Stewardship Issues – Henry & Associates
Your Responsibility to Donors and Clients
While the popularity of split interest gifts has increased in the last ten years, too many planners have neglected to include a balanced approach in their arrangements. Remember, with these gifts, there are legitimate benefits available to both the donor (or income beneficiary) and the charity; it takes a real effort to ensure that both sides of the transaction are properly protected.
With the continued decline in equity performance and historically low interest rates, its no wonder that many donors are upset with their split-interest gifts (Life estates, PIF, CGA, CRT and CLT). In order to enhance donor satisfaction and avoid potentially serious problems (including possible litigation), it is important to
* Put the donors interests first. Short-term gains are just that; estate and gift planning is a long-term process that should evolve with the donor. Altruism is a wonderful thing, but any plan that impoverishes your donor or sacrifices personal financial security is not just a public relations problem, youre affecting someones well being.
* Exercise great care to not make any mistakes. It sounds obvious, but many math and language errors have lead to unhappiness and serious problems. When presentations are made to donors, produce an executive summary of the plan that can be provided to heirs and advisors so that they are fully briefed on whats being discussed.
* Fully disclose risks of the charitable gifting plan and any products that will be purchased in connection with the implementation of the plan. Dont disappoint your donors.
* Dont expect to have your donors tax and legal advisors to rubber stamp a planned gift unless theyve had some input into the design and feel comfortable with the overall plan and its objectives. This calls for effective team building if long term satisfactory relations are to develop.
* Dont market a charitable trust or gift annuity to a donor unless it is appropriate for his or her circumstances and planning objectives. Booking the gift is less important than making sure the gift fits the situation.
* Dont put too much faith in hypotheticals; weighty proposals dont guarantee accuracy. Avoid dumping reams of ledgers on your donors kitchen table as an explanation for a complicated plan; save it for the professional advisors. Instead, work to educate the donors well enough that they can explain what theyre doing to their family members. Keep the concepts simple and understandable until theres a need for the heavy duty gift illustrations. Encourage your donors to sign or initial the proposals for your files so that theres no confusion about what feature and benefits you discussed.
* Remember that charitable remainder trusts are charitable gifts with some tax advantages; such trusts are not a way to build wealth.
* Dont oversell the tax advantages of charitable gifts. A planned gift often results in a charitable deduction, but not all donors are able to use the full amount of the deduction. Also, remember that a gift annuity or charitable remainder trust does not avoid tax on realized capital gain; its only deferred over the term of the gift. Realized capital gains are eventually distributed to the recipients and taxed at the applicable capital gains rate.
* Communicate consistently with the donor during the planning process and after the gift is established; address problems early and wisely. Donors dont want fair weather friends. When there is bad news, you need to communicate with your donors often before any little problems grow into big problems.
* Remember that everyone is an investment expert in a bull market. Markets are volatile, and they ebb and flow. Dont make projections based on rosy statistics; instead, dont be afraid to show what happens during prolonged bear markets. When presenting hypotheticals and proposals, make sure your donors understand that theres no guarantee of future performance. Those whizbang projections are only presented as an example of what donors might expect, and a 12% return is not a conservative estimate of long term market performance.
© 2003 — Gift and Estate
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.