Simple Gifts

Simple Gifts

A cautionary tale you need to read
Article posted in General on 2 June 2014| 8 comments
audience: National Publication, Two Hawks Consulting, LLC | last updated: 3 June 2014
Print
||
Rate:

Summary

This is a great cautionary tale: for advisors; for donors: for charities; and for financial institutions. One of the most common suggestions for donors today is to "simply name your favorite charity" as the beneficiary of your IRA (or other qualified plan). We should have known. Nothing is ever as easy as it should be...or could be. Read this donor's story and our conclusions on how this could have been avoided.

The name of a famed Shaker Hymn and a remarkably moving melody. But this story has little music to it. The very sad part is that the story is true.

In this case, the advisor didn't understand the concept, his home office instead of helping facilitate, acted like an obstacle.

If not for the persistence of the donor and her counsel, this gift would never have been implemented. Most donors would have just given up.

Here we are telling donors, "Do this simple thing" when we don't even understand how challenging and difficult and frustrating it could be. Advisors have to stay involved from start to finish. This advisor almost lost a good and loyal client because he didn't know what he was doing or how to get it done.

Not knowing planned giving can be really costly: for the advisor (lost client); for the charity (no gift); for the donor (extra legal bill, maybe extra tax for the family and frustration).

WOW! Now, on to the true story written by the donor herself.

Randy Fox


A Donor’s Story

Charitable giving should be easy. Right?  Everyone concerned should have warm, fuzzy feelings about the process. Right?  Then why did my recent efforts turn into five-months of contentious exchanges which, for a time, had me thinking about leaving my financial advisor who I like and respect and has provided me with sage advice and grown my portfolio?

First, some background:  I am a 68-year-old retired attorney who spent most of my career in public interest and public sector law.  I have modest but significant assets and believe in paying back or paying forward to benefit others.  My son understands and supports these values and knows that 20-25 percent of my estate will go to educational institutions. Second, although I am not a tax or probate attorney, I am somewhat more sophisticated than many investors or professionals about such matters.  And, as a former litigator and labor lawyer, I can be stubborn and adversarial.

In the Fall of 2013, with the help of a skilled probate/tax attorney, I revised my seven-year-old will, in part to specifically recognize the birth of my grandsons.  The 2006 will made charitable bequests to two universities and my high school, which also has a foundation but the bequests came from the residuary of my estate.  My lawyer suggested that I make the three charitable institutions beneficiary of qualified funds (IRAs and 401s) instead to avoid the income taxes on the growth of those funds and then make bequests through the will to my son and grandsons of assets that would not otherwise be taxed.  That made sense and we easily revised the will and informed my financial advisor of the need to revise the beneficiary forms.  That’s where the troubles began.

My financial advisor warned me that the brokerage house considered such a designation “complex” and reserved the right to approve the language.  Because both I and my attorney are considered skilled drafters of legal documents, I had no idea what frustration laid in wait.  The first effort said something like: “X% as a charitable bequest to the University of _____  Foundation for the benefit of the College of ______ , which amount shall be held, administered and distributed pursuant to the terms of a certain Endowed Gift Agreement dated ________ __, 20__, entered into by [me]  and the University of ______ Foundation.”  This was followed by the foundation addresses and Federal tax ID numbers.

The unknown persons in the brokerage house replied “No.”  They did not say what was wrong or offer alternative language but only said “no.”  My attorney posited that perhaps the brokerage house feared it would have some type of obligation to oversee the use of the funds which was never our/my intent.  I only wanted to make sure the funds would not be subsumed by the large foundation general funds but would go to the specific schools (law and journalism) I wanted to benefit.  First, we suggested that the nay-sayers talk to one of us.  The answer was “no.”  Then we asked if they had sample language that we could review.  The answer again was “no.”  After I expressed my growing frustration to my financial advisor and asked if he could invest my funds through a more user-friendly brokerage house (the answer again was “no”), I informed him I would be saddened to end our relationship but would do so if the matter could not be worked out. (I also had some harsh words about Texans who were accustomed to running roughshod over women’s rights because the house was headquartered in Texas but it turned out the bullies in this instance were located in New England.)

My financial advisor and his assistant again contacted some mysterious person.  (It turns out they lacked sufficient status to talk with the august naysayers.)  The report then came back that the only acceptable beneficiary for the New Englanders was the Foundations with no limitations.  That was unacceptable to me and I so informed my advisor.  (Until that conversation, he may have thought me an easy client with a pleasant demeanor; that assessment no doubt changed.)  Once again, I proposed sample language and, once again, I suggested that the brokerage house lawyers talk to me or my (less volatile) probate attorney.  They once again declined the opportunity to talk with us and rejected my proffered language but went back to an earlier effort and approved language that said:  “X% as a charitable bequest to the University of _____  Foundation, which amount shall be held, administered and distributed pursuant to the terms of a certain Endowed Gift Agreement dated ________ __, 20__, entered into by [me] and the University of ______ Foundation”  followed by the foundation addresses and Federal tax ID numbers.

This took more than five months.  (And had I died during that time, a considerable share of my assets would not have been disbursed in the manner I desired.) I still don’t know exactly what the brokerage house’s problem with the language was as the approved version does not appear to address what I thought was the concern.  I still suspect that bullies or incompetents were involved.  And I know that my financial advisor and his assistant served me well.  I also know this should not have been difficult and that this is just another instance where brokerage houses should be held more accountable.  Charitable giving should not be so difficult.


Our Conclusion

The advisor did not lose the day, here. He did not save the day, either. He kinda’ muddled through and managed to keep his client. It could have been different if he knew his craft just a little bit better. How? Well, he could have utilized one of the many Donor Advised Funds (DAF) to become the beneficiary of all three IRAs. Simple beneficiary designation language would have sufficed. Then, the donor could have worked with the one DAF to finalize the ultimate beneficiaries through her gift letter language. Or, she could have allowed her son to distribute the funds via her instructions to him. This would have been so much easier for everyone. And the advisor would have been a hero, not the by stander that he was. Worth the time and trouble? I think so.

Add comment

Login to post comments

Comments

Group details

  • You must login in order to post into this group.

Follow

RSS

This group offers an RSS feed.
 
7520 Rates:  Aug 1.2% Jul 1.2.% Jun 1.2.%

Already a member?

Learn, Share, Gain Insight, Connect, Advance

Join Today For Free!

Join the PGDC community and…

  • Learn through thousands of pages of content, newsletters and forums
  • Share by commenting on and rating content, answering questions in the forums, and writing
  • Gain insight into other disciplines in the field
  • Connect – Interact – Grow
  • Opt-in to Include your profile in our searchable national directory. By default, your identity is protected

…Market yourself to a growing industry