Planning for the Second Time Around

Planning for the Second Time Around

Vaughn W. Henry

Although nobody likes to enter a marriage thinking about the potential for problems, they happen. It’s a statistical probability that some marriages will fail, no matter how genuine the couple’s romantic intentions. Second and third marriages are particularly prone to uncertainty, as both parties are usually older and less flexible. There are often children from previous relationships and the couple may bring considerable assets or debts into this new marriage. It is these commingled assets and liabilities that cause serious disputes when the union starts to split apart. Deciding early on what is mine, yours and ours is important, otherwise it becomes a constant source of irritation in a blended family. To deal with complex financial problems while both parties are alive is difficult; it’s overwhelming to deal with family issues after a death.

While property held in joint tenancy passes to the surviving owner, any remaining assets may be up for grabs. Unless the surviving spouse has waived the statutory right to the deceased’s estate, any children from an earlier marriage may be effectively disinherited. This right to disclaim effectively puts the step-parent in line for one-half of the estate, despite the late spouse’s original intentions. Worse yet, the children of the surviving spouse may ultimately walk off with the bulk of both estates, leaving the first family cut out of the loop.

This unpalatable situation can be remedied with a series of trusts designed to preserve each family’s original assets. Notably, the QTIP (Qualified Terminable Interest Property) or ABC Trust allows each spouse to direct how their assets will be distributed, while still providing lifetime security for the surviving marriage partner. Assets placed in a properly drafted QTIP Trust qualify for the unlimited marital deduction, and this action postpones any estate taxes normally due at the first death. The QTIP also reduces the possibility of assets passing out of the original family’s control due to a future remarriage of the surviving spouse. This specialized trust is particularly useful in protecting children of a previous marriage from being disinherited by the surviving step-parent.

Less obvious problems in second marriages include being inattentive about beneficiary designations on insurance policies and retirement plans. All too often, the ex-spouse receives an unexpected windfall, while leaving estate taxes and final expenses up to the new family. Most companies will provide beneficiary change forms for insurance, annuities and qualified retirement plans, so there is no excuse for making this oversight..

Estates of married couples that are under $650,000 (including life insurance) and not likely to exceed this amount in the future use different planning techniques. While smaller estates will generally not benefit tax-wise from either the traditional Credit Shelter or QTIP Trust, a living trust and durable powers of attorney are still valuable tools. Families below the federal estate tax threshold still can unintentionally lose assets to another family, and this is a serious problem requiring good planning.

Many legal specialists recommend prenuptial agreements to minimize potential disputes and protect assets. However, some clients are uncomfortable with the complete disclosure needed to make these contracts binding. Other planners suggest the use of Family Limited Partnerships (FLP) as a way to protect assets and insulate the children of previous marriages. Assets held in these specialized partnerships allow the parent, as general partners, to still control both income and management. Children, on the other hand, as limited partners, are treated as passive investors in the family assets. Since the future heirs already have paper ownership of the family assets, there is little chance of losing them to another family. Of special interest to parents is the creditor protection provided to family business assets held by a FLP. Asset protection for limited partners is based on the inability to force a partnership to relinquish property. Although a judge may issue a charging order that allows a creditor access to the partnership distributions, the creditor only takes the place of the limited partner. However, the general partner still controls the timing of income distributions. As a result, creditors may find themselves in the unpleasant position of receiving tax liabilities from the partnership, but having no income distributed to pay the bill. Most creditors would prefer to avoid that situation, and this provides heirs with some leverage for negotiations.

For the more determined clients, an international trust may provide a mechanism to better protect and control the original family’s assets. Although there are a lot of hoops to jump through in order to keep everything legal, these trusts offer many advantages for individuals with potentially big exposures. To keep from conveying property fraudulently, planning must occur before any litigation or threat of legal action occurs. The major advantage to holding assets off-shore lies in the difficulty of attaching assets in any legal action. Most judges feel that such assets are held outside of their jurisdiction and not subject to the court’s control. Other asset protection features of these trusts include blocking frivolous litigation by forcing all proceedings to occur in the foreign country where the trust is located. This hurdle prevents most lawsuits from moving in directions unfavorable to the client. To evaluate the best use of asset protection strategies and integrated estate planning, experienced legal, tax and financial advisors should be consulted.

Vaughn W. Henry deals primarily with planned giving programs and estate conservation work and is a member of the Central Illinois Planned Giving Council.

Malpractice XVII – NIMCRUT Errors

Horse Farm Management – Vaughn Henry & Associates

~~~ Technical Resources on Reproduction ~~~

Horse Books and VideoEquine Reproductive Physiology, Breeding and Stud Management, 2nd Edition by M C G Davies Morel

Encyclopedia of ReproductionEquine Research Pubs.Equiresource Articles

BET Labs ReportsAnovulatory FolliclesFSH and LHSuperovulation

Estrous Cycle Characteristics of DonkeysArtificial Insemination for Miniature DonkeysReproduction in Miniature Donkeys

Horse Breeding Arithmetic University of Missouri Article on Breeding

Normal Equine Estrous CycleMare’s Estrous CycleReproductive SeasonalitySeasonal Influences

Equine Nutrition & Physiology SocietyModern Equine Breeding Management

Equine Theriogenology ArticlesGeorgia Theriogenology Lecture Series good cites, good descriptions

Equine PregnancyEndometrial CystsEarly Events in Pregnancy

Fetomaternal interactions and influences during equine pregnancy(or the fully illustrated PDF)

Growing Up: Estimating Adult SizeInfluence of maternal size on placental, fetal and postnatal growth in the horse. I. Development in utero

The influence of maternal size on placental, fetal and postnatal growth in the horse. II. Endocrinology of pregnancy

The influence of maternal size on pre- and postnatal growth in the horse: III Postnatal growth

eFSH Enhancing Reproductive PerformanceAssisted ReproductionSelect BreedersEquine Embryo TransfersColorado State University – Equine ResearchCSU Paper on Equine Embryo TransferEighth International Symposium on Equine Reproduction, – Fort Collins, 2002 edited by M. J. Evans

Early Equine EmbryologyEstrogen Metabolism in the Equine ConceptusEquine Reproduction Symposium

Equine PregnancyCurrent Equine Embryo Transfer Techniques

What Can we Expect for the Future in Stallion Reproduction?

Management of Shuttle Stallions for Maximum Reproductive Efficiency

Equine Report – University of California-Davis Vet Med

Plants Associated with Congenital Defects and Reproductive FailureWorkshops in Equine Veterinary Medicine

Proceedings of the International Symposia on Equine Reproduction

New Bolton Center Repro and Management Publications excellent resource

Endometritis inducida por el apareamiento continuo en la yegua: patogénesis, diagnóstico y tratamiento

Uterine CytologyDiagnosis of Endometritis (Uterine Infections)Mare Uterine CytologyCytology

Persistent Mating Induced Endometritis in the Mare

Studies of egg, sperm, and oviduct aim to explain why so many equine embryos die

P and E Protocol for Controlling Cycles

Equine Reproductive Physiology Dr. Lofstedt has provided a good, thorough overview CE Courses on Reproductive Physiology

BET Reproductive Labs – Endocrine and Reproductive Specialists and The use of domperidone to bring on estrus

P4 and Mares Slipping FoalsProgesterone Therapy and Pregnancy

Loss” at the 8th AAEP Annual Resort Symposium. Rome, Italy – 2006 Progestagens and Pregnancy MaintenanceVeterinary Resources and Links

Late Term Pregnancy Problems in the Mare – Ventral Ruptures, Dr. Jonathan F Pycock

Reproduction articles – PycockCaslick’sVulval Conformation, Injuries and the Caslick’s ProcedureThe Dirty Mare

Stallion Reproductive AnatomyStallion Breeding Soundness ExamBreeding Soundness Exam>Horse Anatomy & PhysiologyAbdominal Tract TutorialLaparoscopyLaparoscopic ovariectomy

Predicting OvulationStages of Early Pregnancy

Ultrasound Examination of the Reproductive Tract in Female Miniature Donkeys

Ultrasound DiagnosticsLaparoscopic Ultrasound in the Evaluation of Abdominal Structures in the Horse by Gerlach & Ferguson

Laparoscopic Procedures in Diagnosis and Treatment of Equines (Spanish) .. Indicaciones y resultados de la laparotomía exploratoria en el caballo

New Bolton Center – Equine ReportsGrayson Foundation Database on Reproduction Research

11th Annual Meeting – Italian Association of Equine Veterinarians, 2005AAEP Convention Report

Proceedings of 50th Annual Convention of the AAEP, 2004

Proceedings of 49th Annual Convention of the AAEP, 2003

Proceedings of 48th Annual Convention of the AAEP, 2002

William B. Ley, DVM, MS Horse-Repro Cytology and other Endometrial Health Diagnostics

Effects of Altrenogest (Regumate) on Stallions – Part 1 and Part 2

National Library of Medicine Searchable Database The Horse Interactive – This is an excellent resource.

O J Ginther’s Publications on Equine ReproductionHorse Reproduction Advisor a subscription site

Journal of Theriogenology (very technical reproductive research, excellent equine information)Theriogenology Topics

University California – Davis Repro Course OutlineTheriogenology Lecture Outline

University of Florida Reproduction CourseEquine Reproduction VI (Biology of Reproduction articles)

THERIOGENOLOGY – HORSE Public C.E. by Dr Rob Löfstedt

How to breed the highly susceptible mare in practiceRecovery of Oocytes Using Transvaginal Ultrasound in the Mare

Pre-Breeding Evaluation of the MareBreeding the Problem Mare

Disease of the Female Reproductive Tract (general livestock) and/or Diseases of the Female Reproductive Tract C.D.Buergelt, DVM

Current status of equine embryo transfer (Squires, McCue & Vanderwall; Colorado State University 1999). Breeding Soundness Exams

Suggested Technical Reading and Resources

Light Programs for Horse Farms

Sulpiride and light programsSelect Breeders Inc. — ArticlesUterine Cytology – John Dascanio

Roanoke AI Laboratories

American Society of Animal ScienceOtterswick Marketing – breeding videos, books

Human Health Concerns When Working With Medications Around Horses

Watch the latest videos on YouTube.com

“This site contains links to other Internet sites. These links are not endorsements of any products or services in such sites, and no information in such site has been endorsed or approved by this site.”

Last Updated: June 15, 2008

Incredibly Practical Tips, Considerations, and Reflections for Marketing, Cultivation, and Getting Gifts in a Complex Development Office

 

By Debra Ashton

 

This is an article about things I have learned working at four charities between the years 1978 and 2000. The lessons I have learned are mostly from making mistakes–some more costly than others–from making assumptions that were proven to be false, and by engaging in activities or tasks that, on reflection, were wasteful, unproductive, and sometimes even stupid.

 

To be successful running a planned giving program, you need many skills. First, you need a thorough understanding of U.S. tax law and a solid knowledge of the myriad ways donors can arrange their support of your organization. Second, you need to understand how to accept, administer and dispose of the gifts. All of these skills can be learned from conferences and workshops. However, you also need a set of skills that don’t seem to be taught anywhere. These are the skills you learn by being in your job. Unfortunately, it takes years to figure them out and much time, money, and resources will have been wasted. In addition, the toll taken emotionally when things aren’t going well is immeasurable. How many of you reading this article have a constant knot in your stomach because you:

 

1) have too much to do and don’t know how you are going to do it,

2) don’t have enough money in your budget to do what you want,

3) are not meeting your fund raising expectations,

4) bring work home constantly because you are overwhelmed, or

5) enter every performance review with a sense of dread?

 

If you are running a planned giving program, either in a small shop, large shop, or a one-person shop, in a centralized or decentralized development office, in a local or national charity, there is something here for you. If you are a for-profit professional engaged in law, brokerage, life insurance, estate planning, or other for-profit work, consider this article to be a preview of coming attractions. At some point, as so many others have done, you may switch from the for-profit world to the non-profit world. I did in 1978 when I moved from being an administrator in a trust department to being the Director of Planned Giving at WGBH, Boston’s public television station. That shift began with no knowledge of the kinds of things I will cover in this article. As a result, I can look back over my non-profit career and identify things I wish I knew in the beginning.

 

Setting the Stage for this Article

 

In the first part of this article, I will point out the complexity of the role of Director of Planned Giving. As I proceed, I will build layers of additional complexity, which, if they aren’t acknowledged with a plan to deal with them, will result in miserable failure and unhappiness in your job. Then, I will pick apart other tasks or activities commonly practiced by planned giving officers so as to show you a more productive way and why. In the end, you will have many ways to reshape your planned giving program, save money, get that knot out of your stomach, and work in harmony with your colleagues. If you follow the advice in this article, you will raise more money, spend less in doing so, and be happier in your role running a planned giving program.

 

So, let’s begin with a few facts about the culture of your development office. Although you sometimes feel it is so, your planned giving program does not operate in a vacuum. If it does, and if your program forever circles the rest of the development effort but is never fully integrated, then part of the problem might be you. More on that later.

 

Every development office is different in its culture, sophistication, and expectations. If you don’t work within the accepted structures or rules, you will encounter many troublesome situations, mostly as unpleasant surprises. But, don’t be fooled. Once you learn the culture of one development office, you cannot assume it will be the same at your next job. And, if you are from the for-profit sector intending to make a move into the non-profit world, you will undergo culture shock in an extreme way and encounter protocol you cannot imagine.

 

Orientation of a Planned Giving Department

 

There are two models for a planned giving department. Depending on which model applies to your job, your life will be very different.

 

Model #1  The Planned Giving Office operates as a service to assist other staff with planned giving proposals and illustrations but does not have assigned prospects of its own.

 

This is the kind of model I only wish I had worked in all those years. Why? Because you never have to be a fund raiser at all. You don’t have the stress of finding prospects, convincing them to visit with you, cultivating them so that they trust you, and eventually bringing them to a point where you can present a proposal to actually get a yes or a no. Planned giving staff who are in the business of assisting their colleagues to close gifts have a wonderful job since they respond to situations, but don’t have to develop situations themselves.

 

Model #2  The Planned Giving Office has its own set of assigned prospects; it may be responsible for a geographic region; plus it helps anyone else in the department including the President, trustees, major gift officers, and even annual giving staff who encounter planned giving situations.

 

This latter model describes the job most common to those reading this article. It is a tough job. You must raise money on your own, make appointments on your own, present proposals on your own, take road trips for several days at a time, develop marketing activities, and perform up to certain dollar goals each year.

 

Considerations that Affect your Sanity

 

If you are working in Model #2, then you have some serious issues with which to deal. These issues relate to how you spend your time and how you set priorities. If you are not careful and highly disciplined, you can easily lose your focus, wasting both time and money.

 

Part of the difficulty in running a planned giving program is the fact that you must spend time on many different levels of prospects or donors. Unlike major gifts officers who generally have a portfolio of prospects considered to be highly rated for gift potential, planned giving officers have a mixed bag of prospects. Therefore, if you are not careful, you will whittle away your time on those who are not worth the trouble. In addition, you must be mindful of territorial issues especially as it relates to your marketing and follow up with people who respond to your marketing initiatives. Let’s examine the kinds of categories of prospects assigned to the planned giving officer.

 

Prospect’s Assigned to the Planned Giving Officer

 

Planned Giving officers have six categories of prospects. Here are the categories:

 

1) People in the life income plans. This includes not only substantial charitable remainder trust donors but also the dead beats in the pooled income fund. You know who I’m talking about….donor’s who gave $5,000 once a long time ago and will never give again. Are you still visiting these people? If so, you are wasting your time.

 

2) People in the bequest program. The problem with these people is that they don’t count in your totals at all. Although your boss is extremely happy when you announce a bequest distribution, you don’t get credit in your totals for visits to bequest prospects.

 

3) Highly-rated prospects. These people are valid prospects for you. They are the kind of people who could transform your organization with a very significant gift if only they were motivated to do so.

 

4) Regional prospects. If you work for an organization with a national constituency, then you may have a region assigned to you and be required to visit your region three to five times per year. Arranging three to four visits per day for several days in a row is difficult, but I’ll give you some tips about this a little later.

 

5) People responding to a mailing or ad. Later in the article, I will address many issues to help make your marketing more productive.

 

6) People attending an estate planning seminar. The people who attend your planned giving seminars also attend seminars by every other stock broker and financial planning firm. Why? Because they get a free lunch and because they are trying to get free advice. However, these people are not necessarily prospects for you at all.

 

A few comments about the above six categories are in order. In spite of the fact that you may feel compelled to steward all of the people listed above, the reality is that you can’t and you shouldn’t. In order to be more productive, you must evaluate the entire group of individuals attached to the planned giving department. One by one, identify those who are truly capable of making a substantial gift, say $100,000 or more. Depending on the size of the organization or the sophistication of your development efforts, you could possibly lower the cut-off to $50,000, but I wouldn’t go lower than that.

 

Instead of stewarding those $5,000 one-time life income donors, hand them over to the annual giving staff. They are not worth your time. They are worth somebody’s time, but not yours.

 

If you are doing your job properly, you should end up with three categories of prospects. One third of your prospects should be well along in cultivation and are ready to be asked for a gift. One third of your prospects should be in stewardship after having made a gift. One hopes that with good stewardship, these past donors will be ready to give again after an appropriate amount of time passes. The final one third of your prospects are what I call new discoveries. The new discoveries got on your list from various sources and activities. Some are qualified inquiries from your marketing initiatives. Some may have being identified through research or screenings. In all cases, however, they don’t have a relationship with you or with the organization yet. They need to be worked on, evaluated, and rated for gift potential.

 

I suppose some of you reading this advice will think it is mean or callous of me to suggest that you stop spending time on those $5,000 donors. However, what was considered a big gift 20 years ago is now essentially an annual giving level today. The stakes are very high, with many organizations announcing billion dollar campaigns. Given the competition and the increasingly larger goals, it is ridiculous for the director of planned giving to be working on $5,000 gifts. If you do the right things, the smaller gifts will happen on their own. And, let me clarify something. If one of those $5,000 donors has the capacity to make a $100,000 gift, then, by all means, put them on your high priority list. Otherwise, drop them.

 

After evaluating your own priorities and prospects, you need to consider how you intend to coordinate your work with the rest of the organization. Complicating your life as the planned giving director is the fact that you are not the only one with prospects assignments.

 

Other People Who Have Prospects

 

– President, Executive Director, trustees;

– Vice President for Development, Development Director;

– Principle, major gifts, leadership gifts officers;

– Other planned giving officers;

– Annual giving officers;

– Others like department heads or program directors who interact with the constituency.

 

When you consider that other members of the organization also have prospect assignments, the way you handle your marketing initiatives is important. Here are some considerations:

 

1) Are you allowed to mail planned giving materials to everybody or are some donors off limits? In some organizations, the trustees may be coded for “no-mail.” In other organizations, the highest rated prospects or donors may be off limits for direct mail. The problem here is that those people most likely to benefit from a creative tax-related gift are excluded from receiving information that could truly be of interest to them. Know the rules early on, especially when you change jobs. If you happen to be in an organization that excludes trustees from planned giving mailings, there is one thing you can try. Ask your boss if he or she would do a cover letter to the trustees so that you can send your mailing to them “as an example of what the planned giving program is doing.” Most often, trustees are excluded from receiving direct mail to prevent them from being annoyed with so-called junk mail.

 

2) If you receive a reply card from a prospect assigned to one of your colleagues, what do you do? Would you simply interact with the donor or would you turn the reply card over to your colleague? Would the two of you go on a visit together? What do you do if you receive a reply card about gift annuities from someone assigned to the President and you already know that the prospect is being targeted soon for an outright gift?

 

There are no black and white answers to the above questions. However, you should discuss with your colleagues how such cases should be handled in order that you can work in harmony with the rest of the staff.

 

Another level of difficulty arises when you work in a decentralized development operation. Generally, planned giving is run out of the central office, but there may be development staff assigned to various units of the institution. This model could exist in a university or in an organization with field offices around the country. Under this structure, there are important territorial issues to work out.

 

For example, when I became Director of Planned Giving for Boston University, there were 15 schools and colleges, all of which had a development officer based at the school level. It wasn’t obvious to me, and nobody told me, that the Deans of each school controlled access to their respective alumni populations. As a result my first bequest mailing created quite a stir because I didn’t get permission to access the different populations.

 

Later, I learned that I had to negotiate for the rights to access each of the 15 populations. This is rather bizarre. At first, my objective was to run 15 separate planned giving programs, a lofty and unwieldy proposition. If you are working in a central office and are attempting to run simultaneous activities for multiple units, you will quickly realize three things.

1) Some populations have greater gift potential than others.

2) Some development staff are more experienced than others.

3) Some development staff are willing to collaborate with you while others are not.

In my case, I spent enormous amounts of time trying to educate these 15 development officers about planned giving because I felt obligated to treat them all equally. Unfortunately, it took me two years to figure out the three inevitable truths listed above. So, after many false starts, frustrations and turf battles, I decided to set some priorities.

Instead of forcing planning giving on all 15, I picked 5 with whom I could work productively and get the best results. You may find yourself in the same predicament, managing multiple units within the institution and pulling your hair out because you are still treating them all as equals. This is one example of why your life may be chaos. If you find yourself in a decentralized organization, be smarter than I was. Evaluate early on where your efforts will be most successful. Don’t worry about the others. When they see the results of your work with their counterparts, they will come to you when they are ready.

There are other complications for planned giving when you work in a decentralized structure. Here are just a few:

1) To whom should reply cards be addressed? You?The other development officer?

2) Who should follow up with the prospect?

3) Who needs to know if you receive a reply card or inquiry?

4) Whose budget pays for the mailing, the travel, or the visit?

Bear in mind that you cannot establish one policy to serve all. In some cases, you will want the other development officer to make the follow-up call. In other cases, you will prefer to do it yourself. If you try to use a cookie-cutter approach, you will waste lot of time and money and become very frustrated.

Considerations for getting the most from your mailings

Once you have negotiated the rules with the right people and you are clear on the populations to which you have access, be smarter about the mailings and marketing initiatives you plan.

Planned giving officers have several problems on a chronic basis. With so much to do, they find it difficult to keep up with the volume of reply cards flowing in from a marketing initiative. At first, planned giving officers greet the few cards that trickle in following a mailing with excitement. But, it doesn’t take long for stacks of cards to pile up. Each inquiry requires quite a bit of time and the compounded effect of many cards becomes a burden. Sometimes, in order to clean out the back log, planned giving officers do a form letter. This is all wrong.

Many people don’t remember sending the card. Many people don’t need the kind of arrangement they have asked about. A form letter is a quick way to clean out the back log, but it is not the best way to get a gift. It is too passive.

In my seminars, I typically introduce this topic to the audience by asking the question, “How long is appropriate to keep a repy card before you through it away?” Surprisingly, this question results in a lot of nervous laughter and it points out to me that reply cards are a big sore spot for planned giving officers. It doesn’t need to be that way.

Targeting

Most planned giving officers waste money because they don’t target their message narrowly enough. If you send 10,000 or 20,000 pieces of direct mail, you will undoubtedly receive lots of inquiries, no matter what topic you choose to cover. But, you’re back to the problem described above…..too many inquiries to follow up by phone in a timely fashion.

The quality of inquiries is more important than the quantity. Let me give you an example of narrow targeting. Presumably, your data base allows you to keep seasonal addresses for your donors or constituents. What can be said about people with a seasonal address? First, if the person has a seasonal address, the individual has at least a certain level of financial security. Second, most people with seasonal addresses eventually sell the main residence and retire to the seasonal address. This population is very specific. What can you do with it? Well, you can order a list of everyone who has a seasonal address in order to do a mailing about gifts of real estate. If you get only five responses, you can be reasonably certain they are highly qualified inquiries.

Another population to target would be donors who have ever made a gift of appreciated securities. It might be a small fraction of your donor base, but this would be a perfect population for a letter about gift annuities or charitable remainder trusts. If you narrow this further by sorting for age, your target market is even more controlled.

Just remember that more is not always better. You can save money and get more gifts if you are smarter at planning your mailings.

Staggering Your Mailings

There might be times when you want to send many thousands of letters on one topic. The way you can get control of the process rather than having it control you is by staggering the drop dates. Instead of sending 20,000 pieces of mail on one day, ask your mailing house to mail 2,000 per week for 10 weeks. In this way, you will be able to keep up with your follow-up calls; you won’t get an unwieldy back log of inquiries; and you’ll be able to speak with everyone by phone instead of resorting to your form letter strategy.

Coordinating Mailing with Travel

Many planned giving officers travel for several days at a time on a road trip. The challenge is to fill your itinerary with three to four visits for every day of the trip. If you’re like me, it is always difficult to do that because the demands of the office are all-consuming. I suspect that you have been known to place a name on your itinerary with a comment like “to be confirmed” even though you haven’t called the individual yet. You probably have a big knot in your stomach before every trip simply because time ran out to fill your dance card adequately.

You can get control of this problem by planning a direct mail piece about 6 weeks in advance to the place you’re headed. By doing so, your follow up call to the inquiries is much more productive. You can say, “What a coincidence! I happen to be coming to your city next month. Why don’t I send you some information and we can get together to discuss it when I’m there?”

All of a sudden, your trips will be full of visits instead of “to be confirmed,” your direct mail will result in actual visits, and you’ll be closing more gifts.

Considerations for Following up Inquiries

Earlier, I mentioned that sending a form letter is not an effective way to follow up inquiries. By using a form letter, you are more likely to accomplish the following than you are to get a gift:

1) Send information that is inappropriate for the needs of the donor;

2) Send an illustration that is either too large or too small;

3) Miss out on connecting personally with the donor;

4) Waste time on somebody who is not really a prospect at all;

5) Send an illustration with one beneficiary when it should have been for two.

When you have too many inquiries at one time, you are inevitably forced to use a form letter. But, if you adapt your planning to incorporate the ideas mentioned earlier, you will have fewer inquires and you will have the time to respond by phone to each and every one.

The first phone call is important, but many people assume too much from the reply card. If you receive a reply card about charitable gift annuities, you probably begin by discussing charitable gift annuities. This is wrong. I can think of many instances during which a conversation with a prospect revealed information resulting in my completely shifting gears. In some cases, it was obvious that the donor simply didn’t need more income. Thus, I suggested an outright gift instead. In other cases, the asset being considered for the particular gift was inappropriate.

When you make that first phone call to the prospect, you should encourage the donor to talk to you. Don’t make the mistake of doing all the talking. After introducing yourself and acknowledging that you have received a reply card inquiring about a particular topic, ask the donor questions like these:

1) “What prompted you to return this reply card?”

2) “What was it about this idea (gift vehicle) that interested you?”

3) “If I prepared an illustration for you, what size example should I use?”

4) “If you were to make this kind of gift, what assets would you use…..cash, appreciated securities, real estate, etc.”

5) “Do you have any particular timetable for considering this gift?”

6) “Have you done this kind of thing with any other charitable organization?”

7) “It just so happens that I’m coming to your city next month. Perhaps I could stop by for a visit.”

Consider for a moment the difference in substance from sending a form letter when compared to the kind of letter you could send following a conversation resulting from the above kinds of questions.

Considerations for Choosing the Content of Your Direct Mail

Over the years, I have come to some conclusions about why certain things work and others do not work nearly as well. This ties in to my earlier topic of targeting, but I’m approaching the topic now from a different angle.

Presumably, you agree with me that narrowing your target population would not only lower the numbers of pieces mailed, thus, saving you money, but would also simultaneously increase the quality of inquiries. There is another reason for targeting your message quite narrowly.

After many, many years of trying different things at four different charities, here are rules that make sense to me:

1) Don’t confuse the donor with too much information.

2) Do not focus on what the charity needs.

3) Focus on how the particular topic can solve the donor’s problems.

My theory is that if people have too many options, they will do nothing simply because they don’t have enough time or expertise to figure out which plan is best. Think for a minute about cellular phone companies as an analogy. What would you do if you received a brochure that described the calling plan rules and costs for AT&T, MCI, Sprint, Cingular, and Comcast? In order to evaluate whether your current plan is more or less expensive than the others, you would have to review your own calling patterns. Do you call in-state or out of state? What time of day do you use the phone most often? Are you calling other people who are also in the same plan or not? Do you need multiple phones for family members? Do you get charged for roaming or not? Do you want night and weekend minutes? It’s a mess. As a result, my guess is that you would throw the brochure away and stick with your current plan. You can’t possibly find the time to evaluate your options.

I believe that this same principle applies to planned giving mailings. If you send a brochure that covers every way to make a life income gift, you would need to cover pooled income funds, charitable gift annuities, deferred gift annuities, charitable remainder trusts (several versions), all of which have particular applications depending on the age, assets, and goals of the donor.

If a prospect receives a mailing that has too much information, he or she will most likely do nothing. It is too much work to sort it all out, especially when these topics are foreign to most people in the first place.

Instead, I recommend narrowing the target population to a specific group and mailing one simply-explained concept to them. Give them a chance to review one idea to which they can easily say, “Yes, this could benefit me.” or “No, this does not benefit me.” On the bottom line, the only goal of a direct mail initiative is to entice the recipient to contact you. From there, the conversation mentioned earlier during your first phone call drives the discussion.

On point #2, if you are targeting your planned giving mailings properly, you don’t have to explain to the recipient why you need gifts. Planned giving mailings ought to be going to existing constituents or donors. These people already know who you are. You don’t have to beat them over the head.

Donors procrastinate on planning because they don’t know what to do to solve their problems. Many don’t know that they have problems. If you can show how a particular kind of gift solves one or more problems, then you are more likely to receive a reply card.

Marketing Your Bequest Program

Every organization should have a bequest program not only because bequests can provide enormous resources to a charity, but also because it is the one thing anyone can do, even those in a one-person shop who can’t find the time to do much other substantial planned giving.

On this topic, I have several tips that will help you with your future marketing. The first tip relates to the timing of bequest mailings and results from the following fact: People revise their wills prior to taking a trip that involves crossing a major body of water. Therefore, my advice is to do a bequest mailing annually in February. Don’t do it in the last quarter of the year because that is the time to focus on year-end tax-related gifts. Don’t do it in January because people are dealing with the aftermath of the holidays. By February, they are ready to do other things, especially starting the process of updating their wills in anticipation of a summer vacation. In addition, if you plan a legacy society event in the spring, you can get new members early in the year and boost your attendance.

The second tip results from the fact that 75% of the people who provide for a charity in their estate plan never tell the charity. What does this mean for the content of your mailing? It means that you should always include legally correct bequest language in your materials. Many people will use the language, even if they don’t tell you. Most important is that you give it to them whenever you do a bequest mailing.

Finally, when you do a bequest mailing, don’t ask for too much information or you will receive a very small response. When I was at Wheaton College, I printed a nifty form that requested a lot of information including the name, size of bequest, type of asset, actual wording of the bequest, restrictions, donor’s attorney, etc. I even asked for a copy of the will. I didn’t realize that people would be reluctant to provide so much detailed information in response to a mailing. Not one response came back and I learned and expensive lesson.

Remember that there are only two purposes for a bequest mailing. The first is to identify people who have already included your organization in their estate plans. The second is to identify people who would like information on how to include your organization in their estate plans. Once you learn of a bequest intention, you can add the name to your legacy society and you can begin the process of building a relationship with the donor. Eventually, you can ask for the details once you have built the trust that is so important to this process.

Summary

Without question, there is a lot of stress in running a planned giving program. However, a good deal of the stress can be eliminated by turning off your automatic pilot and stepping back to review how you are operating.

The key points I tried to make include:

1) Discuss the rules on how you and your colleagues need to coordinate so that you don’t alienate yourself from the rest of the staff.

2) Don’t use a cookie-cutter approach to work with others. Adjust your actions based on the individuals and their capacity to work effectively and collaboratively with you. Work with decentralized staff selectively.

3) Get smarter about planning your mailings. Target a narrow market and send less mail. Keep the message simple. Send direct mail to cities you intend to visit six weeks in advance. For larger mailings, stagger the drop dates so that you can easily call every inquiry by phone. Stop doing the form letter response.

4) Evaluate your prospects so that you are working on those with the greatest gift potential. Wean yourself off the $5,000 donors.

If you adapt the way you work, you will spend less money, get more gifts, and you will get that chronic knot out of your stomach.

Debra Ashton is author of The Complete Guide to Planned Giving, now in its Revised Third Edition. For more information about Debra’s book, please visit www.debraashton.com

 

Stewardship Issues – Henry & Associates

 

CONTACT 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.

Sometimes it’s interesting to sit in the back of the room during a seminar on advanced estate planning and listen to concepts. It’s a great way to learn and observe presentation skills in order to make my own workshops easier to understand.  Unfortunately, some folks doing these seminars have only a loose grasp on the nuances of how charitable trusts really function; as a result, often learn what not to do.

 

In one memorable session, a stockbroker was pitching the CRT as a “capital gains by-pass trust” and told his audience that when clients contribute appreciated assets to a CRT they can completely avoid tax.  Then he suggested that the best replacement asset would be a bundle of tax-free municipal bonds.  His thinking was that by using a tax-free bond it would generate only tax-free income for the income beneficiary. 

 

The broker believed income from the CRT was tax-free “because, after all, it bypasses capital gains.”  In reality, the CRT only defers capital gains since annual payments are still taxed to the income beneficiary under the 4-tier fiduciary accounting system.  Using the broker’s proposed scenario of swapping $1 million of appreciated assets for tax-free income, the eventual payout on a 5% CRAT funded with appreciated stock or land with $100,000 of basis would result in eighteen years of payments taxed at 20%. Why? The unrealized capital gains have to be distributed and taxed before any tax-free income can be distributed.  The problem with investing in a tax-free bond portfolio is that the potential for growth is severely compromised in order to obtain the illusory goal of tax-free income.  In other words, it’s just plain dumb.  Plus, the IRS disqualifies any CRT where the trustee is obligated to use a tax-free bond or where any restrictive investment policies exist[Reg.1.664-1(a)(3)]

 

How do these misconceptions get a foothold?  Many professional advisors, despite all their talk about vast CRT experience, have never actually worked around a §664 CRT.  While most advisors have experience with the thousands of pension plans and millions of clients setting aside money in retirement plans, few have seen, much less understand, a split-interest CRT. 

 

As it turns out, the most reliable measure of client satisfaction with charitable planning is related to their advisors’ experience and level of sophistication.* 

 

 

 

 

The latest IRS data* on charitable remainder trusts lists only 85,000 active trusts filing required paperwork, most under $500,000 in value.  That’s not many trusts created since 1969, the first year that charitable remainder trusts were recognized.  With so few CRT’s in existence, it is difficult to obtain experience.  Nonetheless, after attending a short course, too many advisors profess expertise.  In reality, their new love of CRT’s has more to do with selling life insurance, annuities, or reinvesting assets in the market.  Whenever product is pushing process, the client is the one harmed. And, any advisor who does not put the client’s needs ahead of commissions, billable hours, or fees, should make sure his or her malpractice coverage is paid up.

 

Vaughn W. Henry

Has the stock market handed you lemons Make lemonade As it turns out, not all stock market gyrations are bad things Recent declines in equity portfolio values actually may present some excellent opportunities for tactical estate and gift planning.

Consider the charitable lead trust (CLT), an inverse of the better-known charitable remainder trust (CRT) How does a lead trust function A donor transfers cash or assets, preferably appreciating assets, into a trust with the intention of supporting a charity and then returning the asset to the family Commonly used to “zero out” an estate and popularized by Jackie O’s unfunded testamentary CLT, it’s a tool that helps preserve family wealth and control social capital.

The lead trust works best in a low interest environment when contributed assets are temporarily depressed in value, but are still liquid enough to make the required “lead” or income payments to charity on a regular schedule The donor has a choice about using either a fixed dollar contribution (CLAT) or a fixed percentage contribution (CLUT) in order to meet the requirements for a qualified lead trust Unfortunately, there is little IRS guidance and no prototype documents available to guide advisors Even with those hurdles, the bear market presents an ideal opportunity to gift assets that have intrinsic worth, but are temporarily at a lower value.

While the IRS and Congress have been trying to tighten restrictions on “estate compression tools” (legal structures that deflate an asset’s fair market value, like the family limited partnership or FLP), it’s darn hard to argue with a valuation that’s created by an active public market The IRS makes an argument that publicly traded stocks have an established value, are easily partitioned, and that aggressive FLP discounting taken for minority interests, lack of control, and lack of marketability in those limited partnership units may be abusive The lead trust offers a solution to passing family wealth A stock portfolio of $1 million that suffers a 35% – 40% decline due to erratic and emotional market behavior has presented the owner with a legal and timely way to reduce the family’s estate and gift tax bill.

Is there any risk to creating a charitable lead annuity trust If the CLT investments earn less than the government’s applicable federal mid-term rate (§7520 120% Annual “AFR”), then the trust will produce a remainder significantly less than what was originally contributed If the trust manager takes a long-term view and maintains a tax-efficiently managed portfolio, then the subsequent growth passes tax free to heirs Currently, with the government’s low AFR and the stock market decline, a charitable lead annuity trust is an excellent planning tool Create these trusts far enough ahead of time and inheritances pass with no tax cost at all. And since the assets placed into trust are (we hope) in a temporary decline because of market fluctuations, the family inherits a solid portfolio with the capacity to grow significantly.

Consider the charitable lead annuity trust if you are:

– already giving enough to charity to exceed schedule A deduction limits

– interested in supporting charity with pre-tax earnings

– living on modest income, but have an appreciating estate

– interested in preserving appreciated assets for heirs but may have already used up lifetime gifting exclusions (your applicable exclusion amount, $1 million in 2002 and 2003)

– trying to diversify and still discount estate values

– dealing with unforeseen income, don’t need it and would like to pass it on

– planning an estate for heirs as a “deferred inheritance trust” or “accelerated inheritance”

– selling a business and now that the contract is signed and found out that it’s too late for one of those “CRT things”, and would like to give the kids the proceeds

– willing to have your kids wait a bit in order to save tax on an inheritance

Have a Suggestion

Hidden Treasures – Vaughn Henry & Associates

Hidden Treasures

Tucked away in dusty lockboxes and file cabinets are old life insurance contracts that have not seen the light of day for years. Why pull them out and review their provisions now? Tax circumstances change; and while life insurance is usually free of income tax, it often creates an estate tax liability. To be safe, eliminate the insurance from the estate’s inventory of taxable assets. In another classic oversight, too often the policy designates beneficiaries who may no longer be part of the family or who have predeceased the insured or the contract’s owner. Take that inventory and use a little proactive planning to avoid costly mistakes.

Once unearthed, make a decision about these policies. Besides updating ownership and beneficiary designations, consider a donation to charity. Does family financial security still require the policy? If so, adding a charity to the beneficiary designation would be an easily modified and revocable way to set aside something as a philanthropic legacy. Even naming a charity to receive just 10% or 20% of the policy’s proceeds is a great way to create a meaningful gift without adversely affecting the family’s interests. After a few more years pass, a donor can reassess needs and later adjust the beneficiary designations or choose to donate the entire policy.

What works? Is there a veteran’s policy or an old whole or universal life insurance contract in that pile of paperwork? A policy acquired to reduce risk when there was a mortgage on the house and worries about getting kids through college may be an ideal gift now. Classic giving opportunities for insurance exist when the mortgage is paid, the kids are grown, and those risks that the insurance originally covered no longer apply. Even employer sponsored term contracts can work if the donor chooses a charitable beneficiary, and while there may not be an income tax deduction, significant support with a tool that ultimately endows your charity on a limited budget still works for almost anyone. These are painless gifts. Giving an obsolete life insurance contract does not negatively affect the donor’s cash flow; instead, it offers the charity an opportunity to receive needed funds that bypass delays in probate and family turmoil.

Outright gifts of a cash value type life insurance policy to a tax-exempt organization may generate an income tax deduction. While deduction calculations and rules can be complex, in order to qualify, the donor gives up legal ownership and allows the charity to become the irrevocable beneficiary. However, be careful if the policy has outstanding loans or if the cash value will not sustain the policy after the charity accepts it, as the gift may prematurely collapse. As with the gift of any asset, seek qualified guidance to be sure that it works properly.

Vaughn W. Henry Contact Information

Vaughn W. Henry

Henry & Associates

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CONTACT 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.

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As an independent advisor to charitable organizations on planned giving, Vaughn’s clients include some of the Forbes 400 and large U.S. corporations. His consultancy, Henry & Associates, specializes in gifting, estate planning and wealth conservation resources to professional advisors.

Since 1977, Vaughn has been a widely recognized and popular presenter to charitable groups, business owners, accountants, attorneys and financial services providers. He specializes in deferred gifting and the Economic Citizenship concept, and creative gifting for the Reluctant Donor. He helps charities learn how to develop larger gifts from difficult prospects and to work more cooperatively with donor advisors.

Vaughn received his BS in Agricultural Science and MS in Animal Science from the University of Illinois and is completing work toward a Ph.D. in management. Prior to consulting, he taught at the college level where he generated entrepreneurial funding for college programs. He continues to consult farm, ranch and closely held family businesses in operational and management techniques, specializing in small business communication technology, human resources training, operations, management and multigenerational estate planning.

In addition to NAPP, Vaughn’s affiliations include the Sangamon Valley Estate Planning Council, Central Illinois Planned Giving Council (NCPG) and numerous trade and professional financial services organizations. He has been featured in many professional publications, including The Wall Street Journal, Worth, Forbes, Investors Business Daily, Journal of Practical Estate Planning, Planned Giving Design Center, Leimberg Services Newsletters, Planned Gifts Counselor, Planned Giving Today, Tax Analysts, RIA’s Estate Planning Tax Notes and Exempt Organization Tax Review, CNBC and The Chronicle of Philanthropy

Vaughn owns www.gift-estate.com, a frequently updated wealth planning resource Web site, and resides in Springfield, IL.