Ethical Boundaries: Walking the fine line in Planned Giving

Dear Blog readers,

Let’s be honest.  When it is your job to raise funds (planned gifts or otherwise) for a charitable organization, there is almost no way to stay completely free of ethical boundaries.  It is very easy for bloggers and pontificators of the world to cry out at the injustice of a hospital attempting to woe a very peculiar billionairess (at least that was what we guessed she was) who decided on her own to live her last 20+ years in Beth Israel Medical Center in New York City.

Yes, I am back discussing Huguette Clark – the mysterious, reclusive woman who lived over 20 years at the hospital where I was planned giving director from 2004 to 2006.  I never met her, had no idea where in the hospital she was, and only speculated at the time about how Beth Israel might somehow be included in her estate plans (if she decided to ever do one) and  maybe rebuild the hospital (that desperately needed a rebuild).

One of my bosses was one of the very few who actually met with her: once a year on her birthday!  Yes, the former president had a relationship with her and tried to encourage giving, succeeded to some extent but failed (at least in our minds) at obtaining a transformational gift (that she could have given). Yes, I tried to get her accountant (at a luncheon) to let us know if she had estate plans and if Beth Israel was in them, and no, he did not give me a straight answer.  While enjoying the salmon, he did remark that if only Beth Israel had truly catered to all of Ms. Clark’s needs, they might have received something really big.  In other words, his message to me was that Beth Israel blew it with Ms. Clark.  The hospital was a hospital, after all, and they moved her around several times (obviously for various reasons that had to do with running a hospital and not a hotel).  In fact, the rumor was that when Beth Israel was forced to sell Beth Israel North (Ms. Clark’s original location in the hospital at their Upper East Side branch), Ms. Clark was approached about potentially contributing funds to help Beth Israel not have to sell the building.  And, she turned them down.

The point of this post, which is really a repetition of similar tidbits that I have written about over the past two years on this story, is that the print media has picked up on the lawsuit by Ms. Clark’s long lost great, great half nieces and nephews (I challenge everyone one of them to prove that they or their parents or their grandparents ever met Ms. Clark face to face).  And, the story is showing a very negative light on Beth Israel fundraising tactics and on fundraising/planned giving in general.

Here is an example of a Huffington Post story from yesterday:  The title says it all:

Were Huguette Clark’s Donations To Beth Israel Part Of A Hospital Plot To Game The Elderly Heiress?

You can see where these stories are going.  It’s not right.  Yes, fundraisers strategize on how to best ask someone for money.  Yes, fundraisers have to sometimes be creative.  And, yes, sometimes lines are crossed.

But, in this story, I am screaming to the world – based on the information that I picked up as fundraiser at the institution in question – Ms. Clark was not “gamed” by Beth Israel Medical Center.  She obviously had some personal issues and for whatever reason decided to pay “rent” to live in a hospital.  Hospital rooms are expensive.  That was her choice.  And, she saw right through their fundraising attempts and gave them what she felt was appropriate: not a lot in scheme of things.  Out of a $300 million dollar estate (which could have been much larger), she left $1 million to the hospital.  That is like saying: thanks but no thanks.

And you know what, that was her choice!  What is lost in this story is that Ms. Clark decided, in the end, to leave most of her estate for other charitable endeavors: art museums and the like.

And you know what, her long lost family – who squandered their family wealth generations ago – are nothing but a group of greedy, good for nothing, descendants of decadent rich people from the turn of the century.  And, it shows.  They are attacking Ms. Clark’s will, and now the institution which actually took care of her, all in the name of grabbing her money and not letting it go to where she wanted.

Who knows when and if any funds from the Clark Estate will reach their intended destinations?  I truly hope that the Clark Estate and Beth Israel take tough stands against these law suits and destroy the family’s last cents on attorney fees.

Story behind the story

Huguette Clark

I hate to publish this one but it is out there and it is a major planned giving story.  The NY Times, of all publications, has jumped on the bandwagon of greedy, “long lost” relatives of the late Huguette Clark.

Here is the link to a NY Times article ( detailing the latest accusations regarding one of the most unusual planned giving stories ever told (search my blog for all of the links and stories I’ve written).

Basically, you are seeing in this article, based on court papers, hospital fundraising operations exposed in a very negative light.  The problem is that I can personally testify (having been the planned giving director at the hospital in question between 2004 and 2006) that the story is utterly skewed!  Beth Israel, for the most part, had very high standards of integrity and the former President’s efforts to secure donations was a matter of someone doing their job!

I could go on and on about this one.  The story behind the story is really about a greedy family that never met Ms. Clark in person, several generations removed from half-siblings of hers (who were already a generation older than her and probably hated her for being a “love child” of their father in his old age).  From the little I heard about her when I worked there, it sounded like she called the shots and knew exactly what she was doing !  The media on this one and the ongoing lawsuits are only about a sorry bunch of descendants from a formerly wealthy family making a desperate lunge to get some cash out of someone that they had the slimmest of connections with.

Learn something new everyday – Donor investing donated funds? Possible?

I got one of those questions that throws off most planned giving professionals:  Can our donor give us a chunk of funds and “advise” on the investment of the gift?  (this was a donor who already had committed his entire multi-million dollar estate to the charity but was now getting fancy, thinking that he was a great stock picker – which he is but not something the charity wants to deal with).

You are thinking – please no!  That is what I was thinking.

So, doing my due diligence, I figured that if a donor is the co-trustee of a charitable remainder trust (“CRT”), he could manage the funds.  And, most of the trust income could be sent to the charity (as one of the income beneficiaries on a term of years CRT) – donor clearly didn’t want income anymore.  Letter rulings allow a charity as an income beneficiary of a CRT, as long as a living taxpayer is also receiving more than a “di minimis” payment (ie..someone is paying some taxes!).  The lowest above “di minimis” payment in the letter rulings was 5% of the CRT’s payout.  What a cool idea I thought.  A bit complex but would give this donor 20 years to invest funds and 95% of the CRT’s required payments would go to the charity towards his existing endowment.

But, I also wanted to confirm that letting a donor have say over an investment account was a big time “no-no”, so I went to the web.  Incredibly, I found out that there is a relatively recent letter ruling that ALLOWED a donor to be the investment manager over his donated funds, in a segregated account, under a handful of limitations and caveats.   If you are interested, click through to the below Planned Giving Design Center news story from 2004 (the letter ruling is still valid to whatever extent letter rulings are legally):

You learn something new everyday!

Planned Giving Ethics – Merrill Lynch Case Part 1

As mentioned last week (see ), there was a recent court ruling out of the State of Delaware regarding a really botched charitable remainder trust situation.

Rather than trying to review the entire case in one post, I plan on writing short posts related to the many ethics issues raised in the case. In other words, I think the case itself is great for training purposes – getting accustomed to the nuances that we planned giving officers should be aware of, but the ruling itself should have little or no impact on the field.

If you try reading the case (, you’ll see some nice biographical info on the victims but here is my short version (at least the relevant facts):

Husband and wife (she is 75 and he is 10 years or more older) save over $800,000 in Esso/Exxon stock from his career, their nest egg. At some point, the husband comes to rely on a Merrill Lynch broker and instructs his wife (not typically involved in the family finances) to stick with this guy’s advice when his health starts to deteriorate. Sadly for this family, the wife listened to her husband on this issue and followed the advice of the Merrill broker to put their entire Exxon stock nest egg into a 10% Charitable Remainder Unitrust (CRUT), income for lives of husband and wife, and then to their 3 children, before eventually distributing remainder funds to 5 charities in approximately 50 years. This was finalized in 1996, before the 10% remainder rule came into effect – their deduction on this $840,000 CRUT was less than $10,000.

The first lesson: A Merrill Lynch stock broker, or any other stock broker or insurance salesman or financial planner, is NOT YOUR ESTATE PLANNING ATTORNEY. Even if he has a law degree or even practiced estate planning law. He is a salesman who is selling products or investments. Your attorney is someone who represents only YOUR interests, not the interests of the commissions to be had from selling various products to you.

In other words, beware of Merrill Lynch guy’s estate planning advice.

In truth, this also applies to planned giving officers.

The take way for planned giving officers is to remember and communicate that donors need independent counsel, their own attorneys, to review various plans that have any impact on a donor’s estate. Educate your donors not to rely on you or their Merrill Lynch stock broker for estate planning, especially significant parts of an estate.

To be continued.