Planned Giving Related News Stories

Never, Never Cut Corners

Image result for cut corners

I am working on a case where a nonprofit accepted around $1 million – transferred from an overseas account – around 20 years ago.  In the letter of instruction to the bank, it stated that it was a gift.  In subsequent letters to the charity, one of which was notarized, the donor again stressed that the funds are a completed gift to this charity.

What went wrong?

The donor immediately offered to invest the funds on behalf of the charity.  Their mistake – they let him set up a brokerage account in the charity’s name and gave him carte blanche authority to trade in the account.  20 years later, charity has never touched the funds, $1 million turned into $6 million.  And, he also reconnected with family (who he had been apparently looking to cut out of any potential inheritance). Now, he wants his grandchild to receive most of the money – his offer to the charity: “keep the original gift amount and write a check to my grandchild for the rest.”

Oh, this is a mess.  The donor, now in his late 80s, still thinks the money is his.  And,  you know what? He has a point.  Yes, legally the funds have not been his since he put them in their account. But, he never took an income tax deduction and they never severed the cord.

Their actions lended credence to his “mistaken” belief that he somehow had some interest in those funds and a court or the attorney general will certainly not appreciate their willful ignorance of basic nonprofit law regarding controlling investments – a clear “no-no” under any circumstances.  To boot, charities have no business encouraging donors to impoverish themselves in their favor a charity – it reeks of undue-influence or collusion in tax or other fraud.

The morale of the story: don’t cut corners, don’t cut side deals. Call competent counsel. Your charity may live to regret it.  Both sides in this story will be lucky to come away without an FBI investigation of what’s really going on.



It’s started…..

Tax reform – yikes! Always supposed to simplify but always ends up being more complicated!

If you are a nonprofit/fundraiser, you should be concerned. Presidential proposals in the past have been very frightening to nonprofits who rely mainly on tax deductible gifts. So, what are we facing?

  1. Firstly, we are a long way from anything actually happening but we do have some details on the Administration’s’ proposed plans.
  2. Good news – It’s official – the income tax deduction isn’t being tampered with.
  3. Not sure news – the standard deduction would jump a lot (ie… 2016 for married joint return is $12,600 – would jump to $24,000). In other words, many more people will no longer “itemize” on their tax returns – maybe this deincentivizes those from giving because their gifts no longer get them a cash rebate?  More on this below.
  4. Also not sure news – no more death tax.  Ha ha. Last time a president fulfilled his promise to eliminate the estate tax (2001), he actually increased it in many places and it almost swung back to huge rates in 2011. In any case, the roller coaster years of ending estate tax to the snap back year to a decent fix actually didn’t impact planned giving numbers! I don’t think there will be an impact on bequest dollars to charities but I do think I may be very busy dealing with whatever cockamanie scheme they come up with (ie…return of carry-over basis 🙂

Back to #3 – I already saw a Forbes article claiming that the increase in the standard deduction “could decimate charitable giving.” Click here for that article but please read my response!

I totally disagree with that article’s point.

Here is another quote from the article:

The House tax reform blueprint said that a $24,000 standard deduction for joint filers would reduce the percentage of American taxpayers who itemize and take the charitable deduction from 25% (one out of four taxpayers) to 5% (one out of 20).”

Sounds catastrophic except for the fact that most charities receive 80% or more of their fundraising dollars from the top 20% echelon of their donors – and those 20% will likely continue to itemize.  Trust me, your major gift donors have more than $24,000 in itemized deductions! I have way more than that!!! (and I’m not anywhere near being a major gift donor – nowhere near it in fact;(

Anyway, take a look at these charts from my training programs:

One Day Boot Camp - AM Session 1 Introduction and OverviewOne Day Boot Camp - AM Session 1 Introduction and Overview 2

Americans give consistently – regardless.  2% of disposable personal – 2% of the economy.  The dips happen when people are poorer – not upset about taxes.  SO, the administration argument that people doing better in general is better for nonprofit fundraising is TRUE!!!!  Put more money in their pockets and they will give more.  This next slide on total US giving – inflation adjusted since 1975 – makes that point especially in light of the above slides. Giving over those years just went up and up but the percentages of disposable wealth and GDP stayed flat!!

One Day Boot Camp - AM Session 1 Introduction and Overview 3

Ok, so how could charities get hurt by the increase of the standard deduction? Well, older people might be impacted who don’t have all of the deductions that younger folks have.  They may start getting less benefit from their charitable giving – that is true.

Ah, older meaning age 70.5 and up – just happens that at that age, you are eligible to make direct IRA rollover gifts – no taxes.  This is already a great deal for seniors who don’t itemize and if this change happens, you need to step up the IRA rollover marketing!

Maybe we can convince the government to allow direct rollover IRA giving from age 59.5!! That would be really cool.

We’ve just begun with the big tax changes. Stay tuned!

Trump Tax Plans – Good, Bad or Ugly for Charities?


Here is the really brief summary of some of the so-called Trump tax pre-proposal/rumors that might effect charitable and/or planned giving  (he isn’t President yet so I wouldn’t call these a proposal yet):

  • 3 income tax brackets: 12%, 25%, and 33% (obviously, those in the 39.6%/43.4% with Obama care tax will save a lot of money! – probably no significant impact)
  • Goodbye estate tax (we have seen this before – since tax cuts generally must be revenue neutral, we might see the same old hocus pocus to make it “work” which usually means more business for estate planning attorneys;)
  • Lower capital gains rates for those currently at 18.8%/23.8% rates with Obama care tax (not great for life income gifts like charitable remainder trusts)
  • Cap the total amount of itemized deductions at $100,000 for single filers and $200,000 for joint filers (yikes: this could get interesting, probably a boom for Donor Advised Funds in the short term)

According to a CBS News article (click here to see), advisors might be rushing their clients into up-fronting charitable giving before year’s end to maximize deductions just in case some of Trump’s plans actually come to fruition reducing the charitable deductibility of major gifts in future tax years.  The last bullet point is huge on this point – major campaign givers may want to consider the advice in the article!

After following tax law impacting charitable giving for close to 20 years, I am always hesitant to get ahead of ourselves – campaign discussions and even actual proposed presidential budgets rarely look like anything in legislation that is actually passed.  So, let’s chalk up any hysteria that pushes donors into speeding up gifts (even to donor advised funds) as a good thing and wait to see what really transpires.

To Sue or Not, That is the Question

duke law suite picture

Click the picture (or here for a PDF of the article Duke University Makes Claim on Estate of Aubrey McClendon – WSJ) and check out an article about how Duke University filed a claim against the estate of the late Aubrey McClendon for close to $10 million in unfulfilled pledges.

We have no doubt that the pledges were legally binding.

What we should be doubting is whether this was the right move by Duke or not.  $10 million is a decent amount of money, even for Duke and its $6+ billion dollar endowment.

But here are a few questions I would have hoped Duke considered before embarking down this road:

  • What is the likelihood that this story will end up on the front page of the Wall Street Journal – embarrassing the university and possibly sending a chill towards major donors making legally binding commitments (by the way, someone from Princeton told me that their policy is make all pledges NON-legally binding)?
  • What is the likelihood Duke will receive their share considering Mr. McClendon may not have any wealth left by the time they get to unsecured creditors like Duke?
  • What if it turns out that Duke will be taking funds while McClendon’s widow and/or kids receive nothing due to the state of his finances?

I am a huge fan of using legally binding pledge commitments when appropriate and even filing claims to collect on them – when appropriate.

But here, I wonder if this was the right move.  I know they had to file a claim before the deadline – and only afterwards will they know the answer as to whether there is enough to go around.  Still, the first negative bullet point already came to fruition today.