Planned Giving Nightmare Finally Winding Down

For longer term followers of this blog, you should recall the Huguette Clark story as one I reported on regularly.  You can read my posts on this story (click here for older posts), or the tons of internet articles, or even the book (and possibly movie)!  Just do a google search on her.

My interest, in brief, was that for a period (apparently the crucial period) of time in the mid-2000s I was the Planned Giving Director for Beth Israel Medical Center in New York, where Ms. Huguette Clark (a reclusive heiress) lived for over 20 years – paying rent and other costs to stay in the hospital.  The youngest daughter of William Andrews Clark (1800s Copper Baron, U.S. Senator, Wealthy Celebrity), Ms. Clark only did her will very late in life, and of course, did two of them within a month or so (at the same time I had her accountant at one of our planned giving events – to see if he would offer any clues as to whether the hospital might be in for a large bequest).  We assumed she had over a billion in assets (she passed away with over $300 million), so she was actually the “great hope” for Beth Israel to rebuild itself, if she, of course, would put Beth Israel in for 10% or so!  Wishful thinking.

In the meantime, the hospital did a wonderful job caring for her as she lived to 104 (even though she was a wreck when she arrived at Beth Israel 20+ years earlier).  And, Beth Israel’s bequest, in her second will, was only for $1 million.

What was worse, though, and why this was the ultimate planned giving nightmare, was that her great, great half nieces and nephews (or whatever distant relationship you can think of), none of whom (or their parents or even grandparents) even met Ms. Clark while she was alive, had orchestrated a campaign to smear her advisors and caregivers, and create a case for challenging her estate (which cut them out, for the most post and left everything to charity and her nurse and some friends).  They only succeeded in wresting $30 million or so from the estate (paltry considering the legal fees they probably incurred). But, they got one last bite at the apple – the settlement with the estate allowed the family to pursue Beth Israel Medical Center for the money they “stole” from Ms. Clark over the years. (Not sure if the Estate was still pursuing Beth Israel or somehow the long lost relatives were)

It is a great story, by the way, and I do recommend checking out Empty Mansions (http://www.emptymansionsbook.com/) by Bill Dedman. But, the planned giving angle has to do with trouble organizations can find themselves in. I am sure that Beth Israel spent millions of dollars in legal fees dealing with this case – just my guess.  And, for what? A million dollar bequest?

Anyway, the case is finally, finally is ending!  Guess what? The family missed the statute of limitations! “A Manhattan Surrogate Court judge, Nora S. Anderson, ruled last week that the statute of limitations had expired for the estate to argue that officials at the hospital, Beth Israel Medical Center, had manipulated Ms. Clark into donating.” That is from the New York Times’ reporting on this one. Click to see that story.

Ironically, Ms. Clark and her case outlived almost everyone involved – even the hospital that took care of her.  Beth Israel Medical Center is now owned by its arch rival Mount Sinai, so as a former Beth Israel guy, it would not have bothered me so much if Mount Sinai took a big hit on this one. Still, it bothered me how dedicated these long, lost relatives were to grabbing money from Ms. Clark (they were descendants – grandchildren and great grandchildren of Ms. Clark’s older half-siblings – all of whom were adults when Ms. Clark was born in 1906 – all descendants of a formerly wealthy family that squandered their wealth along the way).  This was their last chance as getting something.

Anyway, one last quote from Beth Israel’s doctor should send chills up our planned giving spines:

In 2000, Ms. Clark donated Manet’s Pivoines dans une bouteille (Peonies in a Bottle), 1864. When the painting sold far under its expected price, one doctor sent an internal memo that read: “I told her about the disappointing price of the painting, but she didn’t take the bait and offer a half-dozen more.”

Having been on the “inside” at Beth Israel, I can testify that there was no conspiracy to unduely influence Ms. Clark.  She was in charge, not the hospital.  It was only wishful thinking and some rather unpleasant statements that should never have been put to writing.

If you made it this far, you have to see this next post about a stolen painting of Ms. Clark’s that the F.B.I. recoved only to gift it to the purchaser’s favorite museum.  Click here for that one.

What’s wrong with this picture?

Clinton Foundation snap shot

Yes, the Planned Giving Blog is apolitical but there are times when I can’t resist getting into the spirit of politics – especially Presidential elections when they cross over into my territory! (For fun and a little education, of course!)

What caught my attention?  A little article this morning on Foxnews.com entitled “Half of Clintons’ charitable giving in 2014 went to their own foundation.”  Check out the article by clicking on the title and then come back here to read the rest!

So, I got into investigative reporter mode this morning and starting checking out the most recent 990s.

Here is what I found.

#1 – Yes, the Clintons contributed $3 million or so in 2014 to their small private foundation – The Clinton Family Foundation (CFF).

#2 – CFF granted out around half of its holdings to nonprofits in varying amounts between $5,000 and $200,000 to various good causes (I’m sure – it included a client of mine!) around the country.

#3 – The other half did stand out  for 2014 Calendar Year: a grant of $1,865,000 to The William J. Clinton Foundation (PC – Public Charity)

Now point #3, of course, is strange. Presumably, the Clintons are involved plenty already with this public charity, The William J. Clinton Foundation (now doing business as the Bill Hillary and Chelsea Clinton Foundation – let’s refer to it as BHCCF).  Why not just donate that $1.865 million directly to BHCCF, a full fledged public charity? Maybe a little better deduction on their tax returns?  Actually, there is no difference for them on the surface.  The charitable deduction is not affected either way. And, BHCCF’s public charity status seems pretty solid (at least on this issue!) – this $1.865 million won’t impact it as far as I can see with their public support test.  Hmmm – why all of the subterfuge?

#4 – The above picture – here it is again (click picture to see larger view):

Clinton Foundation snap shot

This is a snapshot from BHCCF’s 2013 990 tax return. It is showing the totals of their fundraising events in 2013.  Did you notice that their 14 events or so actually lost money?

You could say that is certainly not out of the norm but not at this scale.  To run 14 or more high end events like these, with the costs and revenue associated with them, you would need a team – a pretty big team of full time staff working their tails off. And, for what? To lose over $800,000 for the organization.  What about the cost of probably 10 or more full-time staff members dedicated to running these events?  The loss is probably more like $2 million, if you add in real staff costs like salaries!

If I were investigating this foundation, I would want to know why they are spending so much money and effort on so-called fundraising events when they are clearly not designed to actually raise money.

In other words, what I am looking for is whether these events are not really to support the charitable mission of the foundation (obviously not doing the job financially) but rather some other purpose (i.e. getting someone elected President – which actually is a pretty big issue for a public charity whose status also rests on the fact that politics must be severely limited if you want to keep your public charity status).

Last lesson – Step Transactions.  I was an attendee of the S. Prestley Blake Law Center (building name of my law school), who just happens to be the founder of Friendly’s Corporation and also the taxpayer in one of the most infamous tax law cases (Blake  v. Commissioner of Internal Revenue Service). That case set down the principle of step transactions, which means that you cannot do something indirectly that you couldn’t do directly (i.e. gift funds for a deduction to one entity that sends it to another which really shouldn’t have public charity status after all). Is this the answer as to why bother funneling funds through CFF?

Alright, this was a fishing expedition.  I was just wondering if any nefarious tax or charitable issues would jump out at me.  That event spreadsheet in the 990 hints to some serious issues with the public charity status of the BHCCF – which on its face should be questionable in any case.  Someone seeking higher office, has huge “public charity” foundation at her beck and call, and runs presumably high end events that lose money hand over fist.  Maybe, just maybe, much of the rest of the BHCCF activities are way over board towards helping Hillary’s election campaign.  Of course, this isn’t a headliner issue, is it?  Oh well, maybe next time.