Competing or Completing? Beyond Planned Gifts as Transactions
In 2002 Robert Sharpe wrote an interesting article for Trusts & Estates, "Competing or Completing? Balancing the roles of various professionals in planning charitable giving maximizes the benefits for all." I would like to second the spirit of his piece, while recommending that we as diverse professionals go beyond collaborating on specific "gift transactions" to collaborating on an overall legacy planning process of which the specific gift transaction is but one tactic or strategy. My sense is that such a collaborative process would transform our field for the better, move more money, and make our donor clients much happier and more fulfilled. In the process we advisors and gift planners will do ok too.
When we think of planned gifts as specific vehicles, like a donor advised fund, or a charitable remainder trust, offered by both nonprofits and for-profits we might ask, as Robert Sharpe does, whether the two distribution systems are competitors or complements. Considered in that way, a life insurance agent "selling" a Charitable Remainder Trust payable at death to charity Y is competing with charity X who might have written the CRT payable to them. Likewise, Fidelity might compete with a community foundation for donor advised fund assets. But let us say that the topic is not promoting a specific gift vehicle, or making a sale, but helping the donor client create an overall plan that is both prudent and inspired. (Prudent means a plan that takes care of the client and the client's family come what may. Inspired means having a positive impact on the community.) How then do the players arrange themselves around that program or process? A case study may help us get the issues in perspective.
Case Study: Beyond Transactions to Prudent and Inspired Collaboration
Mary and John are worth $10 million, most of it in their closely held business. They are both 55. Both are active in the business and own 100% of the stock. They have two children, Alan and Marcie. Alan is a painter in NYC, barely getting by. He is single. Marcie is married with two children. She is the Comptroller in the family firm. John and Mary are active in Holy Name Cathedral in Chicago where they live. They have thought about spending more time working with the Church and less time in the business. They dream of devoting their lives to working with disadvantaged children, instilling faith and character in children at risk. Not only would they like to do more volunteering, they wonder if they might fund or endow a program and a facility. A local competitor has been making overtures to the family to sell the business. Here are the questions on Mary and John's mind. (These questions have been elicited in part by their lead advisor and in part through their own reflections.)
- Should we sell, retire, and spend more time on volunteer work with the Church?
- If we do sell at the proffered price will we have enough to live on for the rest of our lives?
- Are we protected against major downside risks (death, disability, falling markets, liability, lawsuits, sickness, long term care needs, property and casualty losses)?
- If we both die tonight, we owe what in estate tax? $3 million?
- Can we reduce estate taxes in favor of the Church?
- If we sell out to the buyer, where does that leave Marcie? Will she be out of a job?
- If we sell to the outsider what will be the capital gains tax?
- Should we find a way to keep the business in the family?
- If so should it go to Marcie? And if so what do we give to her brother, Alan?
- Should we divide our estate half and half for the kids? Or should Marcie get the bulk of it because she has helped us build the business?
- If we let Marcie run the business when we retire, and she pays us some consulting fees so we have money to live on, and she then runs the business into the ground where does that leave us?
- Can we afford to do more for Holy Name today? If we sell? At death?
- How can we structure our affairs so we could do more now, later, and at death for Holy Name, minimize income tax and estate tax, while also taking care of ourselves and our children?
- How can we balance all this?
- Where do we start?
- Who can help us?
- Should we ask Marcie and Alan what they think? (If only they ever agreed about anything!)
- Who should be at the legacy planning table when we sort all this out?
- Check the questions you think need to be answered by someone. Put a Y by those you can answer all by yourself from your seat at the table.
- Ask yourself which professionals are needed to do justice to this fact pattern? Attorney, CPA, Financial planner who can do a comprehensive financial plan, financial product salesperson, planned giving consultant, banker, business valuation expert, other?
- Is there a logical order as among: goal clarification, fanning philanthropic intent, running financial scenarios, explaining planning concepts (including but not limited to giving opportunities), communicating with children, finalizing the overall plan, implementing products, legal documents, and gifts?
- Is the logical order the order you employ in your work with donor/clients?
Observations and Suggestions
- Most financial salespeople and most gift planners working for nonprofits "pitch" rather than plan. They lead with a solution before understanding the pertinent context. ("Prescription before diagnosis is malpractice.") We as a field have to get past this package sale mentality for larger client/donors who have complex needs and whose potential gifts merit lots of tender loving care.
- The family above might need a charitable remainder trust, or a foundation, or a donor advised fund, or a charitable lead trust, or an outright gift, or a bequest, but it is way premature to pitch any of those. We have not even finished the fact-finding and goal setting.
- Well over half the challenge in working with complex situations like the one above are the human dilemmas, not the financial conundrums. The issues in the case above are those of love and money, of fairness, and the push pull between self interest and giving, between playing it safe for self and family, and doing something wonderful for the Church as soon as possible.
- To resolve such dilemmas good planning will run scenarios and quantify the possible consequences of all the permutations and combinations of tools, tactics, and techniques, but in the end the family must wend its own way in this "dark wood" of moral and prudential choices.
- Some family decisions are made with advisors. Others on our knees in prayer, or in the dark of the night, tossing and turning. What is at issue here is the trajectory of many lives.
- The family needs an open ear. They need someone they can trust, not just to run the numbers, do the legal work, plead for the needs of the Church, sell financial products, or close various aspects of the "case." They need a friend with an open ear, who will listen as they feel their way through this dark wood.
- The trusted advisor, or confidant, can be anyone on the team. But the trusted advisor cannot just be a special pleader. He or she will get paid in one way or another, and will represent this or that position at the table, but the trusted advisor rises above his or her professional specialty and his or her way of getting paid, and earns the right to be the trusted advisor by simply listening, processing the information, and allowing the family to make its own best decisions. The trusted advisor may also slow down the process, involve other needed specialists, or towards the end, gently urge the process to a conclusion.
- The default choice in a case like the one above is for the family to play it safe. They might well say, "Charity starts at home," if the Church is too urgent about philanthropy. Given the parents unresolved dilemmas, given the murk and uncertainty, the most likely outcome is to do not much, or not much right now.
- If properly planned a case like this could well result in a gift to the Church of several million dollars. But the Church won't get it for asking. They won't get it for pleading. And they are not likely to get it by pitching Charitable Trusts in a vacuum. They need to be at the planning table, or within earshot of it, as the whole plan comes together.
Competition or Collaboration?
- So, if you represent the Church, as a fundraiser, what is your next move with this family? My sense is that the best move is to presume upon the common bond of religious faith, and the common bond of Holy Name Cathedral, to simply listen. Emerge as trusted advisor, or as confidante, or as an advocate for the fellow parishioner's better angel, the client's best self. Then, convene the team. Stay quietly involved as the team works forward. Continue to cultivate and to act as sounding board. As the team plans the options, your role as gift planner will come into focus, and you will get your chance to discuss the gift options in the context of the overall plan.
- If you are tax, legal, or financial advisor, what is your next move, if you are first person to whom these clients turn? Will you or won't you contact the Cathedral? Maybe that will depend on how the Cathedral has positioned itself in town and with you. Do you think of their Stewardship Committee as fellow professionals who will assist in a team effort, or do you think of them as special pleaders with a one track mind, or as well meaning people who have no sense of the proper process, and who are always closing for action prematurely?
- Ideally, Holy Name has cultivated the professional community and positioned itself as a caring team member. If so, whoever gets the case going will feel at ease involving the others who need to be at the table to do justice to this family's plan.
- If we all were to operate in this spirit we would do better for our donor/clients and they in turn would do better for their heirs and for the community.
Practical Steps for Nonprofits, Donors, and Advisors
- Check out the Resources tab at Inspired Philanthropy.
- Appendices A and B outline a simple process for bringing donors, advisors, and nonprofits together in common purpose.
- Consider an event or series of events to educate all three groups.
- Tracy Gary and I have intentionally put this material out there for all to use. We believe in cooperative advantage and in public goods. We don't want to corner the market on philanthropy. We know that others can adapt these materials to their own communities and make them their own. We want that. Out of such experiments, we want to create an informal learning community so we can uplift giving and givers. The spirit is not unlike "Leave a Legacy."
- Per Tracy, the materials in the Appendices go over well with their intended audience. In her words, "They love it and money is moving."
- If you do improvise your own approach to the issues discussed above, please share the results with me, either in comments left on the blog or by email, so we can learn together.