Continuance to Summer Newsletter article…
One area that most non profits fail to pay attention to is how the inheritance tax is allocated. The attorneys routinely allocate it across the entire estate, thus cutting the share given to the non profit by the wrongly applied tax. No objection, no reallocation.
Yes, I know, you’ve all heard that the main problem is the flagrant attorney’s fees. That can be the case, but…
Let me burst your bubble! In 27 years doing Planned Giving, I have seen some real horror stories. And most losses are due to just plain stupidity, not real malfeasance. I’d say 90 % of the problems are due to folks acting dumb and 10% or less are due to theft.
Ever notice how much better your young children played together if you were watching them? Well, I hate to tell you, it is the same for attorneys and executors. Keep an eye on them, writing at least every 6 months to ask for an update.
How about, using as an example, the house in Hawaii, valued at $2.1 million that was left to my non profit. When I got there, two years after the executor had notified us of the gift, still no cash. But the executor was billing the estate for $40,000 per year to “take care” of the house. So I called him, found out he was a family friend and asked what he was doing to sell the house. Did he have it listed with MLS? “This is a house on Diamond Head, a very exclusive neighborhood.” he said. “Madame, you don’t list this kind of house with MLS”. I thanked him and said good bye.
I called an estate attorney I knew in that town. He agreed to take the case and called the man, who he encouraged to ‘resign’ as executor. The house was sold in less than 2 months for $2.8 million.
Or, let’s talk about the case of the house in Long Island that was left to another non profit where I worked. The donor had died in Jan and I got there in Oct. When I checked to find out what was happening, guess what? The caretaker and the housekeeper, a husband and wife team who lived there for many years, had forged papers with the owner’s signature, sold the house to a hapless buyer and disappeared to Ecuador, their home country. That took some negotiating to work out, let me tell you.
Remember, part of your job is to make sure you get good PR for your non profit, so you must be thoughtful and sensitive as well as good at your job. This isn’t a job for the weak at heart.
Bad publicity can hurt your non profit’s reputation more than the money you collect.
To give you some other points of view from the trenches:
Christine Martignetti, Estate and Trust Settlement Administrator at MIT says
”Our policy regarding the receipt/release is to send it back and ask the attorney to hold it in escrow pending our receipt of the distribution. As far as indemnifications, we will insert language to the effect of “the undersigned beneficiary’s indemnification shall be limited to the amount received from the Estate/Trust, or the proceeds thereof.” The above language can be altered to reflect “release” rather than “indemnification”.
We have not sent out the Refunding Agreements in quite some time. This is mainly because we have been receiving at least partial distributions in a timely manner.”
Lesley Haley at ChildFund International, formerly Christian Children’s Fund gives us this information.
“The attorney or fiduciary often will issue A Formal Receipt that confirms the beneficiary has received a distribution. Typically, the Receipt will be included with the estate check. Other components may be included: Releases, Waivers, Indemnification, etc.
However, in some cases, the attorney/fiduciary will issue a Receipt which requires an authorized signature before the distributions are sent to the beneficiaries.
Now, you may think you have a dilemma;
• The beneficiary can’t sign a document confirming it has received funds that are still pending approval.
• The fiduciary can’t distribute the funds without the Receipt.
You may be lucky enough to get an attorney to agree to release a check if a Designated Agent appears in person to sign the documents and receive the check at the same time. Often, this solution is not feasible.
This dilemma can be easily solved with a Contingency Cover Letter, containing the following language;
Please note that
BIPS NEWSLETTER WINTER 2009
As we say hello to another winter, all of us here at BIPS wish you a warm and prosperous New Year. We hope this newsletter will provide you with valuable information or maybe a hearty laugh from one of the jokes. Thank you for taking the time to read our newsletter and helping BIPS be a success!
Gifts of Life Insurance- To accept, or not accept, that is the question!
by Garry Malone
This 2009 brief discussion is not intended to outline uses of life insurance in trusts, or for wealth replacement, and other sophisticated planning. However, it is intended to focus on three things: understanding the basis of the life insurance policy for gifting, consideration for the donor’s relationship to the charity, and why it is worthwhile to examine charity’s acceptance of life insurance as gifts.
Much has been said about gifts of life insurance. Strong opinions, both positive and negative, are expressed by fundraisers and leaders of charitable organizations who have experienced these types of gifts, but are keenly aware of the need for cash in these stressful days. Immediate cash is king. Donations of life insurance prompts questions on whether to cash in a policy (immediate cash), or to retain a life policy on the Insured, which is in effect, a deferred gift.
On December 16, 2008, The American Council for Gift Annuities, completed and distributed to member/sponsors a comprehensive gift survey of 846 charities. In the section for “gifts of life insurance,” were revealing statistics: 65.6% of charities stated that their organization did not actively promote gifts of life insurance. However, of the group (34.4%) who did solicit life insurance gifts, the number of policies owned by the organization was greatest in the 1 to 5 policy gift count range (a total of 281 charities), and no policy ownership was 32.3% (a total of 250 charities). In addition, 28 charities were aware of more than 100 policies (per each charity) where their organization is named as a beneficiary, but the charity is not owner of the policies.
To the general public, life insurance is a socially beneficial contract, protecting families and business for generations, and all based upon human need. Although many variations of insurance contracts have evolved, they originate from only two essential needs and types of life insurance:
(1.) Term insurance. As purely temporary level protection, a “Term” life insurance policy, with lower premiums are only guaranteed for the initial term. Assuming a level protection in the future renewals will always have increasing premium costs. This is not a type to gift. Families with young children buy the insurance for the time that young children need protection in the event of a parent’s death while the child is still financially dependent on the parent. Eventually, term insurance becomes unnecessary since the child grows up, can earn a living and no longer needs the protection. Obviously, term life policies have no reserve; no cash surrender value, and are not gifted because there is no tax advantage of gifting.
(2.) Permanent insurance. As a more permanent protection policy, “Whole” life may be utilized. Whole life has a higher and level premium charge (well above a term policy cost), but with the objective of creating a “reserve” often referred to as “cash value.” The reserve is simply a premium leveling device over the whole life of the Insured. The interest earned on the invested reserve is calibrated to offset the increasing cost of pure protection as evidenced with an equal face amount of level “Term” insurance protection. Eventually, term insurance becomes so costly that it terminates. Certainly, the permanent level premium reserve contract was designed to protect for the Insured’s whole life. A benefit to the owner of a permanent policy is the ability to take a loan from the company against the cash value. Some people use the loan process to their advantage, but at death of the Insured, it diminishes the death benefits by the amount of the loan.
For charities, accepting gifts of existing permanent (whole life) policies with substantial cash value may have some strategic appeal. This is especially true when the policy ownership is transferred to the charity who may opt to “surrender” the policy (terminating the death benefit on the Insured’s life) for the cash surrender value, and when no loans have been placed against the cash value. However, all permanent policies must pay off by surrender, or at the death of the Insured once the proper paperwork is filed with the company.
Periodic review of charitable organization’s gift acceptance policies and procedures in light of gifts of various types of life insurance is important today. To seek help on these vital matters, a qualified, experienced life insurance professional is of value in helping the organization to establish appropriate measures and evaluation processes.
Donor’s objectives vary. In review of the ACGA study, it appears that donors prefer to retain ownership and prefer to control life insurance, naming a charity as beneficiary to receive death benefits (a testamentary gift). When reviewing donor’s assets as part of an estate plan session, an older permanent life insurance policy may no longer be of need to the owner for estate liquidity purposes. Without any outstanding loans against the cash reserve, the charity may graciously accept the old policy and depending upon their organization’s gift guidelines, and considering the health of the Insured, terminate the policy for the cash surrender value, or retain it in event the death proceeds are greater than the cash value.
For some donor’s, life insurance is an easy way to give a larger sum of money as a deferred gift, and the gift is assured depending upon payments of premiums over the lifetime of the Insured. Donors derive a greater satisfaction that they are doing something good and lasting for the charity. Most often, old life insurance policies are a good gift. With an old or a new policy, donors may feel they are “buying a little immortality on the installment plan!”
In addition, donors of life insurance test the waters. Depending upon how their life insurance gift is received and how they are treated by a charity, they become candidates for other gifts, major donations, and perhaps, a bequest of their estate or beneficiary of a trust may be a future gift. Regarding life insurance donors, don’t shut the door when there may be more!
Garry E. Malone, BIPSTER INTERNATIONAL
A chat with Brother James
This month, David had the pleasure of chatting with Brother James Brown, Director of Planned Giving at Marianist Mission in Dayton Ohio.
Jim was born in 1941, and grew up in Cleveland Ohio. He graduated from University of Dayton in 1965 in Dayton Ohio.
Jim has been a religous brother for 50 years and has made his home in Dayton Ohio since 1965.
Q: Jim, How did you get into Planned Giving?
A: I was a high school teacher from 1968 to 1986 and taught Business and Catholic religion and in 1986 I was ready for a change in ministry and got involved with alumni work at Dayton Chaminade Julienne High School. I got interested in Alumni and Development work at the high school. My boss suggested if I was serious about this field that it would be good to get involved in Planned Giving. I went to The Sharpe Planned Giving Program for training in the fall of 1988. I started to work for Marianist Mission in 1989 and became the Director in 1992.
Q: Jim, How did you handle realized gifts before BIPS?
A. The administrative assistant to the executive director handled the wills and I did not get involved with BIPS until Oct of 2008.
Q: Jim, what are the best parts of BIPS?
A. The best part of BIPS is the tracking system and it allows us to do the necessary follow up in a timely matter. Now we can be more proactive in monitoring the gifts.
Brother James Brown, Legacy Giving Administrator
Marianist Mission, Dayton Ohio