bequest pledges

Biggest Giver in 2011? A Planned Giving Donor, Of Course!

Let’s face it, planned giving is a stepchild in the fundraising world.  Between the struggles for immediate cash, to the complexities that planned giving programs can create, it seems that fundraisers quite often just leave the planned giving efforts for another to deal with.

But, year after year, I notice that bequests in particular are always among the largest gifts reported by the Chronicle of Philanthropy.

Here is a very interesting list of the Chronicle’s top 50 givers in the U.S. in 2011:

The number one giver – by far – a bequest donor.  The number two giver also a bequest.

In fact, 10 out the 50 largest philanthropists in 2011 were bequest donors.  I didn’t count the dollars but clearly bequests represented well over 50% of the mega gift dollars given in 2011 – not bad for the stepchild!

Pledge Enforcebility: Don’t Try This at Home

I am a major fan of irrevocable bequest pledges (another $1+ million one closed last week for a client:) – with the strong caveat to be careful!

Anyway, the topic is really pledges, enforceable or not. If enforceable, what about when the donor dies?

I just wrote a white paper on this general topic (which I will post soon), and plan to also write on the sub-topic of using pledges for bequest intentions.

But, as a preview for my blog readers, check out this bequest story:

In short, a NY charity is “suing” (or, probably more like filing a claim in the probate court and forcing the court to overrule the executor’s decision to deny the claim) the estate of late Detroit Pistons owner Bill Davidson on an unpaid “pledge” of $5 million.

There are a bunch of stories in the press on this one but only the linked article got a little further into the facts. If I were the judge, I would want to see the written pledge agreement. I would also want clear proof beyond a piece of paper that the charity put this binding obligation on their books, provided sufficient recognition in exchange for the promise, really relied on these funds to their detriment…

I don’t pretend to know the legal standard in Michigan on pledge enforceability. In New York, you better have at least given him naming recognition for the pledge.

Anyway, the Crain’s story mentions a contingency to the “pledge” that a number of other families needed to be on board before the pledge would be a real pledge. But, if that contingency is not in the written agreement, and the charity really has a clear, written agreement, I don’t blame them for suing. I wish them luck, though.

The point of this piece, and future ones on the topic, is that it is a good idea to think about what a judge someday will want to see to enforce a pledge (in the absence of being in the will or other testamentary device). Partially, it depends on the law of the state in which the donor resides (and where his/her estate will be probated). If the state courts held that you need “consideration”, you better make sure you gave the donor something and leave proof of it (pictures, of course) in the file. If the state uses the “detrimental reliance” theory, you better show that you really relied on this gift, to your financial detriment.

The other point you should be getting is that legally enforceable pledges, ones that you might actually go after someday, are not necessarily appropriate for high quantities of gifts. It’s the special ones.

Planned Giving Tidbits – Beware IRA Giving in NJ and Binding Naming Pledges

Last week I attended the annual planned giving quiz given by one of my favorite planned giving lawyers/gurus in the field of planned giving  (He doesn’t use the internet so I’ll leave his name out but it should be pretty easy to figure out).

I learned two ideas – really important ones.

1. New Jersey will tax your New Jersey donors for making IRA charitable rollover gifts! Income tax, that is, on the IRA withdrawal. That’s what I heard. It’s really too late to do anything about it if you have been encouraging donors from this state. It has to do with the fact that New Jersey doesn’t offer a charitable income tax deduction.  New York and Connecticut IRA rollover donors are fine.

I am wondering if there is a mechanism for New Jersey tax authorities to be notified when someone makes an IRA rollover gift?

My suggestion: cross your fingers regarding the past; confirm for the future (if it gets extended again) and put a caveat on all of your marketing materials that mention this option (especially if you are a NJ charity or have a lot of NJ prospects).

2. My favorite planned gift this year is the irrevocable bequest pledge. Why? Well, let’s say that with life income gift business down, I can still look to many millions of closed gifts with these arrangement this past year. Yes, the person sitting to my right at the conference was from an Ivy League school which has a policy to do no binding pledges – fine if you are in the Ivy League. And, yes, they are tricky – and quite often very problematic when they mature.

Here is what I learned: in New York, all “naming pledges” are legally binding, including named scholarships. That might seem like an obvious point but hearing it from a top attorney puts it on another level for me. You don’t need particularly special language – just something in writing where the charity says that it will name something in exchange for this gift. Of course, the repercussions of this point can be negative. The problem that occurs is when a donor agrees to give the money for some naming opportunity, most often no one has the chutzpah to ask about the source of those funds. Technically, once the pledge is made, the donor (in theory) can’t have his or her private foundation pay off that pledge. The other long standing issue with all pledges, particularly ones that are likely to be fulfilled from someone’s estate, is their enforceability. It’s a nightmare if you are not actually named in the estate and want to collect on the pledge. A topic for future posts.