National Conference on Philanthropic Planning

Transcription

1 National Conference on Philanthropic Planning October 4-6, 2011 San Antonio, Texas Conference Presentation Paper Partnership for Philanthropic Planning All rights reserved.

2 The Model Standards after Twenty Years Practical Ethical Applications from Those Who Remember Bruce Bigelow Carol Kolmerten In 1991 the NCPG Board of Directors, chaired at the time by Frank Minton and populated by many of the people who have continued to lead and encourage our profession, took on the difficult task of establishing a set of model standards of practice that we hoped would guide the behavior of planned giving professionals. At the time, we debated using terms like Code of Ethics and instead elected to focus on standards of behavior, understanding that sometimes our decisions as professionals would be based as much on strategic and practical concerns as on an absolutist ethical code. This set of ten Model Standards has served us well over these past two decades and has helped to underscore our collective desire to behave in such a way as to both earn and retain the public trust in the work we do for the charities with which we are involved, whether as gift planning officers or as allied professional advisors. Any major anniversary offers an opportunity to step back from the often consuming business of the day to review the ways in which the anniversary celebrates a meaningful shift in our lives. When the Model Standards first came into being in 1991, they represented a growing feeling within the planned giving profession that we needed to set clear boundaries on our own professional behavior. The issues addressed by the Standards were important at the time and remain vital today. Some of the behaviors addressed by the Standards have become second nature to most of us; some remain ambiguous. Our panel of seasoned professionals will reflect on these Standards and their impact and will look ahead as well at some of the emerging ethical issues of gift planning. As we do this, we will also look at a series of case studies that demonstrate how the Standards can help us all to make decisions that continue to reflect well on our profession and on us as ethical citizens. We have selected case studies, drawn from our own experience, that reflect some of those issues that remain problematic to us: conflict of interest between planned giving professionals and a charity, undue influence, appropriate compensation (for both planned giving and allied professionals), and the tension between the desires of the donor or donor s family and those of the charity. This year the audience will be true participants in this session. At the end of the discussion of each case study, members of the audience will vote, using their cell phones, on the best answer of the four given. We will tally each person s response and compare how the audience answers with what the panel says. We expect a lively session. 1

3 Case #1 You are a brand new director of planned giving at a small university. One of your donors, a ninety year old widower, discovers after his wife dies that he is a millionaire. He has a law degree, though he has never practiced, and has made his living as a salesman. He has true charitable intent to benefit the university and, perhaps, two other charities as well and to provide a life income for his forty-five year old only child, but not my son s new gold digging wife. The son, alas, is a Washington, DC tax attorney. You and the donor verbally agree to a $500,000 5% testamentary charitable remainder unitrust. He tells you to Get it done, but declines to provide name of an attorney because he has none; he also refuses to retain one. In addition, he refuses to select one from a list of four eminently qualified attorneys in his city. He also declines to involve his son Oh no, I don t want him to know anything about this he tells you. 1. Get it done - take the money and run 2. Consult with your peers and elders 3. Continue to wine and dine the donor 4. Leave the money on the table and walk away. Case #2 You, the new Vice President for Development at Mensa University, have determined that the development staff is underperforming, and you think that part of the reason is that the gift planning officers are not spending enough time in the field meeting with prospective donors. You have also noticed that very few gifts have resulted from referrals by financial planners. Having seen how financial incentives stimulated productivity in the corporation where you previously worked, you decide to implement an incentive plan at the University. Under this plan the University will pay year-end bonuses and award salary increases based on the amount by which each gift planning officer exceeds his or her goals. For example, exceeding one s goal by 10 percent results in a $2,000 bonus while exceeding it by 25 percent results in a $10,000 bonus. You have created similar formulas for determining merit salary increases. To encourage referrals from financial planners, you persuade the Planned Giving Office and the Finance Committee to inform area financial planners that, if they initiate an outright gift for the endowment or a charitable remainder trust valued at $500,000 or more, with the University as trustee, the University will allow them to invest the assets, as long as the donor consents. 2

4 However, they must charge reasonable fees and achieve investment returns comparable to those of other University investment managers. 5. Implement the bonus plan but do not agree to invest donated assets through the financial planner who initiated the gift 6. Agree to invest donated assets through the financial planner who initiated the gift but not to implement the bonus plan 7. Implement both incentive plans: bonuses for gift planners who exceed their goals and an agreement to invest donated assets through the financial planner who initiated the gift 8. Do not implement either incentive plan because they indirectly violate Article 4 of the Model Standards. Case #3 You are the long time vice president for development for a large city zoo in the south. One of your devoted supporters and butterfly aficionado has left her total estate to be divided equally between the zoo (the gift has been designated to create a new butterfly habitat) and two nieces. The bulk of the estate is in the form of a large piece of land in a rapidly growing community that had a thriving real estate market prior to the current economic crisis. The property has been appraised as high as $7M but now appraises at a current low of $3M. If the land does not sell for at least $5M, the zoo will not realize enough money to create the new butterfly habitat. You would prefer to wait for the economy to recover in hopes of getting the higher price. The nieces, who need income now and are responsible for the taxes on the property, are eager to settle the estate and are urging you to sell now, even at the lowest price. 9. Agree to sell the land now, then invest the proceeds and hope that butterflies will not be extinct by the time there is enough money earned to build the habitat 10. Agree to sell the land now and use the proceeds for some other purpose 11. Refuse to agree to a current sale 12. Buy out the nieces interests. Case #4 You have recently been hired to direct a first-ever comprehensive campaign at a small Midwestern liberal arts college. You are, needless to say, eager to create the foundations for a strong campaign. Your background has been planned giving and you particularly want to start a planned giving program that encourages innovative gifts of non-cash assets. 3

5 At your first fiftieth reunion celebration, only one month after you moved to town, you meet the president of the reuning class, a spritely and active widow who lives in a neighboring town. She is much impressed by your lively personality and by your new ideas and invites you to visit her to talk about a charitable gift annuity. That visit produces a gift, and the gift leads to a celebratory lunch. You find that you share many interests and perspectives and before you know it, you are getting together once a month for a meal, a shopping excursion, or a social event. She has no other family and clearly enjoys your company. Over time, she makes additional gifts and, in fact, funds four CGAs over the course of several years. When she dies several years later, you find that she has, unbeknownst to you, included a gift of $100,000 to her faithful friend (you) along with a substantial bequest to your college. The will also notes that, if any of her heirs disclaims the bequest, the amount will go to a distant niece in another city. Have you overstepped your ethical bounds by developing a close personal relationship in the first place? And what are your options for the bequest? 13. Tell her attorney that you could never accept a sizable gift from a donor 14. Accept the bequest but turn around and give it to the college 15. Accept the bequest and do what you want; after all, you never asked for it and you want to honor your friend/donor s wishes 16. Accept the bequest but you resolve never to become such good friends with a donor again. Bruce Bigelow Charitable Development Consulting Box 1486 Frederick, MD (301) bigelow@charitabledevelopmentconsulting.com Carol Kolmerten Founding Partner Charitable Development Consulting 19 Newburg Avenue Catonsville, MD (301) kolmerten@charitabledevelopment.com 4

6 Model Standards of Practice for the Charitable Gift Planner Preamble The purpose of this statement is to encourage responsible gift planning by urging the adoption of the following Standards of Practice by all individuals who work in the charitable gift planning process, gift planning officers, fund raising consultants, attorneys, accountants, financial planners, life insurance agents and other financial services professionals (collectively referred to hereafter as Gift Planners ), and by the institutions that these persons represent. This statement recognizes that the solicitation, planning and administration of a charitable gift is a complex process involving philanthropic, personal, financial, and tax considerations, and often involves professionals from various disciplines whose goals should include working together to structure a gift that achieves a fair and proper balance between the interests of the donor and the purposes of the charitable institution. I. Primacy of Philanthropic Motivation The principal basis for making a charitable gift should be a desire on the part of the donor to support the work of charitable institutions. II. Explanation of Tax Implications Congress has provided tax incentives for charitable giving, and the emphasis in this statement on philanthropic motivation in no way minimizes the necessity and appropriateness of a full and accurate explanation by the Gift Planner of those incentives and their implications. III. Full Disclosure It is essential to the gift planning process that the role and relationships of all parties involved, including how and by whom each is compensated, be fully disclosed to the donor. A Gift Planner shall not act or purport to act as a representative of any charity without the express knowledge and approval of the charity, and shall not, while employed by the charity, act or purport to act as a representative of the donor, without the express consent of both the charity and the donor. IV. Compensation Compensation paid to Gift Planners shall be reasonable and proportionate to the services provided. Payment of finder s fees, commissions or other fees by a donee organization to an independent Gift Planner as a condition for the delivery of a gift is never appropriate. Such payments lead to abusive practices and may violate certain state and federal regulations. Likewise, commission-based compensation for Gift Planners who are employed by a charitable institution is never appropriate. V. Competence and Professionalism The Gift Planner should strive to achieve and maintain a high degree of competence in his or her chosen area, and shall advise donors only in areas in which he or she is professionally qualified. It is a hallmark of professionalism for Gift Planners that they realize when they have reached the limits of their knowledge and expertise, and as a result, should include other professionals in the process. Such relationships should be characterized by courtesy, tact and mutual respect. VI. Consultation with Independent Advisers A Gift Planner acting on behalf of a charity shall in all cases strongly encourage the donor to discuss the proposed gift with competent independent legal and tax advisers of the donor s choice. VII. Consultation with Charities Although Gift Planners frequently and properly counsel donors concerning specific charitable gifts without the prior knowledge or approval of the donee organization, the Gift Planner, in order to insure that the gift will accomplish the donor s objectives, should encourage the donor early in the gift planning process, to discuss the proposed gift with the charity to whom the gift is to be made. In cases where the donor desires anonymity, the Gift Planner shall endeavor, on behalf of the undisclosed donor, to obtain the charity s input in the gift planning process. VIII. Description and Representation of Gift The Gift Planner shall make every effort to assure that the donor receives a full description and an accurate representation of all aspects of any proposed charitable gift plan. The consequences for the charity, the donor and, where applicable, the donor s family, should be apparent, and the assumptions underlying any financial illustrations should be realistic. IX. Full Compliance A Gift Planner shall fully comply with and shall encourage other parties in the gift planning process to fully comply with both the letter and spirit of all applicable federal and state laws and regulations. X. Public Trust Gift Planners shall, in all dealings with donors, institutions and other professionals, act with fairness, honesty, integrity and openness. Except for compensation received for services, the terms of which have been disclosed to the donor, they shall have no vested interest that could result in personal gain. Adopted and subscribed to by the National Committee on Planned Giving and the American Council on Gift Annuities, May 7, Revised April Reprinted with permission.