The Risk Averse Planned Giving Program
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“Development officers need greater awareness of the legal and financial implications of decisions they make and assistance they render every day.”

Planned Giving programs should avoid or control as much risk as possible. That's a premise of the programs we build for clients and I find it's often overlooked at more mature programs.

I believe in risk avoidance and control because tremendous potential liability lurks in all the phases of Planned Giving, from marketing and promotion through stewardship and gift realization. In fact, potential liability exists in all aspects of charitable giving, but our expertise is Planned Giving.

Planned gifts are impacted and circumscribed by state contract, elder, insurance, probate, real estate, tax and trust laws, the Internal Revenue Code and Regulations and federal securities law. There may be other categories I'm missing.

Development officers need greater awareness of the legal and financial implications of decisions they make and assistance they render every day. In some cases, unfortunately, professionals are aware but take risks. Either their office has always operated that way, or other offices do, or they know they won't be around when a problem arises, or they feel the risk of some sort of challenge is too remote to bother controlling.

I have suggestions for mitigating risk in your Planned Giving program, whether under consideration, newborn, toddler, pre-teen, adolescent or mature. Each springs from a situation I've encountered first hand or have good reason to believe exists (or used to exist). I adapted this from a seminar I delivered for non-profit officers and trustees at the New York City Bar Association in April. Here goes:

Gift Acceptance & Crediting

•   Have a written acceptance and crediting policy so that you can firmly yet politely turn down gifts that are not acceptable. Developing the policy statement will take a lot of discussion within your organization. It will also lend credibility to your program and help you considerably when unacceptable gifts are offered.

•   Give irrevocable credit (e.g. building naming and campaign chairing) only for irrevocable gifts. Likewise, give dollar value credit only for irrevocable gifts.

•   Specify the due diligence required before your organization can accept a gift of real estate. That should include Phase One environmental assessment; title search; code compliance for land with structures (i.e. improved real estate); and tenants' rights for multi-unit residential buildings. Also state whether your organization or the donor will pay due diligence expenses.

•   Unless your organization is quite sophisticated, only accept gifts of appreciated stock that is publicly traded. Privately held stock is expensive to value and plenty of problems can arise when you try to sell it. Even if you have a waiting buyer.

•   Insist that your donor have legal representation if they are considering a Charitable Remainder Trust. There are considerable consequences if your organization is the only knowledgeable party in the discussions. You subject the trust to challenge for overreaching, fraud, incapacity and undue influence.

Charitable Gift Annuities

•   Start by complying with the laws of the state in which you incorporated. Obtain the state approval if your state must provide approval before your organization can legally close gifts. This applies in New York, New Jersey, California, Florida and eight other states. Plus there are 18 states where you must notify before you may legally proceed.

•   If you are in New York, understand your initial responsibility. You must obtain approval before you may legally close your first CGA. In the past, the law was unclear and one interpretation held that you could proceed up to a half-million dollars in face value gifts. That interpretation is no longer available (and does not appear to have been the original legislative intention). The law is clear that your program must be approved from the outset. The half-million-dollar threshold triggers a second process for permanent licensing and it refers to the mandatory New York State reserve requirement, not the face value of gifts.

•   Use a commercial fiduciary to manage CGA money and perform administrative tasks. Their work should be monitored by your CFO and board investment or finance committee for asset management, and by the development office for annuitant- and donor-related work. A program with less than one million dollars under management will pay ten to twelve thousand dollars per year. When you reach a million to a million-and-a-half dollars under management, depending upon the fiduciary, you will pay a percentage of the average asset value over the year. So many things can go wrong, from late checks and miscalculated Form 1099-Rs (the form each annuitant receives at year end telling them how much ordinary, capital gain and tax free income they received in the previous year) to changing arcane state regulations, that the money spent compared to internal staff resources expended—and the risk you're taking because you aren't expert in all this—is small.

(The same goes for Charitable Remainder Trusts. Explicitly retain the right of trustee removal, for sure, but avoid acting as trustee or co-trustee.)

Bequests

•   Politely turn down requests that your organization, or an employee by virtue of their position, act as executor of any estate. (You can rely on your gift acceptance and crediting policy.) Typically this will be requested by a donor as a condition to their leaving a bequest to your non-profit. It opens you up to enormous potential liability as heirs, and others, may challenge the manner in which estate administration is performed. Likewise, employees should politely turn down requests to accept a power of attorney from a donor.

Conclusion

Mitigate risk to protect your organization, your Planned Giving program and yourself. There's more than enough potential liability for the risk averse program. I suggest you avoid a risk-taking program.

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• New clients
  We are grateful that Human Rights Watch has placed their trust in us to develop their Planned Giving program. We look forward to working closely with Director, Michele Alexander, and Associate Director, Matthew Collins-Gibson.
  
  I am pleased to have Cardinal McCloskey Services as a new client. Based in White Plains, NY, they serve the needs of at-risk children, adults and families in Westchester, Rockland, Bronx and New York counties. Welcome!



• Speaking engagements
  I will speak at AFP New York City’s Fund Raising Day on June 14, 2007. I’ll deliver an entertaining 75-minute program on Planned Giving basics at 8:30am during America’s largest one day philanthropy conference. There is information here.
  
  I will also deliver a seminar for priests of the Diocese of Rockville Centre on Long Island, NY in October.



• New gifts
  Our inaugural mailing at St. Francis Hospital, The Heart Center, has so far revealed three new bequest expectancies and a trust gift. There has also been a life insurance commitment.
  
  At Abilities!, we have secured commitments for a gift of life insurance ownership and an irrevocable gift by will.

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I am always interested in your opinion of The Martignetti Report. You can reach me through the company website

Best regards,

Tony Martignetti, Esq.
Managing Director
Martignetti Planned Giving Advisors

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