FORENSIC PLANNED GIVINGSM

By Tony Martignetti, Esq.

Four months into our consulting engagement at the College, it was time to spend a day going through the archived Planned Giving files. Eight hours later, two Vice Presidents and the Director of Development were damn glad we did. That one day yielded $500,000.

We are Planned Giving consultants. Part of what we do is Forensic Planned GivingSM. We search for the facts, just the facts ma'am, to get to the bottom of old planned gifts. We look in archived files and we comb old wills, trust documents, deeds and pledge agreements. We interview donors, lawyers, trust officers, former employees, real estate appraisers and title abstracters.

We get answers to lingering questions that sometimes have been around for over a decade. The stench of uncertainty and the acrid dust of decay hang on these old files but we persevere until we are sure our clients get everything they're entitled to from every gift.

It's called Forensic Planned GivingSM. We didn't pioneer it, but we've perfected it.

On this particular engagement, we were hired to help the College build its endowment. The size of net assets, which includes endowment, would be important as the College sought financing for a new dorm. Planned gifts build endowment so we were called to the scene.

We'd seen this type of case before: a 501(c)(3). A development professional with her responsibilities split between planned and major giving (the most grueling combination we've seen is planned and annual giving, but in any combination Planned Giving will never get the time it deserves), a long suffering Planned Giving program that has potential but no hope of realizing it without intervention, leads lingering without follow up, innumerable questions about how to proceed, no policies in place and the Vice Presidents of Development and Finance clamoring for more gifts and a larger endowment.

We opened the case as we do any other: assessment. Where is the program, what is its potential and what's a realistic strategy for achieving it? Next, execution. Working on-site, side-by-side with the client, we built up the direct mail program, hosted a first seminar, followed up with prospects, formalized the recognition society, developed and worked a Top 50 prospect list, interviewed fiduciaries for a possible change in the Charitable Gift Annuity program and wrote marketing materials, all while training and motivating staff and board members.

At that point in the case, we were ready to start the forensics. Ready to start digging into the Planned Giving archives, where lots of folders are placed and few are ever looked at.

The very first file stirred our suspicion. Here are the facts: donor correspondence from 1992 referred to "your share of my trust," but there was no trust document. A college acknowledgement letter referred to "your bequest," but there was no will. We had copies of bank checks payable to the College going back three years. There were a few annual trust transaction statements.

My partner, Joe, pointed out that the College could have a gift by trust and no trust agreement and they could be in someone's will and not have a copy of it.

Joe was right. In fact, our advice to clients is to accept documentation when a donor offers it but to not demand documentation for revocable gifts as a prerequisite for acknowledgement and membership in the Planned Giving recognition society. To do so ignores the revered status a non-profit enjoys by being included in a donor's estate plan.

How would your aunt, uncle or grandmother feel when, upon revealing to you that they have included you in their will, you ask for a copy of it?

Besides, what does the occasional lying donor get? One free recognition lunch per year? A lapel pin? Donors have little incentive to mislead and non-profits have a lot to lose when they ask for a copy of a will, or bequest paragraph, upon being informed that they have been named a beneficiary alongside loved ones.

Sure. Joe was right. He usually is.

There were any number of possibilities here. Maybe the documentation is elsewhere, under "B" for Bequest, "T" for Trust or "W" for Wondering. Maybe this was a revocable living trust and the then gift officer called it a bequest. Maybe the trust was irrevocable and the donor chose not to share the agreement. But would a gift officer call the remainder of an irrevocable charitable trust a bequest? If it is a trust, how is it invested? How often should payments be made and how much should our client be getting? Many questions arose.

A good forensics team does not leave questions lingering. It answers them to the fullest extent of the law of Planned Giving.

Our instincts led to our initial theory of the case. We surmised that we were dealing with a testamentary trust paying income to the College. That would explain the file contents, including the acknowledgement letter from a gift officer who didn't quite understand what was given. That's not uncommon. Lack of understanding is often the reason planned gift files end up in an archive when they should be under active management or at least periodic review. Out of sight out of mind. We hate to see it. That's the ugly side of Forensic Planned GivingSM.

We needed to confirm our theory and other questions haunted us: is the College getting all the trust income or a percentage? Are there other beneficiaries? Is the bank properly calculating the income? Has the trust been invested for income, growth or balance? Is the trust perpetual or for a term of years? Does the finance committee of the board oversee the bank's performance? Can the trust be carried on the College's balance sheet as an asset? Does the vice president of Finance even know about this trust? Does anyone understand it?

Much legwork remained.

Time to hit the phones. We called the bank that has been sending the checks and annual statements. The trust officer was a tough nut to crack. Under withering interrogation she confessed that a portfolio of trusts, including the one in question, is being sold to another bank. It's been over a year since she's looked at it.

"Fax us a copy of the trust document?"

"Due to the sale it's in archive and inaccessible for a few days."

She's stonewalling. Our investigation cannot wait. We call the buying bank. The sale hasn't closed so the receiving trust officer hasn't seen the file.

"Is it accessible?"

"Yes, but not to you. Your name isn't on the record."

Wiseguy. The only one at the College who has access to the file is the name on the bank's record, a name we don't recognize. Onsite investigation: who is this person?

It's the previous Vice President. Our client didn't update the record 18 months ago when the VP changed. (Best practice is to have at least two people allowed access to all offsite files.)

Back to the second bank:

"Only the person on the record can authorize a change."

"She's dead." (Actually she moved to the Midwest, but we see no point in quibbling over shades of grey.)

You are getting a sense of the time involved in Forensic Planned GivingSM. It's justified because our client needs to understand the gift and ensure they're getting everything from it that they're entitled to. All this just to get a copy of the trust document, which arrived by fax later that day.

We spent the in-between time dusting off and cracking open other archived files and running down petty questions, low level, nuisance-type stuff: a Charitable Gift Annuity agreement signed only by the donor; a bequest expectancy from a donor who is not on the current list of Planned Giving recognition society members; direct mail inquiries that weren't responded to; a life insurance beneficiary designation with transposed digits in the College's tax ID number; an old owned life insurance policy reported on the balance sheet at present value rather than cash surrender value (the increase raised a few smiles).

Epilogue

The fax we received was a will and it confirmed our suspicion. We were looking at a testamentary charitable trust which directs that half the annual income be paid to the College in perpetuity. The trustee does not have authority to change the charitable beneficiaries (one of the gems we look for in what appears on the surface a dull testamentary instrument) and the current market value, reported on the statement we requested, is $1,000,000.

We made the case to the VPs of Development and Finance that half the trust's value can be reported on the books as permanently restricted net assets under FASB Rules 116 and 117 (that's a story for a different episode) and must be updated each year. (They were reporting only the annual income as it was received, not the present value of the estimated future cash flows, allowed under Rule 116.)

This day, our Planned Giving ForensicsSM team added half-a-million dollars to that College's endowment and brought some solace to two Vice Presidents and a Director of Development.

More investigation remains into asset allocation and appropriate investments.

This is our job. The city is New York. We are its Planned Giving consultants.