average market growth over the past five years. This was in the mid-1990s, when the stock markets were soaring. And you are right: the higher the discount rate, the lower the resulting present value. The difference between using the inflation rate and the opportunity cost rate was a whopping (and disheartening) $50 million. That is, the finance person claimed that the planned giving effort resulted in $50 million less than everyone thought. And this was already a fairly sophisticated group.
That story ended with the charity using a rate something above inflation and below its annual cost rise. The staff documented why and how the rate would be determined, which is most of the battle when it comes to making subjective decisions. It also mattered – to the trustees if not to the finance person – that using the opportunity cost made no sense because the money was never available to invest in the first place. Some finance officers think that a deferred gift is an option, that the donor merely chooses not to give the whole amount outright, that if fundraisers were really doing their job donors would just give it all at once, now.
But that can go the other way, too. If you don’t like 59 cents on the dollar, just use a discount rate of five percent: your work is all of a sudden worth 77 cents.
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Benefits to the Charity - Added 1/12/2011
My boss reports our planned giving numbers on the basis of realized bequests, and not on the gifts that have been established during the year. Last year was particularly good from that perspective – seven people died and left us more than $1 million – but it doesn’t represent the work that I did. But if I reported out the numbers based on what gifts were established, I wouldn’t look very good. I feel like I should keep my mouth shut, and let the trustees think I’m doing great, but something tells me that they should know the truth.
Truth, when it doesn’t put anyone’s life in danger, is a good thing. In this case, however, as with so much about planned giving – and, let’s face it, life itself – truth can be complex. The trustees are getting the wrong impression about your abilities if they think that you brought in – that you “raised” – over $1 million last year. You didn’t. Unless you were responsible for the demise of any of your donors, all you did was take phone calls and open letters that informed you that the money was coming your way. Quite frankly, you’re being rewarded for the wrong things. Anyone can open a letter. If anyone should be congratulated for a realized planned gift, it’s the person who was in your office 20 years ago, the guy or gal who was responsible for securing the commitment. Or the person who stewarded the donor after. Or the person who stewarded the donor after that . . .
It’s not all that complicated, but far too many executives and trustees don’t understand the difference between what comes in to a charity as a result of someone’s death and what is established by the work planned giving officers do each year. Just because we probably won’t be around when the fruits of our labors are eventually evident doesn’t mean that planting the seed should play second fiddle to a check coming through the door.
Your daily toils should be rewarded. In today’s metrics-crazed nonprofit management environment, you should be able to report out the number of visits and proposals you create each year, as well as the number of gifts – both irrevocable and revocable – you are responsible for securing. That information, along with the amount that was actually realized, should be part of the reported planned giving progress at your charity. And don’t let anyone tell you that getting a bequest commitment is unimportant. That it is revocable should be irrelevant:
- you’re doing your job,
- almost all bequest commitments are realized as intended, and;
- the vast majority of realized planned gifts are bequests – and not trusts or gift annuities. There’s money in bequests, and it is the foolish charity that doesn’t reward efforts to secure them.
Many deferred gift commitments also have a dollar value attached to them. And again, more than meets the eye ought to be reported: the current value of the amount that funds the commitment as well as its present value will provide the best picture; that is, to say only that you raised a million dollars when a donor funded a unitrust for $1 million is disingenuous. What you actually raised in gift commitments is a matter of some opinion, but the results of a legitimate growth and discounting process – such as the methodology the IRS uses to determine a remainder value – are certainly not beyond the comprehension of anyone who really cares. Trustees and senior vice presidents of development are in that group, and they need to engage in understanding the realities and results of fundraising.
The ethics of the actual process are not the concern here (next time). What is important is that organizations are truthful about reporting what they raise. You are right to be concerned . . . and you are not right to keep your mouth shut.
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How Much Salary - Added 8/2/2010
The fundraisers, including planned giving officers, in our organization receive a bonus every year. This past year the bonus was small – but most people, as far as I know, got one. Whatever the amount is, however, it always seems to be correlated to the amount of money we’ve raised over the year. My concern is, after reading the fourth point in the Model Standards of Practice for the Charitable Gift Planner, whether our bonuses are really commissions, as they are tied to what we bring in. Is this right?
The average person might wonder why anyone raising money for a charity should get anything above his or her salary. The argument that there was enough left over – that, in effect, the organization was flush after the end of the year – doesn’t always resonate with people who are told that charities never have enough money, which is the explicit message in a fundraising drive. (Some people wonder why people at charities are paid anything at all – but that’s a different kettle of fish.) Fundraisers are hardly average people, however, and many are quite used to receiving a bonus for a job well done.
Each charity has to live with itself. Its leaders must weigh the value of money to be used for programs against honoring and incentivizing those who bring in the money. A bonus is a very capitalistic – as distinct from a nonprofit – concept. Even though fundraisers work for nonprofits, it’s still a jungle out there for those who sell the product.
It could be that the word “bonus,” when everyone’s is related to what was raised, is simply a substitute for the dreaded word “commission.” It’s a fine line. The concern when both the PPP (then NCPG) and the AFP (Keeping track?) ethics committees were originally meeting was that donors get the correct impression that charities don’t squander their money on salaries and other forms of payment to individuals at the expense of programs. A commission is seen as especially unseemly – more so than a high salary – because the fundraiser presumably has an incentive to scalp unsuspecting donors to line his or her own pocket, the point of the exercise – furthering the mission – lost in the heated greed of it all.
Another issue, especially for planned giving officers, is that the money raised is not equal to the money placed in hand. The money in hand is often zero, so how do you pay a bonus based on that? And, yes, bonuses, if they are to be, should be paid from money in the bank and not based on imprecise promises to be made good well into the future. Major gift officers face a similar dilemma: pledges.
In a pure world, there would be no bonuses. Salaries would reflect good work; dismissals would reflect poor work. But the search for ethics cannot require purity in all, or even most, cases. So, in the end, a bonus, properly evaluated, even though it may be connected to the performance of the fundraiser, can be a legitimate way to say thank you. A solution might be to calculate the bonus amount from all the charity’s revenues and what the budget will bear, and grant everyone the same dollar bonus. Or delineate two or three categories of amounts. Or go to work for New York Life.
A determination at the end of the year separates the amount from the success of any one transaction, and that determination can take into account the work – if not the amount actually realized – fundraisers perform to acquire commitments of both current and future gifts. (And, no, a bonus should not be tied to the bequest from the billionaire who died last winter, the one who was originally cultivated eleven planned giving officers ago.)
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Gift Annuity Reserves - Added 7/9/2010
We’ve had several gift annuities go south – south of south, actually, to the point where we have used up the original gift amount and now must make payments from other sources from within our gift annuity pool. That is, from other people’s gift assets. Is this right? How can we avoid doing this, as we are obligated by law to make payments, even if the original money is all gone?
This shines a different light on the question about offering rates higher than those recommended by the American Council on Gift Annuities (see the July 2009 column). When I was introduced to planned giving (in the 1970s), everyone, as I recall it, said that a gift annuity was the “easy” gift, the gift that requires only a simple one- or two-page agreement and no messy trust language. There is no confusing four-tier taxation system, and the gift annuity generated a predictable income (it’s not “income” – those checks represent “payments,” but that’s another matter). Simple, no fuss planned giving.
Until it got complicated. Like when all those growth predictions went south.
Today, I know of many gift annuities that are, like many mortgages, under water; the asset base will ultimately not withstand the payments. For example, a seven percent payment on an asset that is now half as large as it was originally because of depleted investment returns is now a 14 percent payment. The life span of the asset representing the gift may be shorter than the life span of the annuitant. Why we get into these messes is a topic for another day, however; the issue now is what to do.
Whatever is done ought to be the result of a policy that addresses this situation. Most organizations don’t have such extensive policies, however, and, like you, are stuck between the need to make payments and the need to find a source for those payments.
If you pay from the reserve pool, you effectively reduce everyone else’s gift. All donors are affected and will eventually make a lesser gift than would otherwise be expected. How right is that? Perhaps that would be the best policy, however, bad as it may seem, if there were a policy that clearly spelled that out. That way everyone knows the deal before the gift is made. (Want to bet how many gift annuity disclosure statements address this issue?) Another possibility is to make the payments from another source, from somewhere in the operating budget – not that it would be a popular choice among those depending on the charity’s budget to fund their programs.
But what else can you do? The constant in the decision-making process is the absolute need to make the payments. From there you have options – but whatever you choose, you should do so with a rationale with which you are comfortable and which is outlined in a policy.
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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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