planned gift options

Finally, Planned Giving Gets into the Presidential Campaign!

Just when I thought that I wouldn’t have any topics to blog on until after the election, Planned Giving jumps to the forefront of the presidential election campaign!

I am going to provide the link to the article about Mitt Romney’s use of a charitable remainder unitrust (CRUT) found on this week but I have to preface the link with a few comments:  this is the worst reporting on the charitable arena that I have even seen.  Complete garbage.  The article starts out by calling charitable remainder unitrusts “a popular tax shelter” – implying that is abusive – at least that is the clear message readers get.

Of course, that is complete insanity for anyone with knowledge of this field.  Yes, there were a handful of abusive planners who tried to take advantage of some holes in the law – which were promptly closed by the late 1990’s.

And, to destroy any credibility of the writer and editor, their prime source in the article is none other than Jonathan Blattmachr –  the well-known planned giving outlaw who created the abusive practices that Congress had to shut down.  Sure, if you interview a mafioso, he’ll tell you that killing and stealing is just a part of a day work (for him, but not for me!).  Seriously, this guy has no credibility to be talking about an alleged scheme –  if he was being truly honest for this article, he would explain why Mitt’s CRUT was NOT one of his own abuses (see end of blog post for my own analysis).

Trust me – whoever is reading – only a handful of planners ever did the stuff that Blattmachr came up with that was abusive.  And, from the bits and pieces of info that they found for the article, I can tell already that Mitt’s CRUT was not one of the abusive schemes that involved CRUTs.  The fact that it still has funds in it – after multiple and prolonged recessions – is all the testimony we need.  Hundreds, if not thousands, of charitable remainder trusts have not fared so well.

Ok, so here is the link:

I know it is just politics and writers looking to dig up dirt before their guy loses a close election.  This one just seems insanely incorrect in its accusations.  In fact, the article posits that Mitt’s CRUT only projected a charitable remainder of 8% of its initial principal at the time of its funding.  Excuse me – the writer didn’t actually have the full funding amount or date of funding!    Based on what they do have (end of 2011 principal of $421,201 and a 2011 payment to the Romney’s of $36,696), we can guess that the CRUT rate was probably 8%, max 9%.

Little lesson in planned giving history:  the abusive trusts that Blatt-idiot was promoting in the 1990s were paying up to 80% of their principal to their donors.  8% or 9% CRUTs?  Not only was that a standard (even a low rate for those days), but it even completely acceptable for CRUTs created today.

In other words, the writer was bluffing when he wrote that Mitt’s CRUT had only an 8% charitable remainder projection (2% lower than today’s legal requirement).  He doesn’t have that information and can only be guessing.  Anyway, it was clearly legal at the time and not an abusive Blatt-trust that Congress set out to close down.

Even though I love the idea that planned giving is making some headlines, I have to admit that this was a difficult piece to get on paper.  I think a video of me ranting and raving about how bad this reporting was might have done a better job.

Good news for the Romneys – no one is paying attention to this story.  Too complex.

And, maybe good news for the planned giving world: we might have a President who a planned giving donor!  Who knows, maybe we’ll get the IRA rollover back and maybe it will include an option to roll into a CRT or CGA?

If you are interested in reading another writer’s disgust about this article and a different perspective on tax planning, check out this post from Taxgirl on Forbes:

Little guys still catch some big ones with Planned Giving

I always kvell (Yiddish for experience joy for someone else’s success) a bit when I see former clients – even the little guys compared to some of the fundraising giants out there – reel in a really big planned gift.

The following article is an amazing example of how even the ordinary fundraising shops – typically without planned giving staff and little planned giving budget – can cultivate and celebrate “transformative” planned gifts.  This one is a $5 million bequest intent to SUNY Oswego:

If you are a small fundraising shop, you can do it, too!

Anatomy of a Successful Insurance Gift

After recent posts regarding insurance gifts – both good and bad – I thought we would conclude the topic on a positive note because so much of planned giving is about being open and receptive to the possibilities.

The following are answers to my questions to Josh Rednik, the Executive Director of the MetroWest Jewish Community Foundation which recently announced a $20 million insurance gift from one of its major supporters.

Here are my questions and Josh’s answers noted by [JWR] and in bold and italics:

Was it a new or old policy?

[JWR] Existing policy that was owned by the donor’s private foundation.

Any premiums still due?  If so, is there borrowing being done to pay premiums or is the donor just paying?

[JWR] No premiums due.  The donors and I have a letter from the carrier stating as much.

One or two lives?

[JWR] Two lives, survivorship.

Whole or universal life?

[JWR] Universal.

Is the Metrowest Community Foundation the actual owner? Or does the donor’s privation foundation still own the policy?

[JWR] JCF MetroWest is the owner and beneficiary, though according to our agreement with the donor family, the proceeds will be transferred from JCF to the family’s supporting foundation at JCF when the policy matures.

Any other charities involved?

[JWR] Possibly.  Total death benefit is $20 million.  When the policy matures, the full proceeds will be transferred to the family’s supporting foundation at JCF.  According to our agreement with the donor family, a minimum of $10 million will stay in that foundation and will function like an endowment, to be used to support a limited array of programs focused on Jewish continuity and identity development. 

FYI, the same family is already on the books for a current commitment of $5 million to that supporting foundation.  That amount is payable over five years and we’re now in year three, there’s a little over $3 million in the fund as of today.  The fund operates like an endowment. 

The $10 million that is designated will be added to corpus and generate larger annual distributions in the future. 

The use of the other $10 million in insurance proceeds will be subject to the discretion of the supporting foundation trustees.  It could stay in the family fund and be used for similar programmatic purposes, making endowment-like distributions, or it could be used to support other charities that the primary donors might request in advance.  We’ll see about this long into the future…

Anything exotic going on?

[JWR] Not really.

How did it come about?  Was it a suggestion by staff?  by the donors? by the donors’ financial planner/insurance salesman?

[JWR] Good question.  It came about for a variety of reasons. 

First – trust.  I’d like to think that over the past few years, we have created a trusting relationship with this family, upon which all of this is predicated. 

Second – role of professional advisors.  I have a strong working and personal relationship with the donor family’s insurance planner and it was he who first suggested to the family that they consider JCF MetroWest as a recipient of this policy.  Without his suggestion, this contribution would not have happened.  I also know the family accountant and he was involved in this discussion/negotiation as well.

Third – patience.  Discussions on this possibility began over one year before the commitment came to reality, and there were many conversations, emails and letters exchanged in an effort to clarify and document how everything would work.

I think the big takeaways are:  (a) focusing time on getting to know your major donors and helping them engage in the philanthropy they seek is critical; (b) building trusting relationships with professional advisory community is equally critical.

Fundraisers should have a lot to think about here and thank you Josh for being so candid about this one!

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.