Case Studies and Articles

Who Owns This Donor Anyway? A Presentation to the 14th Annual NCPG Conference by Ashton & Henry

Who Owns This Donor Anyway? A Presentation to the 14th Annual NCPG Conference by Ashton & Henry

Who Owns This Donor Anyway:

Does Fighting Behind the Scenes Doom the Gift?

Vaughn W. Henry and Debra Ashton

A preview of an NCPG Presentation at the 14th National Conference on Planned Giving in Indianapolis, IN

I. Introduction:  Commercial Professionals and Planned Giving Officers are often at odds with each other, leaving the donor caught in the middle. The challenge in today’s estate planning environment is to find ways to put round pegs and round holes together, and match up client/donor needs, advisor skills and demonstrated charitable intent.

Individuals who may be approaching the estate planning or gift planning process from a one-sided perspective generally have self-serving interests that must be balanced in order for the donor to achieve his or her true objectives.

A charity appeals to the emotional needs of the donor, suggesting creative gift-planning strategies that, one hopes, will serve both the charity and the donor. A commercial professional appeals to the pragmatic and practical needs of the client suggesting strategies that achieve tax-related goals, often without the driving force of the emotion that would link these goals to philanthropy.

In all of these dealings, the element of control shifts from the charity to one or more commercial planners, or to other family members, and can create a sense of confusion, lack of clarity, and, ultimately, indecision.

Who owns this donor anyway? Perceptions, lack of communication, and distrust abound between charities and their donors’ advisors, between family members and charities, between donors and charities. Somehow, in the midst of much chaos, philanthropy is alive and well. However, some gifts being proposed and implemented are wrong for the donor. Some gifts that ought to be happening are aborted or languish indefinitely.

This is not to say that donors/clients are free from some of the blame. Reluctant clients might start the planning process with appeals to their tax averse nature, but without being motivated to finish by emotional or values driven needs, the construction of an elegant plan gets stuck on the drawing board. Procrastination abounds for many reasons including lack of knowledge, too much information to process, fear of making errors, and simply the discomfort about dealing with death. So, too, latent donors start a gift planning process with appeals to their emotional nature, but without early involvement by their financial advisors, they find themselves being advised against the charitable plan, much to the chagrin of the charity.

This brainstorming session examines some of the considerations and perceptions affecting the gift planning profession both from the perspective of the charity and from the perspective of the commercial planner. Each side perceives problems or concerns with the other. Many of these are legitimate, on both sides. Nonetheless, the frustrations being felt across the industry cannot be eliminated until the charities and the commercial professionals understand and appreciate the underlying reasons for these frustrations, take responsibility for their own faults, errors, and self-serving interests, and adopt a more comprehensive approach.

Following are a series of opposing viewpoints that we will discuss during this session.

II. Considerations and viewpoints

A. Competency

1. Commercial planners find charity representatives often inexperienced in dealing with sophisticated estate planning techniques. Many planned giving officers have little or no tax experience before taking their position with the charity or are promoted from within the organization from such departments as annual giving or major gifts. Also they too often have little knowledge or understanding of an entrepreneurial business owner’s concerns and the capitalist systems workings.

2. Planned giving officers find commercial professionals often inexperienced in dealing with sophisticated charitable giving vehicles. Many commercial professionals who are advising the charity’s donors are general practitioners who have never specialized in charitable giving tax law, and thus, are ill-equipped to advise their clients properly on planned giving options.

B. Drafting

1. Commercial planners are often asked by their clients for blanket approval of boilerplate documents provided by the charity when these documents may not provide the full range of options available. The boilerplate documents are grossly inadequate to serve the best interests of the client. In addition, the planned giving officer is guilty of the unauthorized practice of law.

2. Planned giving officers, wishing to facilitate the gift process and to help the donor avoid excessive legal expenses, provide to their donors, sample documents that have been approved by both their legal counsel and their fiduciary trustee. In the vast majority of cases, there is no need for the donor to pay his or her own attorney to reinvent the wheel at a very steep hourly rate. The donor’s attorney should be willing to review the charity’s sample documents without feeling put off.

C. Continuity

1. Commercial planners who are committed to helping their clients do the right thing are often frustrated by the fact that planned giving officers stay only a short time at any one charity before moving on for a higher-paying position somewhere else. The lack of continuity and stability among fund raising professionals gives rise to a general distrust of all fund raisers. The constant job changing does a disservice to clients who come to trust the fund raiser as well as doing a disservice to the charity. In addition, planned giving officers often take the hit-and-run approach to donors. After getting the gift, the planned giving officer has little time for stewardship leaving the donor feeling used and abused.

2. Planned giving officers, as a general rule, are extremely committed to their donors and to their institutions. Nonetheless, the structure and culture within a fund raising operation proves limiting in terms of advancement. Once hired in good faith, a planned giving officer is trapped in a noncompetitive environment that rewards its employees with cost-of-living increases at best, provides inadequate budgets to accomplish unreasonable fund raising goals, and changes job responsibilities without notice. Such conditions are not conducive to longevity.

D. Orientation

1. Commercial planners are accustomed to working with clients who have a high net worth, complicated business considerations and multi-faceted concerns while the planned giving officers have never experienced the challenge of running a business or dealing with the economic factors involved in making decisions about significant assets. Commercial planners often find the approach of a fund raiser one dimensional. If there is not a gift, there is no reason to suggest other non-charitable planning strategies to help the potential donor.

2. Planned giving officers spend years working with a donor, involving the donor in the work of the charity, and building a relationship with the donor. Over a long period of time, the donor develops an emotional commitment to assist the charity with a significant gift. Unfortunately, as so often happens, the donor’s advisor, who is critical to the process, cannot believe the donor wants to be charitable, throws up objections to the plan, and eventually kills the gift. Commercial professionals approach a charitable gift as merely a tax-driven solution without considering the emotional benefits the donor seeks. They have little or no commitment to a charitable outcome.

E. Disclosure

1. Commercial professionals are being paid to watch out for their clients’ best interests. That includes presenting the risks, cautions, options, and appropriate disclaimers so as to ensure that the client knows the potential downside of a charitable plan or the options the charity neglected to discuss. Especially important is the fact that these plans are irrevocable. Often, the planned giving representative neglects to present the full picture to the donor or is overly optimistic about what the plan might accomplish. Thus, the commercial planner comes into the picture at the end of the process. Often, the commercial planner is put in a position to mob up after the planned giving officer and, in playing a devil’s advocate role, is perceived as the bad guy. Nonetheless, if the commercial professional approves a plan that has undisclosed consequences to the donor, the commercial professional who is highly regulated is exposed to malpractice or errors and omissions problems.

2. The planned giving officer is interested in providing the best possible plan that serves both the charity and the donor equally well. The charity’s relationship with the donor will continue for the life of the donor, and its best interests will be served when the donors are happy. While tax-related objectives can be achieved with a smart charitable gift, the donor’s primary motivation for the gift is emotional. Planned giving officers would love to involve the donor’s advisor(s) in the early stages of the process, but are frequently prevented from doing so because the donor does not want to incur legal expenses, the donor does not have an attorney experienced with charitable tax planning, or simply does not want the charity to know the full extent of his or her asset ownership.

F. Design

1. Commercial professionals prefer to give their clients as many options as possible. Donors change their minds about charitable plans for many reasons. For example, a donor may lose interest or become disenchanted with the charity’s mission or practices. The donor’s philanthropic interests may expand or mature over time. A charity might merge with another. Or, the donor may lose respect for charity representatives including fund raising staff, trustees, or the charity’s president or executive director. This is why it is always appropriate to reserve the right to change the charity when the gift method allows such flexibility. While the charitable gift transfer can be irrevocable, the charitable beneficiary need not be and should not be.

2. Planned giving officers frequently are working within the context of a capital campaign. Donors who have become involved and interested in the charity’s work appropriately wish to participate in the campaign. In this common context, the donor’s desire to be listed with other major benefactors requires an irrevocable gift to the charity. Otherwise, there can be no gift credit for the creation of a charitable plan. Within this context, if the donor reserves the right to change the charitable beneficiary, he or she cannot be deemed to have participated in the campaign. And, from the fund raiser’s perspective, there is no gift and the life blood and job security of the fund raiser is lost.

G. Conflict of Interest

1. Commercial professionals consider fund raisers to be extremely opportunistic. Fund raisers have quotas and goals to meet; therefore, they pressure donors to make gifts that may not be in the best interests of the donor or the donor’s family. Their entire approach is manipulative and they prey on people, especially on older individuals who are vulnerable to the lure of special attention, visits, or charity perks. Planned giving officers are simply interested in meeting a quota, regardless of how they achieve it.

2. Planned giving officers frequently are approached by donors to evaluate massive financial packets involving product-driven solutions provided by commercial professionals. The financial illustrations prepared by advisors are intimidating to donors who cannot possibly understand the breadth and meaning of what is being shown. There is usually a formula approach involving the purchase of life insurance, even when there is clearly no need for the purchase of this asset. When a financial professional depends solely on commissions, he or she proposes the kinds of plans and management options that provide commissions, management fees, or other bonus compensation. These commercial planners prey on vulnerable people, especially older people and widows who have no way of evaluating properly the unnecessarily complex plans being proposed.

III. Talking Points

A. Is it ever appropriate for a Planned Giving Officer to present a proposal without considering the donor’s complete financial plan?

B. What do Planned Giving Officers need to do to get a place at the table?

C. Under what conditions would a Commercial Planner recommend a gift that removes assets under management or that provides no billable hours?

D. What should a Planned Giving Officer do differently to gain greater trust from the Commercial Planner?

E. What can a Commercial Planner do to be more effective at approaching a fund raiser for referrals?

F. Under what conditions is it appropriate for a Planned Giving Officer to provide sample documents?

G. What does the client have to do to prove to the Commercial Planner that he or she has legitimate charitable interests?

H. How can a Planned Giving Officer avoid unauthorized practice of law when the position involves extremely complex areas of estate planning?

I. What should the Planned Giving Officer do when the donor does not want to pay for his own legal fees to get the charity’s proposal reviewed?

J. What do Commercial Planners recommend to young or inexperienced Planned Giving Officers so that the PGO’s will have credibility?

K. Is there a conflict of interest if the charity provides legal services?

Case Studies and Articles

Charitable Trusts After EGTRRA 2001

Charitable Trusts After EGTRRA 2001


Charitable Trusts After “EGTRRA 2001”

For the truly charitable client, nothing has changed, except there is a potential problem with some older estate plans that called for charitable bequests based on whatever was in excess of the decedent’s applicable exclusion amount. Of course, the same problem exists for surviving spouses who depend on marital trusts being properly funded after the largest amount possible passes to the family trust. In light of the increasing exemptions, some estates might find assets originally targeted as bequests being passed to non-charitable beneficiaries under language of an outdated will or trust. The old rule of wealth was to pick your parents wisely. However, under EGTRRA 2001, a new rule may evolve — time those deaths carefully. In the “best of all worlds”, schedule death between January 1st and December 31st of 2010. Why? The estate tax disappears for that one year and then reverts to the pre-2001 rules. Cynicism aside, this is a terrible way to plan for business continuity as uncertainty makes succession that much harder. Clients are going to find they need two plans, one to address a reintroduced tax and one for no tax. That complicates planning and increases costs. For those interested in controlling social capital, the use of charitable planning tools may offer some certainty. While non-grantor, non-reversionary charitable lead trusts might be less attractive to the “number crunchers” under the new laws, remainder trusts will see further use, especially since heirs may be inheriting assets that won’t step up in basis.

The classic use of a §664 charitable remainder unitrust (CRUT) still remains a tax advantaged planning strategy for families with closely held firms. While S Corporations may have their stock transferred outright to a charity and not lose the S election, it’s not an option for use in a remainder trust, so the C Corporation stock redemption is the only way to go with a CRT strategy.

Why use a CRUT? It allows for ongoing contributions of stock to continue limiting the estate size, while a CRAT offers only a one time contribution. Besides providing an immediate income tax deduction, it also reduces the size of the trustmaker’s taxable estate and funds the donor’s retirement income, all without triggering capital gains taxes when the stock is transferred.

The Problem

George Ross (67) is a typical owner, a self-acknowledged control freak; he plows everything back into the business and defers taking salary and benefits. He’s the kind of owner that follows his employees around turning off light switches to save on electricity and his whole life has been wrapped up in his business. With all of his estate tied up in illiquid company assets, he approaches retirement with a potential retained earnings problem (§531), a limited pension plan and heirs working their way up the management ladder as minority owners. If George depends solely on a buy-sell agreement funded with life insurance, his heirs (who may then develop their own estate tax problems) won’t get the business until he passes on and the insurance self-funds the stock redemption at death. However, the inflated value of the business is included is the estate, subject to tax. If George sells the business to his children, he stands to lose a significant portion of the proceeds to capital gains liabilities. If he tries to have the corporation redeem his stock without using the CRT option, then he may run afoul of the partial redemption rules (§317, §318, §302).

The Solution

As long as all the stockholders have the same offer to redeem shares at fair market value (Palmer v. Commissioner, 62 T.C. 684 – 1974), the (§4941) self-dealing restrictions won’t apply to the CRT. Once cash redeems George’s stock from the corporation (in some states a note works too) his stock is retired and the remaining stockholders will see their prorated ownership change. Properly done, the heirs will wind up as majority owners and dad’s remaining shares may qualify for additional contributions to his CRUT or be valued at a discount in his estate because of his minority position.

Hypothetical evaluations are provided as a professional courtesy to members of the estate planning community. Call for suggestions or seminar schedules on upcoming workshops for professional advisors, nonprofit development officers and charitable boards.



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PhilanthroCalc for the WebCONTACT US FOR A FREE PRELIMINARY CASE STUDY FOR YOUR OWN CRT SCENARIO or try your own at Donor Direct. Please note — there’s more to estate and charitable planning than simply running calculations, but it does give you a chance to see how the calculations affect some of the design considerations. Which tools work best in which planning scenarios? Check with our office for creative solutions.

Case Studies and Articles

Workshops to Encourage the Latent Philanthropist by Vaughn Henry & Associates

Workshops to Encourage the Latent Philanthropist by Vaughn Henry & Associates


Vaughn Henry builds bridges. Bringing donors and non-profit organizations together-to the benefit of both-is his business.

And he dismantles obstacles. His unique expertise is in managing the complex technical details that too often stand in the way of planned giving initiatives.

“Philanthropy and ENLIGHTENED self-interest are not mutually exclusive. The challenge that non-profit organizations face today-particularly as they cultivate wealthier donors-is to demonstrate where and how the two intersect. Often these donors are insulated by a cadre of for-profit advisors. To succeed, non-profit organizations have to learn to speak the gatekeepers’ language.”

Henry is one of the nation’s leading experts in the design and administration of charitable remainder trusts, lead trusts, gift annuities and other tools that integrate charitable giving and sensible financial planning. Holding both insurance and securities licenses, Henry provides clients with a wide range of domestic and offshore financial services. In his highly specialized estate planning practice, he strongly encourages clients to examine their personal financial philosophies and to allow those philosophies to guide them as they take more active control of their social capital.

In addition, Henry’s seminars on tax efficient giving strategies have earned him national renown among charitable organizations, donors and financial advisors alike. With distinctive, plainspoken style, he addresses not only the technical-but also the interpersonal complexities that come into play in planned giving. Development officers leave his workshops equipped with a deeper understanding of gifting options, new tools for motivating donors and a framework for educating board members and other colleagues on the most tax efficient giving strategies.

To find out how Vaughn Henry & Associates can help you reach your goals by establishing mutually rewarding alliances with donors.

Henry & Associates

Gift and Estate Planning Services

Springfield, Illinois

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Case Studies and Articles

Just How Popular Are Those Charitable Trusts? – Henry & Associates

Just How Popular Are Those Charitable Trusts? – Henry & Associates

Just How Popular Are Those Charitable Trusts?

CRT Survey

Clients and professional advisors assume that with all of the recent publicity about the use of charitable remainder trusts that there must be millions of them in existence.  The reality is that while they’re talked up as great financial and estate planning tools by many advisors, there are actually relatively few charitable trusts operating.  The latest data from the IRS reports that about 100,000 charitable trusts are recognized and properly filing informational returns, and while there are a few “stealth trusts” out there, the reality is that few charitable remainder trusts have operated since they were first authorized under §664 in 1969.

What’s that mean?

With so few trusts established to control the $76 billion in CRT assets it’s no wonder that financial and tax professionals concentrate instead on the more traditional and lucrative IRA, pension and non-qualified retirement planning opportunities with $10 trillion in assets.  As a result, very few advisors really understand how those split interest trusts are designed, drafted, funded and operated.  Add to that mix of trust creation tasks, the opportunities for confusion and mismanagement are practically limitless.  After consulting with a number of dissatisfied trustees, trustmakers and trust beneficiaries, it has become apparent that too many trusts have been “sold” to client-donors without adequate disclosure, especially when there’s a lot of volatility in the market.  Too many money managers fail to understand that investments inside charitable trusts can’t be managed like regular endowment funds or pension accounts if both the income and remainder beneficiaries are going to be satisfied.

Why Use Custom Trust Documents and Not IRS Prototypes?

Because it allows for:

  • Donor/Trustmaker may act as CRT trustee
  • Modifying trustee powers and using a special independent trustee
  • Charitable remainder interests may be made revocable
  • Allowing revocable and multiple ( >2 ) income beneficiary interests
  • Principal may be distributed to charity before the CRT matures
  • Using multiple charitable remainder interests to meet donor goals
  • Using multi-generational/non-spousal income beneficiaries
  • Defining “income” (DNI) for net income and “spigot” trusts
  • Accepting closely-held assets when funding the CRT
  • Accepting testamentary and IRD asset contributions
  • Distributing assets in kind when cash flow is limited
  • Unbundling trustee, investment and administrative functions
  • Modifying investment objectives, e.g., tax efficient income

Sometimes donors are unhappy with the results of their trusts, here’s a question from an advisor:

“Any ideas on whether my client can set up a charitable trust and yet remain completely anonymous?  Can you point me to where I might find guidance on this issue?  A few years back my client set up a CRUT and CLAT with a college, and was completely turned off by the publicity and notoriety he received from that donation.  He has another charity in mind for more gifts, but to avoid the publicity will he have to settle for a testamentary charitable gift?”

Last Updated: February 17, 2003

Gift & Estate Planning Services © 2001, 2003

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PhilanthroCalc for the WebCONTACT US FOR A FREE PRELIMINARY CASE STUDY FOR YOUR OWN CRT SCENARIO or try your own at Donor Direct. Please note — there’s more to estate and charitable planning than simply running calculations, but it does give you a chance to see how the calculations affect some of the design considerations. Which tools work best in which planning scenarios? Check with our office for solutions.

Case Studies and Articles

Team Building and Expanding Your Practice – Vaughn W. Henry

Team Building and Expanding Your Practice – Vaughn W. Henry

Team Building and Expanding Your Practice

Understanding why the curmudgeon client is a latent philanthropist.

The challenge in today’s estate planning environment is to find ways to put round pegs and round holes together, and match up client needs with advisor skills.  Since nobody can claim to have all the answers all the time, it makes sense to use as many experienced technicians in the construction of a plan as is needed.  The problem is that while professional advisors like to think of themselves as logical and analytical experts, clients don’t complete their estate planning for those reasons.  Reluctant clients might start the planning process with appeals to their tax averse nature, but without being motivated to finish by emotional or values driven needs, the construction of an elegant plan gets stuck on the drawing board.  For most clients, even when there’s not a charitable bone in their body, there’s an overwhelming desire to regain control of their planning.  Control of social capital, (defined as both charitable gifts and assets that would default to the tax system unless proactive choices are made) redirected to family influenced charitable projects gives clients an improved sense of control, and when that happens, those latent charitable interests surface.  If “cause or community capital” is more appropriate than “social capital” in a client’s mind, then develop that line of thinking as a way to explore options, but emphasize choices are available in the planning technique.

With all of the political posturing and talk about eliminating the “death tax”, an already skittish client is looking for any excuse to avoid long term planning, even when there’s no estate tax liability.  A few clients take the benign neglect approach, ignoring the problem and hoping it will go away by itself.  Others have likened it to grabbing hold of a tiger’s tail: Once they have it, they don’t know what to do with it.  To help them move out of either mindset, consider a more holistic approach to the design process.  Good plans usually are the result of a coordinated team effort.  Combine the well-briefed client, professional advisors and when there’s a charitable component, a nonprofit organization’s planned giving officer, and there’s a better chance of success.

“I find it fascinating that most people plan their vacations with better care than they plan their lives.  Perhaps that is because escape is easier than change.”

— Jim Rohn

With increased commoditization of services, most advisors offer only variations in products and services, so it makes sense to take client – advisor dealings to a higher level based on values and enhanced relationships.  To help clients achieve personal significance, an increasing number of planners are incorporating a charitable component in their estate plans, and that takes a real leap of faith for a lot of clients who don’t see themselves as altruistic donors.

“One thing is for sure. I won’t leave a lot of money to my heirs because I don’t think it would be good for them.”

— Bill Gates, Forbes, May 19, 1997

When charitable tools are introduced, very often the already unstable mix of advisors soon includes a development officer representing the philanthropic interests of the client donor.  Why is this a source of added turmoil?  The simple answer is turf and its control.  Unless the estate planning team is remarkably cooperative, each advisor has an agenda and seeks to control the client; and this battle isn’t limited to just the for-profit advisors.  Add to this volatile mix the prejudices and competing claims for attention from the client and you’ve set up some real struggles.  Where and why did this all come to pass?  It’s based on both perceptions and fact.  Rather than draw on each individual’s strengths, each group seeks to gain advantage by marginalizing the other’s skills and talents.  What should each group of advisors bring to the table and what should they leave behind?

The Charity’s Contribution

It is critically important for the development officer to communicate the importance of the institution’s charitable mission.  Until that is done and bonding has taken place, the donor has an overwhelming number of philanthropic institutions from which to choose.  If the donor has a relationship with the organization, then selling the mission is a lot easier to accomplish.  What the development officer wants from professional advisors is an entrée to the process and validation of the proposed charitable planning tools.  Besides this obvious goal, there may be another more plebian motive.  All too often, the fund raising specialist from the nonprofit knows that booking gifts and getting immediate donor support is the ticket to advancement.  Not that those motivations are unique to the nonprofit development staff, it’s a universal inspiration, but sometimes the inexperienced fundraiser recognizes that significant planned gifts are where the real money is going to be.  For every charity with in-house legal and tax planning staff, there are hundreds of not-for-profit organizations employing unsophisticated fundraisers in a planned giving scenario.  Since they often lack the technical resources to design effective estate plans, development officers turn to professional advisors to see how to catch a ride on the gravy train.  This one sided approach is short sighted and isn’t likely to produce donors happy with planned gifts.

Since wealthy donors communicate extensively with their peers and 55.5% say they recruit other philanthropists (a), it’s important to recognize how quickly both good and bad news travels in the affluent community.  Russ Prince in 1997 published a study of the philanthropic affluent in which he noted that 58% of donors were unhappy with their charitable planning as proposed by development officers.  Of course, the nonprofit planners aren’t the only ones with a low approval rating; clients were unhappy 62% of the time with their professional advisors. (b) The most common reason donors were satisfied with the planning process was the result of their advisors’ technical competence; something that both group of advisors, in a self-evaluation of needed skills, ranked last. (c)

“Propose to donors only those things that you would propose to your own father and mother.  Until a donor feels good in the bottom of his/her belly about a proposed gift, it’s not a good gift.”

Roger Ellison, Vice President for Planned Giving, West Texas Rehabilitation Center

While both nonprofit and for-profit advisors have strengths and weaknesses, in order to deal with them and form effective teams, it’s important to understand the perceptions of both groups.  From the commercial sector, the following complaints are lodged against the nonprofit quarter and, unfair or not, they need to be addressed.

Development officers are highly mobile, using their positions as stepping-stones to other opportunities.  A 1992 NCPG survey of nonprofit professionals showed that planned giving officers with less than three years’ experience made up 38% and in 1996 it was 42% (c) of respondents working in planned giving positions.  The survey changed format in 1998, and while salary shouldn’t be a measure of competence, it’s often an indication of experience.  The latest data shows that 89.8% of planned giving specialists making less than $55,000 had three years or less of experience, this represents 48.9% of the nonprofit employees surveyed. (j).  Given that positions in a planned giving office tend to attract more qualified staff, that relative lack of experience and excessive mobility makes it hard to cultivate planned giving donors who seek continuity and skill.  Further aggravation exists when professional advisors become frustrated with the need to train and explain complex concepts to an ever changing new crop of development officers that seek support, since few planned gifts are completed in less than six months and many take years to realize.

Too often, nonprofit organizations are forced to place a lower market value on their employees and, by poorly compensating them, it sets up a potential for resentment when salaries are compared to those in the commercial community.  For-profit planners often see themselves as a resource to be unfairly milked in support of the nonprofit organization or characterized as commission and fee crazed mercenaries banging on the gate who should instead forsake compensation because they work to assist donor clients in meeting charitable goals.  This inequity in compensation sets the stage for jealousy and disdain when estate planning specialists lose sight of achieving their goal of helping a client donor establish an effective charitable plan.

Development officers, in their quest for support, may provide donors with sample documents and proposals that minimize the downside or fail to fully disclose the risks of making irrevocable gifts.  They object to the for-profit advisors’ meddling in the plans and dissuading the donor from completing the gift, especially when the gift is desperately needed.  On the other hand, professional advisors may have a legal obligation to poke holes in a plan they don’t understand or agree with, no matter how deserving of support the charity is.  One of the problems of focusing on just one component of the gift is that when it’s not integrated within the entire estate plan, it may create other problems.  Since clients may not provide fundraisers with complete access to their balance sheet, the charity’s development officer is working on a plan with limited access to the big picture.  Many competent attorneys don’t want to see IRS prototype or charity-authored sample documents in client hands, especially if the development officer isn’t aware of other components in the estate plan.  They rightly object to being a rubber stamp to an already concluded process without a chance to provide proper counsel.  Besides defending the time they sell in the process, there’s a concern about a patchwork quilt approach to planning.  For some lawyers there is unease about the unauthorized practice of law (UPL) by all the planners, not properly  authorized to provide documents, involved in the process.  UPL is a serious issue that exists for many legal commentators because there may be no one to represent the interests of the donor if the charity proposes the plan, and then acts as trustee and investment manager in a turnkey type planned gift.  On the other hand, inexperienced legal advisors too often improperly rely on the development officer’s number crunching and document samples without understanding the nuances of design concerns.  Even if they do nothing but sign off on the plan, the client’s lawyer and accountant are the ones on the malpractice hook when things go sour, and it’s natural they’d have some reluctance to grant a blank check to a development officer, no matter how good their intentions are.  Commercial sector advisors are often tax driven and for them, philanthropy may not be highly motivating.  Unless they hear the client express charitable intent, they fail to see any good reason for including philanthropy in a plan at the expense of heirs and client security.  However, when charitable planning takes place, the charitable institution shouldn’t expect the advisor to stop being a donor advocate.

Why is gift planning, which theoretically ought to offer a higher level of cooperation, usually worse compared to other advisor inter-relationships?

“First, because there are not too many such gifts.  Second, the gifts are usually deferred and are not of as much interest as the ‘today’ gift that is desperately needed.  And planned gifts are seemingly complex and the not for profit folks don’t like to appear to the donor to be unable to do ‘it’ themselves.”

Richard C. Zinzer, Director of Development, University of Houston

When development officers present a plan leading towards a significant gift, they feel threatened when the professional advisor won’t assume the client is being altruistic and help close the gift without throwing up a bunch of objections.  Partly, it’s a communication problem, and partly it’s a result of prior training; you can’t expect professional advisors to change the way they do work just because there’s a charity involved in the transaction.  Building networks of competent planners who understand the planning dynamics and the client donor’s goals is critical if there’s to be any chance of success.

“Attorney’s, for example, are trained in the Socratic method – subject a decision to critical analysis by probing for weaknesses as opposed to extolling it’s virtues.” — Roger Ellison

Some nonprofit employees have little experience with or understanding of the capitalist system and have a deep-seated distrust of the wealthy and their advisors.  Because they’ve not had to run a business or deal with pressures in a market driven economy they try to appeal for support by using language that may not be motivating for potential donors.  For example, asking a business owner to help a charity because it’s tax deductible or because the support is somehow owed to the charity is a tactic with little chance of success.  Couple that inexperience with a sense that the estate tax system is a good thing designed to ensure a redistribution of wealth, and it’s possible that there’s potential for conflict between the donor and the charity’s employee.  Each donor has different “hot buttons” that generate actions, but sometimes it turns out that they’re not always positive buttons.  For the reluctant philanthropist sometimes it’s easier to motivate them when they’re upset, and the proposed philanthropy solves a problem, rather than starting as a great idea to promote good works.

Accountants, attorneys and an increasing number of financial advisors are fee-based planners with no motivation to work on plans that don’t generate billable hours.  Except for any personal sense that their guidance is promoting a common good, there’s no reward for the risk.  Development officers are generally salaried and can feel comfortable investing time by encouraging their donor prospects to consider planned gifts.  Coming from a culture that encourages low-key visits and informal get-togethers, the Planned Giving Officer (PGO) doesn’t object to spending time in meetings.  For-profit advisors, in contrast, are reluctant to spend time cultivating clients in unproductive sessions, since many times their schedules are already booked with existing clients seeking appointments and willing to pay for expertise immediately.  To learn the complexities of charitable planning, an admittedly arcane part of the law, tax and legal professionals must commit to either doing the work gratis as a learning experience or charging a fee sensitive client for the time it takes to get up to speed.  Generally, that won’t happen.  It should be no surprise that carpenters build houses of wood and masons build them with brick.  Most advisors won’t have a charitable gift on their radar screen because they’re uncomfortable with it.  They simply avoid the problem by ignoring advanced and charitable planning techniques concentrating instead on activities that pay the bills.  For a development officer to expect free technical support is unrealistic, but if they find someone gracious or committed enough to offer assistance, they’d be well advised to take care of them.

Most planners agree that establishing planned giving committees and advisor councils helps charities explore charitable options with donors.  However, a charity should not expect volunteer groups to offer advice in areas for which they’ve had little training.  A property and casualty insurance agent, a divorce or real estate lawyer and a CPA who specializes in audits all may have great skills, but those skills don’t necessarily equate with experience in planned giving beyond what they received in prior schooling.  This area has become highly specialized and is constantly changing; they should find competent help.

Client advisors are concerned about incompetent charitable planners who implement plans that are one sided, or tax inefficient.  For example, highly appreciated assets contributed to a low payout CRAT will often produce income tax deductions that are wasted, and that’s a red flag to the CPA who has to listen to a client gripe about income taxes every year.  What these gatekeepers to private wealth want to see instead is something that meets the donor’s need for income security and tax relief.  It is a split interest gift, and planners must remember that both sides should have a benefit to make this gift work properly.

Before a gift should be considered, address the priorities from the donor’s perspective first; above all, do no harm.

1. Ensure financial independence – help donors accumulate and set aside adequate resources to maintain lifestyle and address family security issues; remember life expectancies are statistical medians — 50% of donors live longer than the IRS expects them to.

2. Create a sense of family legacy – help donor clients by using the basics of estate planning to shift appropriate distributions at the appropriate times to heirs.  Involve the family and help nurture the next generation of philanthropists to strengthen family supported charity.

3. Control “social capital” by creating a community-oriented sense of legacy – help donors develop the basics of economic citizenship, even if it’s enlightened self-interest.  Philanthropy can be learned.  What makes charitable planning work is the combination of logic and an appeal to the heart and soul of the client.  To do otherwise is to shortchange clients, who deserve more than an appeal to their base instincts.  84.6% of affluent investors identify themselves as highly motivated toward philanthropy; often all the advisor needs to do is to show the donor how they can afford to give more. (a)

Donors pass through a philanthropic progression as they become more aware of the opportunities to support charitable works. (d)

1. Philanthropy means more than charity.

2. Charitable giving should be proactive rather than reactive.

3. Charitable giving should be based on a donor’s commitment.

4. Charitable giving should be viewed as an investment.

5. Effective donors invest the time.

6. Charitable giving requires a certain level of competence.

7. Charitable giving must be focused.

8. Charitable giving should be driven by the donor’s values

9. Charitable giving links a client to society.

Help client donors work through these stages by presenting concepts with which they can identify.  Address the donor’s needs and goals, allay their fears about doing something that superficially is foreign.  After all, who gives away stuff they still need?  Simple one or two page summaries are easiest to work with, while detailed ledgers that support the plan should be made available to advisors.  Not that some clients or donors shouldn’t see these masterpieces of computerized number crunching, but it should be with the caveat that the numbers ultimately will be proven to be inaccurate predictions.  Making assumptions about future performance is inherently dangerous and clients tend to have selective memory when they hear how their planned gifts will function year-to-year.  It’s better to stress the charitable nature of the gift and be conservative about making projections.

“It has been said that the most effective PGO’s genuinely believe in the cause for which they seek funds.  There is some truth in that–and evidence for it.  (You won’t find any agnostics, for example, in the development office of Brigham Young University.)  This commitment to cause cuts both ways, however.  Even as it attracts highly dedicated employees, it attracts employees who are territorial in perspective–and overly zealous.  Too often, they see professionals as ancillary staff…people to be harnessed, fed an apple or two (annual recognition dinner), and put to work in the institution’s “pasture.”  The institution is able to do this because, typically, it has strong finances and good political connections (including a high-profile board).  These traits make it highly influential in the community.  Also, of course, it gets mileage from its “charity” imprimatur.

RESULT:  Too often, professionals are not treated as partners.  The playing field is tilted, and the professionals are exploited…used as second-string players. True, they may be lauded and “plaqued” by the institution’s president, but that is much ado about showmanship.

SOLUTION:  Nonprofit gift planners should put their role in perspective.  They need to recognize that the closing of most planned gifts is a team effort, and that the contribution of every player–nonprofit, professionals, and donor–is essential for success.”

Paul Schneiter, editor Planned Gifts Counselor

The Commercial Sector Advisors

Of course, there’s plenty of responsibility for the professional community to acknowledge, and development officers are rightfully upset with some of their donors’ advisors.  Charitable planners understand that commercial planners act as speed bumps for wealthy clients, who use them as a foil to keep persistent solicitors at a distance, and few donors will complete a financial or estate plan with a significant planned or major gift without their advisors’ concurrence.  What a development officer needs more than anything is technical support and a willingness to implement the plan once the donor understands the choices, the necessity for making decisions and taking action.

Some gift planners refer to the for-profit community as “allied professionals”.  However, for clarity, the commercial sector advisors in this article will refer to accountants, trust officers, financial planners, stock brokers, attorneys, insurance and financial services advisors.  Using “allied professional” as a defining label seems to imply that the advisor has been deputized by the organization as an ancillary fundraising arm of the charity.

Unfortunately, this collection of planners falls into three general categories and too often fundraisers from a charity run into advisors who give everyone a bad name.  While there is a small group of professional advisors who see charitable planning as an integral part of their practice, there are far more in a second group using planned gifts as a product to be sold or as a fee generating service with little commitment to a charitable outcome.  Although it’s true that financial and tax advisors should be compensated for their expertise, too many push the process solely as a way to market products without a strong commitment to helping clients recognize and realize their charitable goals.  This second group may be somewhat competent and able to lead the client through some of the planning traps, but they tend to approach the charitable planning in a hit or miss fashion seeing charitable gifts only as a tax driven solution. The real problem lies with the third group, the mercenaries banging on the gate who give charities and committed charitable planners real heartburn.  This group sees a charity with a donor base that can be exploited as a pool of potential clients.  They market services under the guise of helping the charity.  This works because most charitable boards and their executive staff lack a strong financial background and see this offer as a way to fill their organizations’ coffers with enough revenue to meet their mission by handing off fundraising activities to these marketing experts.  They try to sell charitable trusts as products, pitching them to prospects as tax avoidance schemes, bordering on tax evasion.  Examples abound of abuses, and these include sales of inappropriate insurance products that take a donor’s ongoing annual support and convert those needed dollars to commissionable premiums or to those who expect kickbacks for steering a donor to a charity as a finder’s fee.   Occasionally seminars are offered with evangelical zeal, as a way to entice potential clients to disclose financial background and provide another way to market products that otherwise wouldn’t have been purchased in a more structured and stable environment.  This approach works because a clever promoter can appeal to a prospect’s greed by over promising the advantages and glossing over the mechanics and legal niceties.  These professional advisors, although that’s probably an overgenerous description, ingratiate themselves by joining boards and offering assistance as a way to acquire mailing lists and seek centers of influence. The more disreputable advisors “shop charities” to peddle their clients and try to find a nonprofit to act as a facade or a shill in a transaction, these actions may expose the nonprofit organization with sanctions and a loss of their tax-exempt status.

The trends are quite clear; some firms pursue charities legitimately, others see them as sheep to be sheared.  In 1991 it was reported that 55.7% of sampled trust banks and 44.6% of insurance companies were targeting nonprofit organizations for services and products, and by 1994 up to 95.9% of the same banks and 96.7% of the insurance companies were in on the action. (a) While there’s nothing wrong with networking and building a practice based on referrals from satisfied clients, there should be some commitment to the philanthropic mission of the charity.

Self Reported Ranking by Advisors

(1 – 4, with 1 = most important)






Interpersonal Skills
Technical Expertise
Donor’s Trust in the Gift Planner
Donor’s Trust in Organization
Gift Planner Profile 2 (c) — NCPG, 1996

What sins are visited upon charities by the donor’s advisors?  There’s a long and detailed list, but consider the following:

When advisors are unwilling or unable to acknowledge that estate planning with complicated charitable tools is a highly technical field, not practiced by many, they dig holes for their clients.  Since these are usually irrevocable gifts, when they blow up, the clients are irrevocably perturbed and some seek redress through litigation.  Instead of passing the responsibility to experienced planners, an advisor who tries to go it alone may provide incomplete or inaccurate advice that results in donor dissatisfaction with the charitable gift.  That mistake generates ill will and many of the donor’s peers may decline to make similar irrevocable gifts because of the advisor’s malpractice and lay the blame at the charity’s feet.  Of course, some advisors go too far towards the other extreme, promoting the use of complicated planned gifts because they generate larger fees than a simple plan that produces little revenue.  Sometimes the old adage, KISS (keep it simple stupid), makes sense.  For example, a CRUT proposed for a $60,000 gift, might be more complicated and expensive than justified.  A gift annuity might be a more appropriate tool to consider, even if it generates few billable hours.  Most advisors do a dainty dance around each other in an effort to avoid hard feelings, yet there’s nearly always an undercurrent of distrust, some of it is well deserved.

Advisors compensated by the charity for investment or legal advice may have wholly proper relationships, but when they seek to gain commissions and fees by representing both parties to a transaction, they cross an ethical line.  Full disclosure and due diligence requires that each side have appropriate counsel and not have conflicting interests.  The case of Martin v. The Ohio State University Foundation, Ohio App., 10th App. Distr., 2000, is illustrative of the problems that occur when an advisor tries to sell a CRT like any other financial product, and then compound the error with a poorly coordinated team of advisors.  That type of marketing plan is guaranteed to produce a donor who is dissatisfied with the charitable tool that didn’t perform as expected.  It’s better to lay out all of the risks and rewards and spend time on the mechanical issues with which the client will deal over the life of the trust.

The seven key factors satisfaction table (below) summarizes client – advisor perceptions that should be readily transferable to estate and gift planning relationships.  Since this survey was based on affluent ($5 million or more in investable assets) clients and their money managers, there are some observations that may suggest ways to establish better donor relations.  Unfortunately, clients are generally in no position to accurately gauge investment advisor competence, and that’s typical for any technical skill like estate planning.  Clients generally assume their financial advisors are competent, and while they may be satisfied with their advisors, they react badly when the planning process that depends on competence turns sour.  However, there are traits that clients can more readily judge which predict a satisfactory client – advisor relationship.  They include reliability, the ability to manage expectations, and avoiding surprises with good communications; some call this a “high touch” system of contact.  While most clients indicated that their advisors were polite, friendly and courteous, there was a real difference in perceptions of warmth and empathy.  Advisors who possessed active listening skills, and characteristics that allowed them to focus on their client’s needs and bond with them, retained their clients consistently.  Counselors without those skills lost clients.  Although it seems that educating clients with seminars would be an important way to service client needs, it was seen more as an effective way to let clients justify their faith in the advisor, validate prior actions and keep them informed.  Seminars are designed to encourage prospects to perceive the presenter as a resource, not as the primary way to educate and solicit new clients.  Client donor cultivation occurs when they seek counsel in follow up meetings where specific concerns can be addressed.

Seven Key Factors that Impact Client Satisfaction(a) Client Viewpoints
Rating the Advisor – Money Managers

Client Perceptions of Their Advisors







Competence Factor

-Keeping dealings confidential

-Having money management expertise

-Being knowledgeable in investments







Hustle Factor

-Being extremely reliable

-Being a perfectionist





No-Surprises Factor

-Wanting to know complaints

-Communicating problems and solutions





Warmth Factor

-Being responsive

-Being warm





First to Know Factor

-Providing timely information

-Giving regular client briefings





Listening Factor

-Being patient while explaining

-Listening well





Client-Centered Factor 

-Understanding specific needs

-Providing viable alternatives

-Defining client needs







What should be of great concern to prospective clients and donors is a recently released study that surveyed donors, professional advisors and planned giving officers employed by nonprofit organizations. (e) The survey results were alarming, disappointing and surprising.  In short, assuming advisors possessed minimal competence and technical expertise turned out to be a mistake.  Advisors who claimed planned giving as a major part of their practice generally lacked the training to properly advise their clients.  A pop quiz with randomly generated estate planning and planned gifting questions produced no professional group with an average passing grade (above 70% correct).  Although attorneys specializing in estate planning had the best scores, fund-raising employees of charities produced the worst scores.  What this means is that continuing education needs to be an ongoing requirement and different levels of training need to be available for all those who make financial planning, estate planning and planned giving a part of their practices.  Unfortunately, too few professionals make an effort to stay current, much less on the cutting edge.

Understand that tax driven planning is important to professional advisors, but it’s not the principal reason donors make planned gifts in support of a charity.  Tax planners tend to take a narrow view of the planning options and are less likely to suggest making charitable gifts out of a concern for exerting undue influence on the client.  Some advisors especially avoid introducing the topic out of a fear of losing the client’s trust and business. (b) However, this attitude tends to minimize the opportunity to distribute just wealth to heirs, there’s also a chance to pass down the client’s value system.  Planned gifts are just that, philanthropic gifts, and in a purely analytical evaluation of that gift, it’s possible that the donor will be better off financially.  However, those gifts oftentimes come at the expense of passing those assets to family heirs.  While it’s possible and generally a great idea to set up a win-win situation, remember intangible benefits accrue to a donor by making a gift.  This emotional feedback can’t be quantified and shouldn’t be marginalized.  To help donor clients manage expectations it’s even more important to elicit charitable intent and help clients understand their opportunities to support projects and organizations with special meaning to them.

Issues that present problems for professional advisors dealing with the fallout inexperienced development officers create are numerous, but donor cultivation tops the list.  Who’s to blame?  “Fund raisers who do not have a clue how to build the relationship with their donors first before going in with a big proposal. Gifts that can transform an institution come from a deep involvement by the donor in the life of the charity and when the time is right, the gift will happen.  Fund raisers who have the attitude that the donors owe them a gift because they have so much money. Inexperienced planned giving officers who expect qualified donor advisors to include them in discussions when it only takes one conversation with the fund raiser to know that the person has very little sophistication on these complex topics. A lot of inexperienced people are trying to do planned giving, and it is scary.”

Debra Ashton, Ashton Associates

The Client

Motivations of the Charitably Affluent(g)
Communitarians – desire to help the local community 26.3%
The Devout – compelled by religious convictions 20.9%
Investors – incorporate a financial component in their decisions 15.3%
Socialites – decisions based on their social milieu 10.8%
Repayers – a sense of fulfilling a perceived obligation 10.2%
Altruists – means of self-fulfillment  9.0%
Dynasts – a function of socialization and family heritage 10.3%

Legal and financial advisors appear to play a much more significant role in the gift planning process than they did in the 1992 survey. This may be attributed in part to the increasing affluence and financial sophistication of donors in a strong economy.  However, the desire to support charity remains the primary motivation for most donors, while tax and other financial considerations continue to be secondary. (k)

From The Millionaire Next Door, consider the following facts uncovered about American millionaires:

  • Only 19 percent receive any income or wealth of any kind from a trust fund or an estate.
  • Fewer than 20 percent inherited 10 percent or more of their wealth.
  • More than half never received as much as $1 in inheritance.
  • Fewer than 25 percent ever received “an act of kindness” of $10,000 or more from their parents, grandparents, or other relatives.
  • Ninety-one percent never received, as a gift, as much as $1 of the ownership of a family business.
  • Nearly half never received any college tuition from their parents or other relatives.
  • Fewer than 10 percent believe they will ever receive an inheritance in the future.
  • By 2005, there will be 5.6 million households with a net worth of over $1 million.
  • By 2005, the total value of private wealth is projected to be $27.7 trillion.
  • 5.3 % of the households will control $16.3 trillion of this money.
  • 2/3 of the millionaires are self-employed.
  • 80% of millionaires are first generation.
  • “America continues to hold great prospects for those who wish to accumulate wealth in one generation. In fact, America has always been a land of opportunity for those who believe in the fluid nature of our nation’s social system and economy.          More than one hundred years ago, the same was true. In The American Economy, Stanley Lebergott reviews a study conducted in 1892 of the 4,047 American millionaires. He reports that 84 percent “were nouveau riche, having reached the top without the benefit of inherited wealth.” (f)

With all of their advisors offering conflicting, confusing and poorly coordinated advice, it’s no wonder that clients feel whipsawed and that curmudgeon-like traits pop to the surface.  No one likes to feel out of control and when presented with no clear choices, the client withdraws and postpones future decisions.

“I have been dreading this for so long, and have put it off for years.   After I realized what choices I had and how I could make a difference, it became much easier to do.  Getting together with a team of planners who took the time to help me made it all a wonderful experience and I’ve had a lot of fun working with this.”

— 85 year-old widow commenting on the success of a family meeting discussing her estate plan

Given the human frailties that must be dealt with, there will need to be some compromise on all sides.  Donor clients need to acknowledge that there are no magical solutions to simply solve problems that accumulated over a lifetime of acquiring and conserving wealth.  Add to that a burden for dealing with longstanding intra-family squabbles and there’s a volatile mix headed down a rocky road.  If the advisors are providing conflicting advice and clients can’t differentiate between the technical nuances, how can anyone reasonably expect to get a sensible decision?  It’s far better for the advisors to elicit and acknowledge the client’s priorities.  Then in a cooperative fashion build a plan that meets those goals.  An estate plan is much like the construction of a house, each contractor contributes something to the finished project, framing, plumbing, electrical, roofing and finish work; all use different skills, tools and training and all are important if the house is to function properly.  It’s no different with estate planning professionals.

 What Donors Want in Their Charitable Advisors Charity




Expertise in technical details of executing gift 16.0% 97.9%
Skill and efficiency working with other advisors 60.3% 75.2%
Willingness to let donor set the pace 67.2% 86.0%
Knowledgeable about each type of planned gift 94.7% 99.4%
Sophisticated understanding of donor’s motives 99.2% 82.2%
Help in deciding what type of planned gift 85.5% 96.8%
Effectiveness in getting charity to treat donor as he or she wants to be treated 69.5% 11.2%
Technical sophistication was a defining characteristic in developing positive experiences.  Donors in this survey had previously made planned gifts worth at least $75,000 and had a net worth of $5 million or more. 603 donors surveyed  (h)

“Leaving children wealth is like leaving them a case of psychological cancer.”

James E. Rogers, JD LLM


What solutions exist?  Better cooperation and an understanding of the role each advisor plays in the planning and implementing of a well-designed estate plan are essential.  Education of advisors, on both sides of the table, is critical, and although it takes a commitment of time and effort to teach clients and other advisors, in the long run it will produce a team better able to satisfy the planning needs of a client.   Before effective teaching can occur, there must be an open dialogue and a measure of trust between all the parties before any long-term success will be achieved.  Acknowledge that any discussion of death and taxes is hardly a topic enthusiastically addressed by most clients, so make the benefits more immediately realized.  Promote a sense of control by helping clients redirect assets to heirs and projects of importance in ways that provide tangible positive feedback   A successful planning strategy should provide a sense of relief, better yet – a sense of accomplishment.

The “Three C’s of Charitable Estate Planning (i) will summarize the approach needed.  Create Philanthropists, Client Centered, and Client Commitment all combined in one values driven plan make the process different from generic estate and financial planning.

In order for clients, professional advisors and nonprofit planners to be successful, they need to collaborate.  They can do that a number of ways, as follows.

  • Promote planning partnerships, and minimize the tendency to develop an “us against them” attitude.  It’s just too easy to denigrate the other professions when you haven’t had a chance to walk in their shoes. Offer continuing education programs, workshops and joint presentations as a way to both update planners and bridge gaps.
  • Find collegial partners and establish strategic alliances, seek advisors with objectivity and creativity.  If there’s going to being any sort of sharing beyond a superficial level, have an open-minded discussion that deals with more than just technical issues.
  • Build a library of articles, case studies, web sites and resources suitable for clients, development staff and professional advisors as they start basic research on planning tools and opportunities.
  • Attend regional and national conferences on gift and estate planning.  Even if the topics are technical, and beyond a basic level of understanding, go and stretch capabilities or learning won’t happen.
  • Join estate planning and planned giving councils, network with other advisors.  Professional groups need speakers, present programs to promote charitable and estate planning concepts.
  • Understand client inertia; for many there are but two choices, do something or do nothing.  Doing nothing is perceived as having less risk.
  • Participate in Internet discussion forums; it’s a great opportunity to watch traffic among planners with different perspectives.  Even if there’s no agreement on a discussion point, just observing the dialogue provides a sense of what concerns each group of planners and clients.  The problem with the Internet is that too often there’s too much information to wade through without being able to discern who’s competent and what authority they have for comments made during those free wheeling discussions.  Besides trying to drink from an “information fire hose”, computerization now provides sophisticated software that eliminates many professionals as advisors, but doesn’t provide the discriminating experience that goes along with the solutions provided by generic software.  Look at Quicken® or Quick Books® as an example, by using that software the accounting functions for individuals and small businesses may have been taken over by those with data entry experience, but no accounting or tax background.  Is it a better solution? Maybe, maybe not.  Do it yourself brain surgery may appeal to some, but not all clients need that level of commitment.
  • Use the Internet to establish virtual communities and create networks of other advisors who face similar challenges.  The Internet has replaced the water cooler as a gathering place for exchanging ideas and proposing solutions.  So many planning shops are staffed with less than three professionals that it’s common for people to become insular in their thinking.  Once the advisor slips into that rut, there’s little in the way of creative planning to motivate new approaches to old problems unless there’s someone to stretch and challenge existing perceptions.

If client donors and their advisors are to have successful relationships, it will take trust, collaboration and empathy.  Consensus building, rather than using dictatorial pronouncements, is the more effective way to build a solid foundation.  Until all of the advisors are telling the client donor the same story and working towards the same goal, clients can’t be encouraged to make appropriate decisions.  That skill set can be learned by advisors if they’re willing to consider adding a values oriented component to their discussions and presentations.

(a) Cultivating the Affluent – How to Segment and Service the High Net Worth Market, Russ Alan Prince and Karen Maru File, Institutional Investor Inc., 1995

(b) Doing Well by Doing Good – Improving Client Service, Increasing Philanthropic Capital: The Legal and Financial Advisor’s Role, The Philanthropic Initiative, 2000

(c) Gift Planner Profile 2, National Committee on Planned Giving, 1996

(d) The Advisor’s Role In Philanthropy: A New Direction, H. Peter Karoff, Trust & Estates, April 1994

(e) “Forging Ties to the Money Pros”, Chronicle of Philanthropy, Holly Hall, August 7, 1997

(f) The Millionaire Next Door, Thomas J. Stanley, Ph.D. and William D. Danko, Ph.D., 1996

(g) The Seven Faces of Philanthropy, Russ Alan Prince, Jossey-Bass, 1994

(h) Prince & Associates and Private Wealth Consultants, 1997

(i) The Charitable Estate Planning Process – How to Find and Work With the Philanthropic Affluent, Prince, McBride and File, 1994

(j) Gift Planner Profile 3, National Committee on Planned Giving, 1998

(k) Survey of Donors 2000, National Committee on Planed Giving, 2000

There are practical resources for advisors working in the trenches; check these for help.

Planned Giving Design Center (

Gift Law (

Council on Foundations (

Leave A Legacy ™ – National Committee on Planed Giving (

Other publications worth a review if added background is needed.

Cultivating the Affluent II – Leveraging High Net Worth Client and Advisor Relationships, Russ Alan Prince and Karen Maru File, Institutional Investor Inc., 1997

Private Wealth – Insights into the High Net Worth Market, Russ Alan Prince, Institutional Investor Inc., 1999

The Charitable Giving Handbook, Prince, Rathbun and Steiner, National Underwriter, 1997

© 2001 Vaughn W. Henry

see the final article in the Journal of Practical Estate Planning,, Published Bimonthly by CCH Incorporated, April-May 2001 Issue – page 30 – 41.

Case Studies and Articles

Required Distributions for Retirement Plan Assets – Christopher Hoyt’s Plain English Summary for Donors and Clients

Required Distributions for Retirement Plan Assets – Christopher Hoyt’s Plain English Summary for Donors and Clients

Changes were made in a surprise announcement on January 11, 2001 to IRA distribution rules. The proposed regulations under Section 401(a)(9) have a significant impact on estate and charitable planning for retirement plan assets. While these changes may make it easier to pass retirement plan assets to heirs, qualified tax deferred dollars will continue to be some of the most efficient gifts to charity, as they will avoid the income in respect of a decedent (IRD) penalty in many donors’ estate plans.  These regulations also eliminate the past penalties associated with naming a charity as a beneficiary to share retirement plan proceeds with heirs.  There are other sites with more detailed explanations to cover the 108 pages of changes, but that’s not within the scope of this simplified summary.

Professor Christopher R. Hoyt, has presented a simple way to explain the new IRA distribution regulations to clients, donors and friends.  The following is a short summary that includes the tables and exact percentages that they will need to comply with the new laws.  He notes:

The new rules are absolutely wonderful, compared to the old rules.  For example, it is very easy to name a charity as a beneficiary of part or all of a person’s retirement account without accelerating distributions over the person’s lifetime or after death.

Over the account owner’s lifetime, the minimum distributions are the same whether a charity is named as a beneficiary or not.  After the account owner’s death, however, the administrator will usually want to “cash out” the charity’s share of the account before the end of the year that follows the year that the account owner died.  That will leave only non-charitable beneficiaries at the end of that year and will give those beneficiaries greater flexibility than if the charity is still a beneficiary.  Overall, this cash-out strategy permits a charity to be a beneficiary of part or all of any IRA or retirement plan account without causing any problems to the other beneficiaries, such as children.

At the end of this message is the summary.  It is the bare-bone basics.  For more complicated situations (e.g., a trust is a beneficiary, rollovers to surviving spouses, death before age 70 ½, contingent beneficiaries, etc.) you’ll need a competent person to look at the regulations.  Joe Hodges posted several Web sites where the regulations can be retrieved at no cost.  They are:

DISCLAIMER: The opinions expressed in this message are those of the author and do not necessarily reflect the views of the University of Missouri. The statements apply to a general discussion of legal issues and do not constitute legal advice or a legal opinion. No attorney-client relationship is created by this message. Seek independent counsel to act upon any ideas presented in this message.



Unless you are married to someone who is more than ten years younger than you, there is one — and only one — table of numbers that tells you the portion of your IRA, 403(b) plan or qualified retirement plan that must be distributed to you each year after you attain the age of 70 ½.

The only exception to this table is if (1) you are married to a person who is more than ten years younger than you and (2) she or he is the only beneficiary on the account.  In that case the required amounts are even less than the amounts shown in the table.  To be exact, the required amounts are based on the actual joint life expectancy of you and your younger spouse.


Step 1: Find out the value of your investments in your retirement plan account on the last day of the preceding year.  For example, on New Years Day you can look at the closing stock prices for December 31.

Step 2: Multiply the value of your investments by the percentage in the table that is next to the age that you will be at the end of this year.  This is the minimum amount (RMD) that you must receive this year to avoid a 50% penalty.

Example: Ann T. Emm had $100,000 in her only IRA at the beginning of the year. She will be age 82 at the end of this year.  She must receive at least $6,250 during the year to avoid a 50% penalty (6.25% times $100,000).


(Law: Prop. Reg. Sec. 1.401(a)(9)-5 Q&A 4(a)(2) (2001))















































































Unlike the old law, there is no longer any different payout based on who you name to be the beneficiary of your account after your death. The minimum lifetime distributions over the rest of your life will be the same whether you name a charity, your father, your mother, your sister, your brother, your child, your grandchild, your dog or your cat.  However, distributions after your death can vary depending on who the beneficiary is.

REQUIRED DISTRIBUTIONS AFTER DEATH FOR PEOPLE WHO DIE AFTER “THE REQUIRED BEGINNING DATE” (after April 1 of the year that follows the year that the person attained age 70 ½).

RULES IF SPOUSE IS NOT A DESIGNATED BENEFICIARY (Spouses generally qualify for the most favorable treatment, such as rollovers)


The general rule is that distributions can be made from the decedent’s account over the life expectancy of a person who is the same age that the decedent would have been on the last day of the year in which she or he died.  Prop. Reg. Sec. 1.401(a)(9)-5, Q&A 5(a)(2) and 5(c)(3)

EXAMPLE:  Sam died at the age of 79.  His IRA must be emptied over the next 10 years, since a 79 year old person has a life expectancy of 10 years.  The minimum required distribution for each year is 1/10th of the account balance in the first year, 1/9th the second year, 1/8th the third year, and so on.


Instead of distributing the amounts over the life expectancy of someone who is the decedent’s age, amounts can be distributed over the longer life expectancy of the designated beneficiary.  The life expectancy of the designated beneficiary is determined by using the beneficiary’s age as of the beneficiary’s birthday in the calendar year immediately following the calendar year of the employee’s death.  Prop. Reg. Sec. 1.401(a)(9)-5, Q&A 5(c)(1).

EXAMPLE: When Sam died at the age of 79 he had named his 22 year old granddaughter as the sole beneficiary of the IRA.  Next year his granddaughter was age 23.  According to the table, a 23 year old has a life expectancy of 59 years.  Thus, instead of distributing the amounts over 10 years the amounts can be distributed over 59 years.  The first required distribution is 1/59th, next year it is 1/58th, etc. etc.


Generally the distributions are measured by the beneficiary with the shortest life expectancy.  Prop. Reg. Sec. 1.401(a)(9)-5, Q&A 7(a)(1).  However, separate distribution computations may be possible with separate accounts.  Prop. Reg. Sec. 1.401(a)(9)-8, Q&A 2 and 3.

EXAMPLE:  Sam named both his 58 year old nephew and his 22 year granddaughter as equal co-beneficiaries.  Distributions to both beneficiaries are based on the older nephew’s life expectancy.  However, separate distribution computations may be possible with separate accounts for each beneficiary.


GENERAL RULE: The minimum distributions revert to the decedent’s remaining life expectancy.  The other beneficiaries (e.g., children and grandchildren) cannot use their longer life expectancies.  The logic is that a charity does not have a life expectancy.  Prop. Reg. Sec. 1.401(a)(9)-5, Q&A 7(a)(1)(last sentence).


#1: A SEPARATE ACCOUNT FOR THE CHARITY: Prop. Reg. Sec. 1.401(a)(9)-8,

Q&A 2 and 3.  In that case, the distributions to the other beneficiaries are computed without regard to the account for the charity.

#2: CASH OUT THE CHARITY’s INTEREST BEFORE THE END OF THE NEXT YEAR: If the charity’s entire share is distributed before the end of the calendar year that follows the year of death, then the charity is no longer a beneficiary and will not affect the distribution period.  This is because the point in time when the final beneficiaries are determined is the last day of the calendar year following the calendar year of the account owner’s death.  Prop. Reg. Sec. 1.401(a)(9)-4, Q&A 4(a).


Table V of Reg. 1.72-9, as required by Prop. Reg. Sec. 1.401(a)(9)-5, Q&A 6.


Life Expectancy


Life Expectancy


Life Expectancy










































































































































































































Case Studies and Articles

Charitable Trust Planning Resources – Vaughn Henry & Associates

Charitable Trust Planning Resources – Vaughn Henry & Associates


Charitable Trust Planning Resources

sectionbreakPhilanthroCalc for the WebCONTACT US FOR A FREE PRELIMINARY CASE STUDY FOR YOUR OWN CRT SCENARIO or try your own at Donor Direct. Please note — there’s much more to estate and charitable planning than simply running calculations, but it does give you a chance to see how the calculations affect some of the design considerations. Which tools work best in which planning scenarios? Check with our office for possible solutions.

The CRT offers clients an excellent and creative opportunity to control their social capital.

The price of ownership is taxation and loss; keep control instead.

Do you have a classic case and need a hypothetical computerized evaluation? Send us data on your asset and income projections, and we’ll provide a preliminary keep asset vs. sell asset vs. tax saving CRT scenario for your own CRT or CLT.


Professional Resources and Support


  • Charitable Giving Tax Service, R&R Newkirk, 213 W Institute Place, Suite 509, Chicago, IL 60610. Tel: 800-342-2375.
  • Charitable Gift Planning News by Moerschbaecher, McCoy & Simmons, P.O. Box 214373, Dallas, TX 75221. Tel: 214-978-3325 or LMNOP Tel: 415-485-3744.
  • The Planned Gifts Counselor by Practical Publishing, LLC, 1602 W. 1050 N., Provo, UT 84604-3062, Planned Gifts Counselor includes in-depth interviews with front-line planned giving officers in which they talk frankly about what works and what doesn’t.
  • Planned Giving Today, G. Roger Schoenhals editor/publisher, 100 2ND AVE S, STE 180 Edmonds, WA 98020. Tel: 425-744-3837 (PG-4EVER) 800-525-5748 (KALL-PGT).
  • Taxwise Giving by Conrad Teitell, 13 Arcadia Rd, Old Greenwich, CT 06870. Tel: 203-637-4553.
  • The Tidd Letter by Johnathan Tidd, 9 Beaver Brook Rd, West Simsbury, CT 06092. Tel: 203-651-8937.
  • Leimberg Information Services, Newsletters on Estate Planning, Financial Planning, Employee Benefits.
  • The Estate Planner, American Institute for Cancer Research, Washington D.C. 20069. Tel: 800-843-8114.
  • Philanthropy Journal Online
  • The Journal of Gift Planning, a quarterly publication by the NCPG. 233 McCrea Street, Suite 400, Indianapolis, IN 46225. Tel: 317-269-6274.
  • Advancing Philanthropy, The Quarterly Journal of the National Society of Fund Raising Execuctives. 1101 King Street, Suite 700, Alexandria, VA 21614. Tel: 703-684-0410.
  • Trusts & Estates, P O Box 41369, Nashville, TN 37204-9965. Fax: 615-377-0525.
  • CCH Financial and Estate Planning – Ideas & Trends, 4025 W. Peterson Ave., Chicago, IL 60646. Tel: 800-835-5224.
  • AccountingWeb a resource for accounting professionals. Articles, seminars and news updates.
  • The Philanthropy Monthly, NonProfit Report Inc., P.O. Box 989, New Milford, CT 06776. Tel: 860-354-7132.
  • Non-Profit Tax Policy Resources and IRS CPE Text
  • State Individual Income Tax Rates and State Tax Rates
  • State Tax Trends for Nonprofits, National Council of Nonprofit Associations, 1001 Connecticut Avenue, NW, Suite 900, Washington, DC 20036.
  • JMP Charitable Management Services Charitable Remainder Trusts, Reference Edition and Newsletter. J. Michael Pusey, 606 N. Larchmont Bl., Suite 210, Los Angeles, CA 90004.
  • CRT Pro 800-422-3316. Trust administrator
  • Renaissance the Social Capital Company, a Trust Administrator 800-843-0050
  • Planned Giving Concepts a Trust Administrator 314-849-0741
  • Charitable Trust Administration Company 800-562-2045
  • Yellowst\one Trust Administration Services
  • Life Fund Services Trust administrators
  • Giving USA Update, “Annual Survey of State Laws Regulating Charitable Solicitations”, American Association of Fund-Raising Counsel, Trust for Philanthropy. Tel: 888-544-8464.
  • Young – Preston Associates Planned giving newsletters on disk. PO Box 280, Cloverdale, VA 24077 Tel: (800) 344-5701.
  • The Directory of Associations is a comprehensive source of information on associations and professional societies including business and trade associations, 501c non-profit, and other charity and community organizations.
  • State Registration Requirements
  • Multi-State Filings for Charities
  • NASCO National Association of State Charity Officials. A state by state contact list of all agencies that have oversight of charitable solicitations. Links to their Web sites are provided for additional information and forms.
  • Unified Registration Statement (URS) consolidates the information and data requirements of all states that require registration of nonprofit organizations performing charitable solicitations within their jurisdictions. The effort is organized by the National Association of State Charities Officials and the National Association of Attorneys General.
  • Fund-Raising Regulation: A State-by-State Handbook of Registration Forms, Requirements, and Procedures by Seth Perlman and Betsy Hills Bush, John Wiley and Sons Publ., New York, NY.
  • Florida Charity Registration Solicitiation of Contributions. Illinois Charitable Registration and Reporting
  • The Complete Guide to Fund-Raising Management by Stanley Weinstein, 1999, John Wiley and Sons Publ., New York, NY.
  • Charity Lobbying in the Public Interest Lobbying and the Law, Resources and Strategies
  • Nonprofit Issues and Public Support Tests P O Box 482, Dresher, PA 19025-0482. Tel: 888-NP-ISSUE.
  • Worth On-Line Magazine Giving Section

Technology and Software Suppliers

Books and Articles

Estate Planning and Planned Giving Books

A Few National Charities

American Cancer Society | American Endowment Foundation (a national “community foundation”) | American Foundation for AIDS Research (AmFAR) | American Red Cross | American Diabetes Association | American Kidney Foundation | American Red Cross | Amnesty International | Care | Community Foundations – State Searchable Database | Cure Autism Now | Epilepsy Foundation | Experimental Aircraft Assn. Foundation | Fidelity’s Charitable Gift Fund (a national donor advised charity) | The Foundations (a national “community foundation” service) | Leave A Legacy | Lutheran Foundation | Make-A-Wish Foundation | March of Dimes | North American Riding for the Handicapped Association | The Nature Conservancy | St. Jude’s Hospital for Children | | Salvation Army | Save the Children | Schwab Fund for Charitable Giving | < a> |Sivananda Saraswathi Sevashram | Special Olympics | Toys for Tots | Vanguard Charitable Endowment Fund | World Wildlife Fund

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Last Updated: June 13, 2006

Gift & Estate Planning Resources

Vaughn W. Henry © 1996, 1997, 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006

If you like the content of this page, please link to it, don’t copy and paste it to your page, this site is copyrighted (lists are copyrightable under Title 17, USC, Chapter 1, Section 103(a)).

PhilanthroCalc for the WebCONTACT US FOR A FREE PRELIMINARY CASE STUDY FOR YOUR OWN CRT SCENARIO or try your own at Donor Direct. Please note — there’s much more to estate and charitable planning than simply running software calculations, but it does give you a chance to see how the calculations affect some of the design considerations. This is not “do it yourself brain surgery”. When is a CRUT superior to a CRAT? Which type of CRT is best used with which assets? Although it may be counter-intuitive, sometimes a lower payout CRUT makes more sense and pays more total income to beneficiaries. Why? When to use a CLUT vs. CLAT and the traps in each lead trust. Which tools work best in which planning scenarios? Check with our office for solutions to this alphabet soup of planned giving tools.


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FOR YOUR OWN CRT SCENARIOor try your own atDonor Direct. Please note — there’s more to estate and charitable planning than simply running calculations, but it does give you a chance to see how the calculations affect some of the design considerations. Which tools work best in which planning scenarios? Check with our office for solutions.image

New Articles

When Payouts Won’t Payoff – Henry & Associates

When Payouts Won’t Payoff – Henry & Associates

When Payouts Won’t Payoff

Sit down with a prospective client or donor and discuss the benefits of supporting their philanthropic goals with a planned gift.  Want to know one of the first questions to pop up if you haven’t done a good job describing charitable mission?  “What’s the highest payout we can take from our CRT?”  It’s also often one of the most confusing issues that must be addressed after a CRT proposal has been discussed with a client donor.  The problem is that those payouts are irrevocably selected and often form the basis for a lot of donor dissatisfaction, so getting the payout just right is important.  But, what’s just right?  Should it be more than the minimum 5%, or would 8% or 9% be too high?  What if your donors find out they could have a 25% payout?  Can you explain that 25% might not be a great rate for older clients?  How do you respond to their question, “isn’t more income better?” after you’ve just pitched the advantage of a CRT or gift annuity as a way to increase income.  If the process is just another transaction comparing interest earned in a certificate of deposit vs. dividends from growth stock vs. the use of a CRT, then you’re already working out of a hole.  This is a charitable planning strategy; if there’s not some philanthropic goal, then you’re setting the stage for discontent.

With increased availability of planning software, it’s become more common for donor advisors and their prospective clients to use widely distributed do-it-yourself deduction calculators.  When inexperienced planners or clients perform their own calculations, more often than not, they select the highest payout allowed.  Is that such a bad deal?  One of problems when promoting charitable trusts as tax avoidance tools is that potential client donors never equate their CRT as a charitable gift and many come into the process believing that the charity stands behind a poorly performing CRT, rather than have the trust stand on its own financial merits.  If the trust is going to survive and work as proposed, then the design process has to factor in the length of trust term well beyond IRS estimates of mortality, examine various payout rates and project investment performance in both bull and bear markets.

The legal restriction requiring a 10% charitable remainder imposed with §1089 in TRA 1997 and the 5% probability test for a CRAT generally provide an upper practical limit for the payout, and if a client has a choice between a five percent payout and an allowable eleven percent who wouldn’t be confused?  It’s not intuitively obvious that a lower payout might generate more income over time, depending on the asset mix of investments held inside the trust and the use of any excess income by the income beneficiary.  The problem is that while the feds may set the upper legal limit, planners need to help clients understand the practical risks and how the assets inside the trust will make or break the process.

tiersCase Study

Consider the case study for Richard (75) and Judy (57) McCoy, recently married and looking to minimize capital gains liabilities on the sale of $1 million in stock with a $700,000 basis.  They’re planning to fund their CRT but haven’t decided which type of trust or what payout makes the most sense for their needs.  Many advisors would look at Rich’s age and suggest a CRAT, but with Judy’s relative youth and an understanding that 50% of beneficiaries live longer than IRS life expectancies, a CRUT is probably the better tool for their needs.  Besides offering a chance for increasing income payouts, as opposed to the fixed dollar payments of a CRAT, the CRUT allows for additional contributions to their trust, something the McCoys have mentioned they may do if the trust performs as expected.  Given their desire to have a successful trust experience, the selection of payout and the type of investments inside the CRT is very important to both the McCoys and their advisors.  Assuming the McCoy’s marginal tax rate of 38% for federal, state and city tax and 23% for capital gains tax stays static, they’d prefer to maximize the tier two income from the trust, especially when they’re contributing an appreciated asset. (see table at end of article)

The CRUT is a two-edged sword, because it offers an opportunity for the income distributions to ride along up with increasing trust performance, but it also can slide downhill when the trust declines in value.  A lot of trustees learned their lesson the hard way when they contributed dot-com stocks last year and figured they’d ride them up to stratospheric levels.  If one of the purposes for creating the trust was to lock in a profit and diversify the portfolio, it doesn’t take many drops like those seen in high technology companies to make hindsight appear to be 20/20.  Factor in the low interest rate environment within many of the fixed income instruments and trustees or their advisors have to sort through some serious issues if they expect to keep everyone happy in the process.

Market volatility can be a real problem for a CRT, and when the four tier accounting system is factored into the payouts, it may not be clear to many advisors what payout and asset allocation mix best works inside these §664 trusts.  There are rules of thumb that should kept in mind when discussing the use of a CRT.  But at the heart of every charitable trust is the concept of the “split-interest” vehicle and its two beneficiaries.  With two sides to an equation, there will be competing interests that must be addressed.  When charities act as trustees and investment managers, they often bring an institutional mindset that’s inappropriate for managing a CRT or CLT.  What works for an endowment fund managed by a charity where 100% of the income earned is untaxed isn’t the same for a charitable trust.  The charity, as a remainder beneficiary, wants a significant gift, and sooner is better than later.  An income beneficiary (usually the donor) of a CRT wants to receive more income that’s tax efficient, and that can be produced by three primary methods:

  1. Invest in an appreciating equity portfolio, avoid dividend paying stock and sell assets to meet the required payouts that will mostly be tier two distributions taxed at lower rates.  Charities that have been managing their charitable trusts like endowment funds or pension accounts do not produce tax efficient returns because they try to invest too conservatively to preserve capital, and they often produce mostly tier one income taxed at ordinary rates.  For a tax-exempt institution, that’s not an issue, but downstream to a tax paying income beneficiary, it’s a critical problem.  Without having some equity component to their portfolio, the institutional investors won’t be in a position to grow the value of the trust greater than the rate of inflation.  Factor in inflation and trust expenses, and if the trust has any expectation of growth, significant equity ownership is necessary.  The problem is that with increased stock ownership comes increased volatility and risk.
  2. Invest in tax-free municipals if the trust was funded with cash or high basis assets and maximize the tier three income distributions that are tax-free to the income beneficiary.  However, in today’s low interest environment, it’s not going to produce an increasing income stream in a CRUT and is likely to cause the CRAT to collapse when the principal is consumed.  The income beneficiary may like those tax efficient fixed payouts of tier three or tier four return of principal, but the charity is bound to suffer as the trust corpus is eroded by inflation and disappearing capital.
  3. Be unlucky (reference hypothetical analysis) and be in the market at the wrong time or manage the money imprudently by using assets that don’t produce much income and haven’t appreciated yet, producing distributions that are mostly tier two capital gains or tier four principal.  Surprisingly, this strategy works pretty well in the short-term for a CRAT, clear up until the trust implodes and collapses with nothing left for the charity.  As long as it doesn’t happen prior to the income beneficiary dying, there are planners who create charitable trusts who view this as a great strategy.  The donor receives a deduction for an improbable gift to charity and has stripped out as much of the income as possible, paying little or no tax over the term of the trust.  Of course, this can happen with the best of intentions in a market like that found in the year long hiccup that started March 10, 2000 when the NASDAQ Composite Index reached an all-time closing high of 5,049 and by March 9, 2001 the average closed at 2,053, a decline of nearly 60%.

Not just remainder trusts are affected

These tax efficient investment decisions aren’t just a problem for remainder trusts, the lead trust has its problems too.  In a CLT, a tax paying lead trust, the taxable income is offset by the charitable distributions in the classic non-grantor non-reversionary CLAT.  While it might not be a big problem initially, as the portfolio continues to appreciate inside the trust, accommodating a 3% ordinary income rate for dividends and interest earned and a 7% capital appreciation becomes more difficult as the trust doubles or triples in size.  In a 5% CLAT, it might not be difficult to initially absorb 3% dividend earnings through distributions and trust expenses, but as the trust grows in size the static charitable distributions don’t wash out the growing earnings from a well managed and rapidly growing portfolio.  This becomes a serious problem in lead annuity trusts with terms greater than seven or eight years; it’s less of a problem in the CLUT.

CRUT“Happiness through pessimism”

(or don’t oversell market expectations)

Markets move in cycles and understanding market volatility is important if both of the beneficiaries are going to be satisfied with the trust’s operation, and that’s part of the problem – there are two potentially adversarial parties to the management of the CRT.  When a prospective client-donor asks an advisor to design a CRT so they can strip out as much income as possible, leaving the charity with little or nothing, then maybe the use of a CRT should be rethought.  Too many people have been sold on the concept of a win-win-win scenario when using a CRT to escape the capital gains hit when selling stock, but they forget that there is a real cost to the donor when giving away an asset through an irrevocable trust.  If there’s no pressure to sell an asset immediately, then sometimes it makes more sense to sell a little stock annually to meet needs for income, and if there’s a capital gains liability, there would be a tax on the distribution from the CRT at either tier one or tier two tax rates too.  It could be argued successfully that for many clients, they’re better off not using a CRT if tax avoidance is their primary motivation.  If the support of charitable mission is the goal, then planned gifts through charitable trusts may be the answer.

distributionWhat If?

To better understand the reality of a CRUT’s performance, imagine that one of your clients established a CRUT with $1 million in March of 1969.  That year was significant because it was when §664 trusts were first codified under current law, and this new tool was about to experience the double whammy of inflation and stagnant market performance.  Historical returns don’t predict future performance, but they can sure give you an idea of how badly things can fall apart when the conditions are just right.  If we’ve learned anything about markets, caution dictates watching for trends that might show up again.

One of the reasons planners like to use a CRUT is that it has the potential to increase the payouts over time and offset inflationary pressures.  What too many gift planners fail to disclose to their prospective donors is the very real chance that the income beneficiaries may have a drop in their payout if their trust assets decline in value.

Given the market volatility in 2000, many charitable trusts took a significant hit when the Dow Jones Industrial average of 11,357.51dropped 5% by year’s end to 10,786.85.  Add in an S&P 100 that was down 13.42%, the NASDAQ Composite that fell 39%, the Dow Jones Internet Index down 66%, and performance like that has significant potential to prevent the trust from working as illustrated.  Even a modest 7% payout trust has the potential to blow up when the market goes into a free-fall.

Although uni-trusts tend to not be as adversely affected as a higher payout CRAT, as the payouts aren’t so rigidly structured in absolute amounts, but even annuity trusts have potential problems.  If pushed, a 10% payout CRAT, that meets legal requirements for a 10% remainder when established, may implode if there are a couple of years of sub-par performance.  As a rule of thumb, avoid payouts higher than the §7520 Applicable Federal Rate (AFR), or there’s a chance that the trust will run out of principal before the term of the trust expires, leaving both the income beneficiary and remainder charity with nothing.  For uni-trusts, consider limiting payout for lifetime calculations to three or four percentage points under conservative expectations for average investment performance.  Extra care needs to be taken with any CRT that has a payout greater than 6.5%.  If the unitrust is a net income model, it’s possible that several years will pass by with no income distributions.  Is the advisor willing to sit down with the trustee and income beneficiary and explore what happens if the trust can’t payout any income?  If the beneficiary can’t comfortably forego income for three to five years, then a NIMCRUT or NICRUT may be a bad choice.  Should the asset be one that’s hard to value, then a FLIP CRUT should be considered, but if the asset isn’t likely to sell quickly, then the advisor should counsel caution or delay the CRT formation until income security can be more easily assured.

trends Many states have adopted the Prudent Investor Rule that mandates a total return investment philosophy.  Theoretically, both the income and remainder beneficiaries gain through investment performance under this approach.  Besides taking a more balanced view of trust investments, losses due to inflation and management fees should also be addressed when creating an investment philosophy.  For example, an eight percent payout in a CRAT, with a typical management fee for investments and trust expenses of 1.5% and 3% for inflation, needs to have a return of 12.5% just to tread water.  Given the historical returns in the market, few trustees would feel comfortable seeking a portfolio that had to average 12.5% without also accepting increased volatility and risk.  One of the important discussion points for investment professionals is to ask trustee how likely they will see a return that must earn 12%+ in any long term market.  Advisors must establish how much more risk trustees are willing to take to achieve above average gains compared to historical returns.  If the trustee can be shown clear statistical models that a slightly conservative approach is likely to be more effective, then properly setting the payouts might help achieve long term trust strength.

cratCRATS Aren’t As Safe As You Think

When a donor puts $1 million into a CRAT with the intention that at the end of the term there will be a $1 million gift to charity he/she needs to remember that that gift will be devalued by inflation over time.  Serious consideration should be given to creating a trust that withstands the volatility in the market if a gift is expected to be meaningful.  Institutions investing to preserve principal too often sacrifice investment potential that will ultimately hurt the charity in a CRAT, and may harm both the income and remainder beneficiaries in a CRUT.

Many advisors gloss over the risks of declining market performance because recent bull markets have been consistently outperforming their historical returns and market corrections have been uncharacteristically short lived.  In a bull market, everyone is an expert investor, but when things head south, there are serious problems investing with news magazines and pundits as financial advisors.  Consider what happens when a $1 million CRAT is funded in early 2000 and invests in a supposedly “safe” NASDAQ Index type fund that dropped 39% that first year.  If the trustee gets cold feet and repositions the balance in a fund that nets a respectable 7% after trust expenses, what can the trustee expect will happen in a legally established 7% CRAT.  Surprising few advisors, the overstressed trust still collapses.  It seems like everyone assumes a CRAT is the most conservative planning tool if preservation of capital is the goal, but if the trustee errs in early years, it may be a death knell for the trust over time.  Given the same fact pattern with a 6% CRAT, the trust still runs out of assets after 20 years and in the 5% CRAT, which is the lowest payout allowed, distributions eat into principal in the 21st year and the CRAT collapses after 30 years.

Can you say “malpractice”?

or how to avoid using your E&O; coverage

Of concern to both commercial and nonprofit gift planners is the potential for donor dissatisfaction.  Providing advice when establishing deferred gifts sometimes comes back to haunt professionals when their clients have to face an unexpected downturn.  Besides the well-known consumer complaints about under performing universal life insurance policies, there are similar complaints about pooled income funds that were pitched as great retirement income tools.  Add to that unhappy mix a population of income beneficiaries of CRAT and CRUT gifts that have been invested poorly and a litigator with an understanding of fiduciary accounting or investment management, and you will have a bunch of advisors and charities soon ducking for cover.  What has been a common thread in telephone conference calls with client donors this last year?  Consider the following comments from irate charitable trust creators.

  •  “How could my CRAT run out of money?  I was told it was guaranteed for life.”
  •  “I need to pay insurance premiums for my wealth replacement trust and my net income CRT was supposed to provide liquidity after I sold my property.  The trustee hasn’t been able to unload my real estate and I don’t have any income.”
  •  “I didn’t know my CRUT would produce declining income payments, the illustrations showed increasing annual payments.”
  •  “Why can’t I get income out of my NIMCRUT?  I thought that a spigot trust could always access that make-up account.”
  •  “Why do I have to pay tax on my income distributions at 39.6% when I funded my trust with cash and appreciated property?”
  •  “I have an annuity funded NIMCRUT and with last year’s 30% decline in my portfolio I was just told not to expect an income distribution for two or three years.  I’m damn mad; where’s my lawyer?”

decline Investment and trust management require infrastructure support and this cost is often overlooked as a drain on the investments.  Add to that even a modest cushion for inflation, and it’s reasonable to suggest that if an increasing payout is to occur the CRUT payout must be well below the expected rate of return.  For example, if an equity based portfolio is projected to return ten percent, then a CRUT probably should not payout more than five or six percent annually, even if the maximum allowable payout is over nine percent.  Short-term perspective when selecting higher payouts may mean the eventual income distributions will be compromised over time as the trust corpus is reduced.

Historical Decline Potential (Based on Worst Case Scenarios on a calendar year basis) Over Given Time Period Stock/Bond Asset Allocation Choices

Data from a diversified portfolio, using the statistical performance of the S&P 500, Russell, Lehman and EAFE indices for large cap, small cap, bonds and international investments.

When a client donor sits down with an advisor to select the payout and investments used inside a charitable trust, it makes sense to look at the historical performance of the market and see how the trust would have performed in the past. By overlaying the predictions with real world data, risks can be better assessed. This approach grounds the projections in reality and replaces predictions in the illustrated proposals with something the trustee can better understand.

For example, just how likely is it that a portfolio will generate a 10% rate of return? What happens to trust performance if the asset mix is skewed towards equities, compared to bonds? What if there’s only a 5 percent probability that the trust will appreciate? Perhaps a different asset mix or a lower payout should be used, and understanding something about the statistics will help advisors and trustees make better choices. When reviewing probabilities of success, consider the 7% CRAT illustrated below. If this trust was invested in a portfolio containing 100% equities and 0% fixed income instruments, a trust found in the 5th percentile is expected to produce a remainder value for charity of $3.186 million or more. However 95% of trusts managed the same way are expected to perform worse than that, so it’s inappropriate to suggest that this particular CRAT will meet all the donor’s goals. Advisors who fail to realistically manage client expectations are the most at risk for dissatisfaction when the trust underperforms. If illustrations depend on 5th percentile performance to succeed, then it should come as no surprise that everyone involved in the trust will be unhappy. Warning flags should immediately go up if the 50 percentile group contains trusts with a portfolio asset mix that collapses before life expectancy, then the trustee isn’t properly looking after the income beneficiary or the charity’s needs.

What Mix of Assets Works Best and How Much Risk is Inherent in Those Choices?
100 80
60 40

What’s all this mean?

The following table explores the probability of CRT success with various equity and bond asset mixes in the trust, then it factors in inflation and the after-tax income distributions under a four tier accounting system and estimates what the charity will receive when the trust terminates. What can you take away from this table?

  1. More equity ownership generally increases volatility.
  2. More equity ownership increases the probability that the trust will appreciate over time and distribute more tier two income.
  3. More bond ownership generally lessens volatility but increases tier one income payouts.
  4. More bond ownership in the portfolio generally limits growth of the trust corpus.
  5. A CRT survives based on its own performance. If the principal is lost, the trust collapses and leaves nothing for charity or the income beneficiary.
  6. Poorly managed trusts may, for a short time, produce income distributions that are attractive to the income beneficiary because of the tiered payouts. However, invading principal often dooms the trust’s performance.
  7. Markets go up and down, don’t plan on static market performance when illustrating what happens inside trusts that are expected to last many years.
  8. Even in a well managed and tax-efficient CRT, some ordinary income is likely to be produced. Make sure the trustee has the ability to pay trust expenses (tax return preparation, state compliance expenses, trustee fees, legal and investment advice, etc.) from tier one income so that income distributions might more readily be drawn from tier two income.
Probability of after tax annual distributions to the income beneficiary in McCoy case study.







of Meeting

or Exceeding


Avg. Payout

(after tax)

100% stock

0% bond



100% stock

0% bond

Avg. Payout

(after tax)

80% stock

20% bond



80% stock

20% bond

Avg. Payout

(after tax)


40% bond



60% stock

40% bond

CRUT 5% $74,897 $3,186,132 $59,752 $2,239,004 $48,349 $1,584,425
CRUT 50% $43,512 $1,025,787 $39,177 $882,342 $35,282 $757,654
CRUT 95% $28,611 $330,256 $29,894 $427,138 $27,135 $362,300
CRUT 5% $77,604 $1,912,001 $63,219 $1,343,628 $52,208 $950,815
CRUT 50% $46,298 $615,576 $42,264 $529,494 $38,602 $454,669
CRUT 95% $30,958 $198,187 $30,504 $208,662 $29,934 $217,417
CRUT 5% $75,691 $1,134,725 $62,848 $797,410 $52,876 $564,285
CRUT 50% $46,885 $365,329 $43,271 $314,242 $39,961 $269,835
CRUT 95% $32,725 $117,619 $32,301 $123,836 $31,787 $129,031
11 CRUT 5% $71,692 $665,668 $60,619 $467,787 $51,900 $331,028
11 CRUT 50% $46,314 $214,314 $43,144 $184,345 $40,218 $158,294
11 CRUT 95% $34,264 $68,999 $33,947 $72,646 $33,544 $75,694







of Meeting

or Exceeding


Avg. Payout

(after tax) 2, 3

100% stock

0% bond



100% stock

0% bond

Avg. Payout

(after tax) 2, 3


20% bond



80% stock

20% bond

Avg. Payout

(after tax) 2, 3


40% bond



60% stock

40% bond

CRAT 5% $34,112 $6,611,248 $32,081 $4,349,850 $31,155 $2,834,399
CRAT 50% $35,043 $1,592,407 $33,220 $1,285,380 $31,785 $1,024,149
CRAT 95% $35,442 $193,797 $34,355 $224,592 $33,219 $250,632
CRAT 5% $42,965 $4,891,019 $40,634 $3,022,546 $39,475 $1,797,632
CRAT 50% $43,763 $824,130 $42,447 $590,799 $41,416 $395,887
CRAT 95% $48,032 -$181,106 $47,039 -$161,906 $46,051 -$145,435
CRAT 5% $51,728 $3,170,789 $50,016 $1,695,242 $49,283 $760,865
CRAT 50% $53,125 $55,852 $54,158 -$103,782 $55,224 -$232,375
CRAT 95% $61,857 -$556,009 $61,396 -$548,404 $60,930 -$541,503

Table is based on an annual inflation rate of 3% with 1.5% investment and trust management fees in portfolio with varying asset mixes.  The investment returns are based on historical (*) market returns and should not be used to guarantee future performance.

For a comparison of 1969 – 1983 S&P; 500 Index, Dow Jones Industrials and 1 Year Treasuries, the following link used for some of the research may be useful.

The income and remainder numbers have been factored to show the values with inflation and trust/investment administration expenses, e.g., if a charity is projected to receive $500,000 in 23 years, it’s present day value of $253,346 (based on a 3% inflation rate) is displayed in the table.

The charitable remainders may illustrate a negative number if trust corpus is eroded.  In actuality, a CRT would collapse and discontinue payouts once all principal is consumed, but the scale of the negative number shows how poorly a trust might perform if allowed to free fall.  It is noteworthy that in an eroding CRT, an income payout may be more tax favored because any tier two and tier four payouts mean that the income beneficiary has a higher effective “spendable income”.

When software calculations show an invasion of principal is a statistically likely event, much of the distribution amount will result in increased “spendable income” from tier four principal.  These payout numbers should be assumed to be the average distribution only for the years the trust exists.

Statistical analysis courtesy of Swerdlin-White – Bank of New York Probability Software

Gift and Estate Planning Services


FOR YOUR OWN CRT SCENARIO or try your own at Donor Direct. Please note — there’s much more to estate and charitable planning than simply running software calculations, but it does give you a chance to see how the calculations affect some of the design considerations. This is not “do it yourself brain surgery”. When is a CRUT superior to a CRAT? Which type of CRT is best used with which assets? Although it may be counter-intuitive, sometimes a lower payout CRUT makes more sense and pays more total income to beneficiaries. Why? When to use a CLUT vs. CLAT and the traps in each lead trust. Which tools work best in which planning scenarios? Check with our office for solutions to this alphabet soup of planned giving tools.

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Case Studies and Articles

Charitable Giving Without the Estate Tax? – Vaughn W. Henry & Associates

Charitable Giving Without the Estate Tax? – Vaughn W. Henry & Associates

Charitable Giving Without the Estate Tax?



Vaughn W. Henry

Many in the charitable and estate planning community have expressed concerns about changes in the estate tax that might diminish support for philanthropic causes.  By promoting charity as the last and best tax shelter available to people seeking tax relief, now they find themselves wondering if tax relief has a down side.

Wealthy taxpayers assume that taxes will take a major chunk out of their estates, but if they had the ability to self direct their estate assets, they’d choose to reduce tax so more would flow to heirs and charitable causes – decreasing the tax increases bequests.


Recently, Professor Paul Shervish of the Social Welfare Research Institute (one of the authors of the widely quoted Millionaires and the Millennium New Estimates of the Forthcoming Wealth Transfer and the Prospects for a Golden Age of Philanthropy) has reversed course and presented interesting arguments that an estate tax repeal might not threaten charitable giving as much as many fear.  His position is that when people have choices and control of more of their assets, they feel more comfortable to support charitable causes.  The two charts above summarize the changing trends about concepts and the reasoning behind this somewhat unconventional position.  The trend in estate value has been to grow, and yet the distributions to charity, taxes and heirs have not been changed in the same proportion.

Based on recent Treasury Department figures, estimates of the total revenue generated by the estate tax have continued to increase, so there’s going to be an ongoing battle over tax cutting.
Year Estate Tax Revenue
1990 $10 billion
1995 $15 billion
2000 $26 billion
2005 $40 billion

While it flies in the face of conventional and political wisdom (i.e., charitable giving is motivated by tax relief), most successful philanthropic planners know that having a strong connection to a charitable cause is more compelling than just tax avoidance planning.  However, many nonprofit organizations, insurance carriers, financial and legal advisors all have expressed concerns about the loss of charitable support if the estate and gift tax is repealed.  Whether this is cynical protection of a revenue stream or a legitimate expression of concern, no one really knows — but it does further confuse the issue.  A recent commentary by Professor Stephen Leimberg on the estate tax bills passing through Congress seriously pokes holes in the legislation offered to date.  Too bad, few lawmakers have read material from practitioners in the field, rather than being swayed by an emotional “call to arms”.

What has been observed from the 1992 – 1997 statistics on estate values and charitable bequests is that transfers to nonprofit organizations have grown faster than transfers to either heirs or tax payments, so there seems to have been a significant shift in thinking by clients and their advisors to conserve “social capital”.  Will this trend continue?

“In a 1997 article in Philanthropy magazine, Hudson Institute economist Alan Reynolds took a look at a prediction by Independent Sector that the 1986 Tax Reform Act, which reduced the top marginal income tax rate to 28% from 50%, would lead to an $8 billion decline in giving. Actually, giving rose $6.4 billion the following year, and a total of $40 billion a year between 1987 and 1994. (Charitable giving now amounts to nearly $200 billion annually.) The key factor in giving, it turns out, is economic growth and wealth, not tax rates. “The surest way to increase charitable giving,” wrote Mr. Reynolds, “is to increase the number of families earning high incomes.” – Wall Street Journal Feb. 27, 2001

Of special concern to planners in light of recent market gyrations is what happens to charitable trusts when there is a market downturn and how trusts should be designed to weather those periodic storms.  Here are previews of the articles due out this month:
(1.) Payouts Aren’t Payoffs – What investment strategy works in a charitable trust

(2.) Practice Building – Understanding the interaction between commercial advisors and nonprofit gift planners

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PhilanthroCalc for the WebCONTACT US FOR A FREE PRELIMINARY CASE STUDY FOR YOUR OWN CRT SCENARIO or try your own at Donor Direct. Please note — there’s more to estate and charitable planning than simply running calculations, but it does give you a chance to see how the calculations affect some of the design considerations. Which tools work best in which planning scenarios? Check with our office for solutions.


Case Studies and Articles

Private Wealth Advisor – Finding (Or Being) A Good Advisor

Private Wealth Advisor – Finding (Or Being) A Good Advisor

Reprinted from Private Wealth Advisor – February 2001

© Campden Publishing Limited 2001, London




How should an estate plan advisor be selected to ensure the best legacy for the wealthy family?  Vaughn W. Henry looks at the issues involved.

There’s more to finding a good advisor than judging competence by expensive office furniture.  And while many successful professionals have done adequate work based on their gregarious social skills, today’s financial problems have become more complex and clients are more sophisticated.  The use of Internet databases, search functions and software resources now provides many clients with more capacity either to better solve their problems or dig themselves into a deeper hole.  Without some level of expertise, many web surfing amateurs are misled by a wide range of misinformation and outright scams.

It is important to find a team of professionals who can guide, advise and coach.  That means it is often a function of an advisor to teach a client about their choices.  While some professionals might prefer to tell the client, “don’t worry, I’ll deal with it, sign here and it’s all taken care of”, clients may be better off to ask themselves whether or not their advisor can be all things to all people.  There is often an underlying battle for influence, and it is rare to have a team work together as well as they should to address all of the estate and financial planning hurdles.

How does it happen?  Understandably, clients use advisors they are comfortable with, but  too often clients rely on their accountant who has done audit and income tax preparation – or an attorney who may have handled corporate work or a divorce.  They might lack the expertise needed to offer a full range of financial or estate planning options and be unwilling to let the client know their limitations.  Frankly, that attitude leads professional advisors into malpractice or errors and omissions liabilities when they give advice beyond their expertise.  A recently released study by Prince and Associates (see box) surveyed donors, professional advisers and planned giving officers employed by nonprofit organisations. The survey results were alarming to some experts, and disappointing to say the least.  The most surprising finding was, in terms of competence and technical expertise.  The advisers who claimed planned giving as a major part of their practice generally lacked the necessary background to give proper advise.  Randomly generated estate planning and planned gifting questions on a self administered exam produced no group average scoring above 70%, the minimum passing grade.  Test scores were best among attorneys who practiced in the estate planning arena and worst among the charity’s fund-raising employees, but it’s important to note that all groups performed well under acceptable levels.

What this means is that ongoing education needs to be a requirement and different levels of training needs to be available for all those who make financial planning, estate planning and planned giving a part of their practices.   Too few professionals make an effort to stay current, much less on the cutting edge.

What does this mean for planners and their clients?  More consideration should be given to creating teams of specialists who can craft a plan that meets the family’s need for liquidity, tax reduction, control and security.   There are professional advisors who do not feel a responsibility to save taxes or preserve an estate.  It is common to hear ‘the kids inherited more than they deserved’ or ‘it’s not my job to cut a tax bill’ or ‘the client never asked me about taxes, they only wanted a simple will’.  Many commentators feel that an advisor has an ethical duty to present a range of options to a client that includes tax reduction and a discussion of family values.  One might contrast this situation with a patient going to a physician about a head cold, and the examining doctor observes a large irregular and discoloured mole.  The patient did not ask the physician about skin cancer, but the doctor has a duty to pursue the diagnosis and treatment, not wave it off and later claim that the deceased patient never asked him to do anything about an obvious problem.

There should be no more excuses about clients not asking about whether or not tax saving techniques were available, clients generally don’t have enough background to judge what is appropriate.  After all, they chose an experienced professional advisor.  Clients should have a family-friendly plan crafted to meet their unique needs for flexibility.  Professional tax and legal advisors should make a greater effort to educate their clients and help them understand the problems and provide solutions that meet all of their clients’ concerns.  Good plans address more than great investment returns and tax efficiency – they must also meet the needs of the family.

For instance, will the plan provide for proper management by underage or unprepared heirs?  Has it been decided if there’s an upper limit on what heirs could or should receive?  What does the concept of money mean to the client?  How much is too much?  Could an inheritance provide a disincentive to work and succeed?  Does the plan try to pass assets to all heirs equally, or have past gifts and interactions been considered in an effort to be equitable?  Since there’s more to a legacy than just money, the estate plan should include passing down a family’s value system and influence.  How have the family’s core values been addressed in the master plan?

The problem is that few professional advisors like to deal with such intimate and personal questions.  Most tax and estate planners spend years honing their analytical skills only to find that clients don’t create and implement estate plans for purely logical reasons – there is an overriding emotional motivation often unsolicited in discussions with the client.  The problem is that even an elegant estate plan that does everything it is supposed to accomplish will not be well received if the family doesn’t understand and agree with its goals.  As a result, there is paralysis by analysis, and nothing gets accomplished until both the logical and emotional needs for family continuity planning occur.  Rather than try to plan an estate on an asset-by-asset basis, take a big picture view of the family’s goals and values, and see how the planning can be made to meet those needs.  Often a good advisor helps the client take the first step to address what money means to their family.  While most families do not discuss wealth, it is often illustrative to ask:

  •  Did an inheritance play a significant role in the family’s acquisition of wealth?
  •  Does the estate plan promote equal or equitable distributions? (They are not necessarily the same.  For example, heirs who have sweat equity in a family business may be entitled to preferential treatment since they helped create the wealth.  However, some families feel that past salary and bonus plans have more than compensated those working in the family business.)
  •  Have intra-family gifts been a component of the estate plan?
  •  How successful have these gifts been?
  •  Did the recipients make good use of the asset?
  •  Will it be possible to continue a gifting programme?
  •  Have heirs been prepared to manage the estate’s assets?  (Wealth should be the glue that binds the family together, not the dynamite that blows it apart.)
  •  What has been done to help heirs learn to manage wealth?
  •  Will there be disagreements among the heirs over future inheritances?
  •  Has the plan set up future conflict, a ‘partnership from hell’, when heirs are forced carry on a family business with in-laws or ex-partners?
  •  Has the plan managed to protect family assets from unnecessary expense and tax?
  •  Does family wealth create ethical burdens?
  •  Can wealth be used as a tool to modify character development, responsibility and skills of heirs?
  •  Will the plan achieve a zero estate tax liability?
What Donors Want in Their Charitable Advisers Charity




Expertise in the technical details of executing the planned gift 16.0% 97.9%
Skill and efficiency in working with the donor’s professional advisers or with the charity 60.3% 75.2%
Willingness to let the donor set the pace in the planned giving process 67.2% 86.0%
Help in deciding what type of planned gift to make 85.5% 96.8%
Knowledgeable about the advantages and disadvantages of each type of planned gift 94.7% 99.4%
Sophisticated understanding of the donor’s personal motivations to give 99.2% 82.2%
Effectiveness in getting the charity to treat the donor as he or she wants to be treated 69.5% 11.2%
Note: 603 donors surveyed: donors in the survey had made planned gifts worth at least US$75,000 and had a net worth of US$5 million or more.

Source: Prince & Associates and Private Wealth Consultants, 1997

‘Over and over again, the courts have said there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich and poor, and all do right for nobody owes any duty to pay more tax than the law demands. Taxes are enforced exactions, not voluntary contributions.’  Judge Learned Hand, 1934

If you adopt this philosophy – and most reasonable people do – consider this: with income tax, you get a chance every year to make sure you’re arranging your affairs the way you want them, but you only get one chance with estate taxes and that chance is your estate plan.  Everyone should have a plan that conserves and distributes assets, provides income for survivors and prevents unnecessary payment of excessive tax or transfer costs. A carefully crafted estate plan even offers an opportunity to pass down something more than property – that is, your system of values.  Not only should you have this kind of plan – you can.

Vaughn W. Henry