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Are Charities and Financial Advisors At War?

Robert F. Sharpe Jr. examines how parties involved in the charitable-gift planning process can work together more effectively to realize maximum benefits for all.

During a recent presentation to a group of educational-fund development executives, a representative of a very prominent university made the following observation: “Nonprofits are at war with the financial world, and we are losing!” This understandably sparked a vigorous discussion. While I certainly don’t agree that the for-profit and nonprofit gift-planning sectors are engaged in a destructive conflict, the fact that such a statement was made in a public forum compels me to believe we should revisit this issue.

The Need for Cooperation

Over the years, we’ve come to realize that the professionals who are most successful in encouraging and implementing complex charitable transactions (often referred to as “planned gifts”) are those who recognize and respect the fact that these gifts can only be completed with the cooperation of many parties.  

Since 1987, we’ve used this definition of “planned giving” that attempts to describe the essence of the process: 

A planned gift is any gift of any kind or any amount given for any purpose—operations, capital expansion, or endowment—whether given currently or deferred, if the assistance of a professional staff person, qualified volunteer or the donor’s advisors is necessary to complete the gift. In addition, it may be any gift that is carefully considered by a donor in light of estate and financial plans.1

Inherent in this definition is the fact that teamwork is almost always required to complete more-complex charitable gifts. This is especially true at a time when thousands of nonprofit institutions and ever more members of the financial and estate-planning community are pursuing gifts—and business—of this type. Few nonprofit or for-profit entities are in a position to complete the entire process by themselves. 

Let’s examine how the various parties involved in the charitable-gift planning process can work together more effectively to realize maximum benefits for all. 

Understanding the Parties 

Who are the entities that must work together effectively to ensure a complex gift comes to fruition? 

The donor/client. Note the dual description of this party to the gift. When a charity is working with this individual, he or she will be known as a “donor.” When a professional advisor is working with this individual, he or she will typically be referred to as a “client.” The nature of each relationship is fundamentally different. 

From one perspective, a client may be seeking the advice of an independent wealth management services provider primarily about ways to increase wealth, plan for its distribution and/or reduce taxation. 

In other situations, a donor may work with a representative of a charitable recipient to discover more effective ways to transfer funds for the charitable purposes he wishes to support, rather than to increase his wealth. 

The charities. Charities that actively engage in proactive planned gift development fall into a number of categories. Some employ highly specialized teams of professionals whose mission is to help donors make their gifts in the best ways possible. 

Depending on the organization and the types of gifts the organization is able to implement, the role of these professionals may be more or less sophisticated. In some cases, their role consists primarily of stewarding relationships with individuals who’ve informed the charity of their intention to make gifts through their wills or other long-range financial plans. 

A small number of charities attempt to offer “turn-key” gift-planning operations, through which they provide to their donors virtually all gift-planning services, with the exception of independent legal review. Many other charities focus on motivating interested individuals among their constituency to make planned gifts while working closely with one or more of their own advisors. 

In recent years, sophisticated gift planning has become a much more important part of fundraising efforts for many nonprofit organizations and institutions. An aging donor population, lower interest rates and returns on other investments, increased competition for the charitable dollar, and other factors have combined to make the ability to help donors plan gifts using the best tools and the most appropriate property more important than ever. 

Over the past decade, capital campaigns for major universities and other nonprofits, particularly ones with goals of hundreds of millions or even billions of dollars, have come to rely on bequests and other planned gifts for 30 to 40 percent or more of totals raised. 

In addition to traditional charitable recipients, donor-advised funds have taken on a more prominent role in philanthropy in recent years, with the primary mission of providing gift-planning and management services for donors (in some cases controlled by for-profit service providers). These entities are designed for the primary purpose of receiving current and deferred gifts for donors who don’t have a particular charity in mind, or who want to make a gift today but prefer to defer the receipt by an intended charity for a period of time. 

The advisors. The legal and financial-services world is as diverse as the nonprofit sector. In planning charitable gifts, donor/clients may rely on the services of accountants, attorneys, professional fiduciaries, administrators, financial planners, insurance professionals, investment brokers and counselors. These professionals approach the gift-planning process differently, depending on the service they render or the product they sell. Charitable remainder trusts, charitable lead trusts (CLTs), charitable gift annuities (CGAs), pooled income funds and various other charitable-gift planning tools have in some cases become “wrappers” designed for the sale of any number of financial services and products. In those cases, the planned gift becomes a product that’s “sold” to clients. 

Advisors have adopted as sales techniques a number of variations on the theme of “doing well while doing good.” These marketing efforts have become more sophisticated over the years and, in many cases, have become very effective in communicating to donors that there are better ways, from a financial-planning perspective, to make charitable gifts than by simply writing checks or providing for a charitable gift through one’s will or other testamentary plans. 

Two Approaches

Two distinct approaches to the gift-planning process have evolved over time, one emanating from charities, the other from for-profit planners. Does this mean that charities and the for-profit planning community are now, or inevitably will be, locked in a kind of forced public embrace, while under the surface they engage in a competition that may not be in the best interest of the donor, the charity or the advisor? Not at all. Understanding, balancing, and in some cases reconciling the interests of the various parties to a planned gift is the key to successful gift-planning efforts.

Success in better serving the donor/client requires from all parties involved: 

• An in-depth understanding of the gift planning process. 

• An honest and forthright appreciation for the importance of the motivation and proper role of all concerned. 

• The ability to know when to lead and when to follow in each situation, along with a willingness to compromise. 

To Compete or “Complete”? 

While charities may compete among themselves for donors and for-profit advisors with others when it comes to providing products and services to their clients, we really shouldn’t see the process of charitable-gift planning as involving competition between the nonprofit and for-profit sectors. It’s very easy to fall into the trap of believing that competition is inevitable—until one breaks down the process of completing a planned gift into a number of distinct and interrelated components. 

Let’s take a look at the acronym C-O-M-P-L-E-T-E, as it may be helpful in understanding how the various parties can work together more effectively to adequately fund the charitable dimension of U.S. society. 

Communication. At the threshold of the gift-planning process, it’s important that someone communicate to the donor/client the benefits of gift-planning arrangements. Through increased sources of communication, the donor/client may learn of charitable-gift-planning opportunities from a number of sources, including a charitable interest or a legal, accounting or other financial advisor.

Though charities have traditionally assumed a greater role in the communication process, as a much larger portion of their constituency is considered potential planned-gift donors than that of a typical for-profit advisor, increasing numbers of both nonprofit and for-profit planners are engaging the process of encouraging more effective charitable-gift planning. 

When for-profit advisors communicate with their constituencies, their messages may understandably focus on plans that prominently feature their particular specialty. Professional fiduciaries, for example, may communicate the benefits of a particular type of trust arrangement. An attorney may lead a client through a series of questions to determine whether there’s donative intent and, if so, how it might best be fulfilled—perhaps via a bequest from the client’s will or revocable living trust. Those involved in the marketing of insurance products may present charitable gift vehicles as a means of providing funds necessary to purchase insurance or promote insurance as a way to replace donated funds.

Opening discussion. After a donor has learned of the possibility of more-effective ways of making gifts, the next step is for someone to open a discussion about the best ways to plan gifts in light of the donor’s situation. In my experience, this process often begins with a response to a marketing effort by either a charity or a for-profit planner. The donor/client may respond directly to the party offering the information or, in the context of our discussion, may “cross respond.” 

For example, a financial-services provider may, in some cases, engage in communication about a gift-planning concept, with the client subsequently approaching a favorite charity to discuss further, or vice versa. In addition to a response by a donor/client to direct marketing initiatives, discussions of planned gifts may be opened as part of a major gift solicitation process when a donor expresses a desire to give, but is reluctant to proceed because of financial concerns. 

Discussions may also begin between a client and investment advisor on a golf course, in response to an attorney’s queries regarding donative intent, in the context of an annual review of tax returns with an accountant or as part of the discussion of the purchase of life insurance. 

Motivate the creator of plan. Once the donor/client has been made aware of the possibilities inherent in charitable gift planning and a discussion has begun, sufficient motivation must be present to sustain what in many cases is the irrevocable transfer of assets in exchange for income, tax savings and other benefits that are almost certain to provide less economic value than the amount to be transferred to fund the gift.

Imagine a 75-year-old childless widower with $3 million in assets, including $500,000 in securities with a cost basis of $150,000 that yield relatively little income. Suppose that he’d planned to leave a substantial bequest as part of his estate plan to fund research in the disease that took the life of his wife, with the remainder of his estate divided among nieces and nephews. 

The widower could leave his entire estate to family members at death, free of federal estate tax, given the $5.49 million exemption from estate tax in 2017, so federal estate tax savings wouldn’t be a motivator. When the widower discusses ways to obtain increased income with his financial planner, the planner suggests possibly using the $500,000 in appreciated securities to fund a 5 percent charitable remainder annuity trust that would result in a fixed income of $25,000 for life. 

The planner points out that the widower would bypass capital gains tax of over $50,000 at the time the trust is funded, while being entitled to an income tax deduction of $270,000 that would save a significant amount of income tax. Would the income and capital  gains tax savings alone motivate the widower to transfer $500,000 irrevocably? Probably not. Yet, well informed individuals make gifts such as the one described above on a regular basis. Why do they make the gift when it “costs money” to make it? 

The reasons individuals make charitable gifts are many and varied. Among the prime motivators for gifts are religious beliefs, social commitment, political orientation, emotional considerations, and tax and economic benefits. In fact, the motivations for any two gifts will almost never be the same, as they typically involve a unique interaction of one or more of the motivators mentioned above. The widower’s primary motivation for the gift likely would be a combination of various emotions, including love for his wife, anger that the disease that took his wife’s life couldn’t be cured, and a desire to make a gift in her honor. 

Making the gift in a way that made the most sense from a tax and economic perspective was a natural and proper part of the decision-making process. The motivation and communication aspects of gifts amount to somewhat of a “chicken or egg” question. Some charities report that the donors they speak with are primarily interested in tax benefits and are always shopping for the best “deals.” Others report that their donors aren’t especially motivated by tax and economic factors. 

How can this be explained? An examination of the marketing and communications tools a donor/client experiences can shed light on this quandary. When communications are heavily geared toward tax and other economic benefits, clients naturally tend to be more motivated by those factors. On the other hand, when marketing materials place a greater emphasis on mission and other motivators, donors tend to respond in kind. 

The best communications from charities tend to bring proper balance to the equation by giving equal time to various motivators in an attempt to interest as broad a range of individuals as possible.  

On the for-profit side, attempts to communicate with clients about the advantages of planned gifts will typically focus more heavily on tax and other economic benefits. This is appropriate, given the fact that the financial services provider isn’t a charity and thus usually doesn’t attempt to convey the broad array of charitable motivations that exist among its constituency and doesn’t wish to be seen as recommending a particular charity.  

As noted earlier, communications from a particular for-profit services provider will naturally tend to emphasize solutions that involve the use of the product or services he provides. Clients will over time piece together the full picture as they receive multiple communications from various charities and for-profit service providers. Each donor will then combine numerous motivators in ways that best serve his unique needs and interests. 

Propose a solution. After a motivated donor/client has learned about planned gifts from one or more sources and engaged in discussion with a charity and/or an advisor, someone must propose a particular solution tailored to the donor’s needs. In most cases, the party who initiated contact and opened the discussion with the donor/client will take the lead in making this proposal. He’ll often involve one or more other parties who are required to facilitate the funding and/or administration of a gift. 

In some cases, however, one party will take a gift up to the point of proposing a solution and will then recommend another party take the lead. For example, suppose a charity has received a negative response from a donor about a request for a $1 million gift. The well-trained representative of the charity then suggests as an alternative the use of a CLT that would make payments of $50,000 a year for 20 years to fund a $1 million gift over time while providing a tax-free inheritance for a grandchild. When the donor expresses interest, the charity might refer the donor to an advisor for more information and to propose a specific solution. Charities with more sophisticated capabilities may or may not prepare a detailed proposal, depending on the circumstances of each case. 

Alternatively, consider the case of an advisor who’s been asked the best ways to help transfer assets to loved ones while reducing or eliminating the impact of gift and/or estate taxes. The advisor may have a vague recollection that gifts such as CLTs exist, but isn’t confident in explaining the plan or proposing its use to the client. The advisor may suggest that the donor contact his preferred charitable organizations to see if they can provide additional information or suggest resources for fulfilling his desire to transfer assets to loved ones while making charitable gifts in a more tax-efficient manner. 

Legal review. Many donor/clients will seek the counsel of their attorneys before completing a planned gift. While not typically required under regulatory provisions, it’s wise for charities and others involved in making planned gift proposals to encourage their donor/clients to seek legal or other independent counsel before completing their gifts. 

Execution of plan. After the donor/client has sought independent review or decided to proceed independent of such assistance, the next step in the process of “completing” a gift is to actually execute the plan. As an analogy, consider the situation in which an individual has spent months with architects designing a new home, and the time has come to choose one or more parties to build it. The architect isn’t typically engaged in the construction business. The same is often true in the case of gift planning. 

The individual who works with the donor in discussions of goals and objectives and designs the gift may not be the one who actually “executes” it. In many cases, for example, the services of an attorney will be needed to draft wills or other instruments. If a professional fiduciary is to be involved, that party will want to approve trust documents and ensure that they meet the expectations of donors before taking on the responsibility of fulfilling the duties to be assumed by the trustee of the gift vehicle. 

When more sophisticated gift plans are involved, the services of a number of “contractors” may be required to execute the plan. In almost no case other than a CGA will a charity be able to execute fully a gift plan without the participation of other advisors. Even in that case, the donor should be advised to seek legal and/or accounting advice prior to completing the gift. 

Trust or asset management. In the case of charitable trusts and certain other types of gifts such as CGAs, there must be a trustee or other manager or administrator of funds—one who may serve for a long period of time. This is an area in which multiple solutions are encountered. Some non-profit institutions will serve as trustees of charitable trusts. In most cases, however, donor/clients will rely on professional fiduciaries to act as trustees of such trusts. 

In the case of CGAs, perhaps the most popular planned-gift vehicle apart from bequests via wills and living trusts, there’s no trust involved, as the gift consists of a contractual obligation on the part of the charity. Even in that case, however, a large number of charities contract out the asset management and gift administration duties to the same entities that frequently serve as the fiduciaries of charitable trusts. 

Evaluation of results. Finally, one or more individuals should be involved on an ongoing basis to assure donor/client satisfaction. This will often, but not necessarily, be the same party who initially communicated and proposed the gift who steps back in after a detour by the donor/client to others to design and implement the technical aspects of the plan. 

In other cases, the non-profit or for-profit entity that received the “hand-off’ from the party that originally suggested the gift will also take responsibility for long-term stewardship of the relationship with the donor/client. In any event, this is an area that doesn’t always receive the attention it deserves. At a time of increasing job mobility, it’s important to take steps to ensure that the donor/client receives the ongoing support and attention he requires.  

Harmonious Cooperation

Many different versions of completing a gift can unfold in reality and involve a myriad of combinations and permutations. It’s best not to think of this process as linear and/or compartmentalized, as there’s really no logical division of labor that applies in all situations.

Attempts to overly control certain aspects by either a nonprofit or any one advisor will almost certainly fail. Such efforts can result in a “disintegration” of this process and the destruction of many a gift that could have held significant benefits for all parties involved. 

Only through harmonious cooperation can parties maximize gifts. Instead of a linear process, it may be best to consider the process as a circular flow. The process doesn’t always begin with communication by a for profit or nonprofit. A donor/client may be self-motivated by circumstances in his life and seek out someone to help make a gift. The evaluation of the results of a prior gift can also lead to opening discussion of another gift. 

Being realistic about capabilities and knowing when to take the lead and when to follow—and how that changes from situation to situation—will prove key for those who wish to be a part of a successful charitable gift planning process. 


1. “An Integrated Concept for Financial Development,” Give and Take, Vol. 20, No. 4 (March 1988).


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