Avoid Planned Giving Schemes

Avoid courtesy of Thomas Hawk on Flickr.
This is related to my post two weeks ago, “It’s Planned Giving, Not Product Giving.” I said some financial product salespeople don’t have your program’s best interests at heart when they offer to “help.”

Occasionally, those offering specious help come bearing innovative, cutting-edge programs. Most of the ones I’ve seen have life insurance at their core.

Their hallmark is a paper or slide with a score of arrows connecting six or eight boxes. There’s a box for the donor and one each for your charity, the life insurance policy, the trust that owns the policy, the trustees of the trust and the AAA-rated company selling the policy. Arrows are shooting in and out of boxes and around corners.

They’re always convoluted. I ask three times how the programs work, and I can’t regurgitate the explanations 30 minutes later.

A lot of times the plans’ advocates aren’t salespeople, but well-meaning board members or committed donors.

I’ve been in Planned Giving since 1997, as a program director and consultant. I’ve never passed on one of these as something to offer donors. They might be appropriate for huge charities with highly mature programs, though I’m skeptical.

How do you protect your charity and your donors–without sounding ungracious–when offered what I’m describing? Ask two questions.

  1. What other nonprofits are executing the program?
  2. Is there a private letter ruling from the IRS?

I confidently predict the answers you’ll hear.

  1. A and B are looking at it.” – That’s meaningless. You’re looking at it too. In their next pitch meeting, you’ll be “C.”
  2. No” – Without IRS’s imprimatur, I recommend you pass on the ground-breaking innovation.

I don’t feel like a curmudgeon, though you may think I sound like one. In 15 years I’ve seen a lot of bad practices seeking refuge under the Planned Giving umbrella.

Protect your charity from dubious ideas that don’t add value for donors.

8 thoughts on “Avoid Planned Giving Schemes

  1. Jonathan Tidd once gave me some important advice after I asked him to give me feedback on a new “scheme” a donor wanted to use with an endowment I was engaged. “The IRS has given us clearly defined ways that work to make planned gifts. Follow those and you won’t go wrong.” Jonathan’s words still have resonance, especially after the shenanigans we saw on Wall Street during the bubble.

  2. The trickiest thing is when the donor brings the idea to your attention, all excited about the great opportunity they’ve been told about by the promoter. The phrase I HATE to hear is “why should you care if it’s stretching the rules a bit?” A few people think we are confirmed stuck-in-the-muds … but we just won’t do something that might come back to bite the donor …or us!

  3. Tony, what would you do if a donor came to a client of yours and wanted to give using a patented plan?

  4. Also, I won’t work with anyone who says they have a patent on a planed giving scenario. Claiming ownership of a method of giving restricts the potential for people to give, and that, to me, is contrary to the role of people in the field of philanthropy.

  5. One of these places wanted me to come in to see a presentation last year. It’s all a bunch of hedging and leveraging baloney that’s supposed to be a miracle: MONEY AND TAX DEDUCTIONS FOR EVERYONE! NO DOWNSIDES!

    I suppose maybe it COULD work, if the market behaved exactly the way you wanted it too. And since the market always behaves exactly the way we want it to…

    (It didn’t help that the outfit that was approaching me was under investigation by the Michigan AG.)

  6. Hello Tony and colleagues, I recall a prospective donor to the children’s hospital I was working with at the time who was convinced that leveraged life insurance was a ‘great gift.’ During our due diligence about the plan, the agent who was promoting the scheme called me at the request of the prospect. Her call came while she was vacationing in the French Riveria, which established the true nature of the product. I then redirected the prospect to more appropriate and time-tested ways of giving.

    James A. Roehm, CFRE
    The Preservation Society of Newport County, Newport, RI (a/k/a “Newport Mansions”)

  7. Yes! The ubiquitous attorney opinion letter. Touted as authoritative and objective, it is neither.

  8. I so agree with you Tony. Another situation to watch out for is the so called “legal opinion” on the scheme, which is often worthless too since the IRS inevitably throws everything out. Every time I see these programs there’s usually a ton of unnecessary insurance and/or annuities. When I ask why the gift can’t be made without the insurance, I get a runaround. Even though I used to sell life insurance, I never once tried to use it in charitable giving unless it was in a wealth replacement trust.

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