A Topic You Love to Hate: Putting Your Gift Policies in Order

Transcription

1 , LLC A Topic You Love to Hate: Putting Your Gift Policies in Order Brian M. Sagrestano, JD, CFRE Gift Planning Development, LLC 100 Chestnut Place New Hartford, NY P: F: M: brian@giftplanningdevelopment.com Gift Planning Development, LLC

2 Program Agenda Introduction and Overview State Registration Requirements Gift Acceptance Policies Gift Agreements Gift Valuation and Counting Policies

3 State Registration Requirements To solicit To do business To issue charitable gift annuities

4 State Charitable Solicitation Statutes Current Climate Charity makes up 9% to 14% of the economy Congress is in the mood to regulate State Regulation on the Rise 39 States and Washington DC require registration in order to solicit, unless exempt or excluded

5 State Charitable Solicitation Statutes Typical Registration Requirements Annual Registration Statement Audited Financial Statements Form 990 Initial Registration usually requires Articles of Incorporation Bylaws IRS Determination Letter

6 State Charitable Solicitation Statutes Registration Requirements Unified Registration Statement Accepted by 36 states and DC Resources for Particular States mpgadv.net/purchase/ Sample Providers Perlman & Perlman -- Charitable Registry

7 State Registration to Do Business Some States Also Require You to Register to Do Business (unless exempt or excluded) IF you plan to: Solicit Issue Charitable Gift Annuities Registration Process Generally Straightforward Usually requires you to have a bona-fide office or an agent for service of process Can be costly Your business office may want to avoid

8 Registration to Issue Charitable Gift Annuities Gift annuities are a highly regulated area of charitable giving law Charities can no longer avoid registration in states where you issue gift annuities Questions remain regarding registration in states where you solicit gift annuities Many states will require you to register to do business or register to solicit in order to issue gift annuities, even if you solicit passively

9 Registration to Issue Charitable Gift Annuities Green-initial notification, registration and annual filing (15) White-initial notification/registration (12) Pink-certain criteria, but no registration or annual filing (18) Purple-state statutes are silent on gift annuities (5) (Map Courtesy of the American Council on Gift Annuities)

10 Registration to Issue Charitable Gift Annuities For more information on individual state regulation requirements: For help with registration, providers include: PG Calc --Planned Giving Resources Crescendo Small and mid-size organizations issuing gift annuities in just a few states may want to avoid registration by: Using a third party charity to issue gift annuities Community foundations Comerica Foundation -- gaschupra@comerica.com Dechomai Foundation --

11 Gift Acceptance Policies-Purpose Provide Discipline for the Development Program Around Gift Acceptance and Administration Define the assets that are acceptable Establish gift forms that are acceptable Define gift acceptance and administration procedures

12 Gift Acceptance Policies-Purpose Require the administration to think through different aspects of accepting gifts without a pending gift to cloud judgment Engage the board and leadership in a discussion of alternative gift forms and assets Educate staff, board and volunteer leadership about critical issues around certain assets Protect the charity from accepting assets that would subject it to liability or risk

13 Drafting and Adopting Gift Acceptance Policies Who should draft the policy? CEO Chief Development Officer Gift Planning Staff Finance Staff Legal Advisor Board Oversight Committee Chair

14 Drafting and Adopting Gift Acceptance Policies Board should approve the final policy Policy should be reviewed annually and have a formal process for amendment Charity should engage professionals so that when a gift needs to be reviewed, it can be done quickly and according to policy Policy should provide for exceptions Should be rare Should be reviewed by gift planning director, CEO, CFO and an authorized board representative as the gift acceptance committee

15 Gift Acceptance Policies - Core Elements Mission and Purpose of the Charity Purpose of the Policies and Guidelines Function of Offices within the Charity Responsible for Receipt, Recording, Depositing and Acknowledging all Gifts Statement of Adherence to National Reporting Standards and Ethical Fundraising Principals Use of Legal Counsel

16 Gift Acceptance Policies - Core Elements Function, Authority and Membership of Gift Acceptance Committee Donor Conflict of Interest Restricted Gifts/Use of Donated Funds Types of Gifts Cash Securities Tangible personal property Real estate

17 Gift Acceptance Policies - Core Elements Methods of Giving Outright gifts Matching gifts Pledges Estate and retirement plan designations Life insurance Charitable gift annuities Pooled income funds Charitable remainder trusts Charitable lead trusts Retained life estates Bargain sales

18 Gift Acceptance Policies - Core Elements Endowment Policies and Minimums Naming Opportunities and Requirements Note it may take 18 months to 2 years to complete this process with the stakeholders. Better to do it right than to simply copy the policies of another charity.

19 Gift Agreements: Why Have Them? To protect the relationship between the donor and the charity To ensure that the donor s wishes are carried out To set expectations and avoid surprises in the future To provide legal uniformity; protect your charitable status

20 When Do You Need a Gift Agreement? For all gifts Paid over more than one year or Subject to restriction For restricted commitments that will mature in the future, but for which the donor wants certainty in how your charity will use the funds Estate designations Retirement plan designations Life insurance designations

21 Binding versus Non- Binding Gift Agreements General preference is not to use binding gift agreements When to use a binding gift agreement Enforceability Bonding (collateral for borrowing) Demonstrating the seriousness of your charity s commitment to carry out the Donor s wishes Ensure that donor s estate is able to carry out donor s wishes

22 Binding versus Non- Binding Gift Agreements If you elect to use binding gift agreements, you should still use a non-binding gift agreement when Donor intends to pay off commitment from a donoradvised fund (DAF) Donor may pay commitment from a DAF and personal assets, still unsure Donor may have commitment paid by others (family members, friends, matching gift company)

23 Binding versus Non- Binding Gift Agreements Should I use binding estate gift agreements? Is there such a thing? If so, when? Donor intends to pay off commitment from his/her/their estate, retirement plan or life insurance policy and wants to document enforceable terms of the commitment

24 Types of Gift Agreements Unrestricted Endowment Restricted Endowment Unrestricted Term Restricted Term Binding/Non-Binding/Estate

25 Anatomy of a Gift Agreement Heading/Name of Agreement or Fund Name of Parties Introduction Information about donors Motivation for gift Intent for gift Impact and outcomes they hope to achieve through gift

26 Anatomy of a Gift Agreement Payment schedule Valuation of gift Legally binding or non-binding State law to apply Charity s Commitment Management of Gift Saving Language (Cy Pres) Donor Recognition Execution

27 Donor Restrictions What are acceptable restrictions for An endowed fund? A term/expendable fund? What types of restrictions to you want to avoid? When to get legal advice

28 Failure to Comply with Donor Restrictions Your charity can be sued if you don t comply with donor restrictions Who can sue (standing)? Attorney General Donor or Donor s Family-if explicitly reserved the right in the agreement Rules getting more relaxed broader standing Misuse of funds can result in civil and criminal penalties against individuals at the charity Those who approve inappropriate expenditures Those who supervise the approver You can go to jail (Allegheny, Princeton)

29 Amending Donor Restrictions If the fund can no longer be used for its intended purpose Contact the donor (if alive) or family to amend the agreement by consent Legal Remedies Equitable deviation-court approves changes to the administration of the funds Cy pres petition-court allows changes to donor restrictions Risk that the Court could order the transfer of the funds to another charity which could use the gift according to donor restrictions

30 Gift Counting and Valuation Too much emphasis has been placed on counting and valuation of life-income and estate gifts Past measures have put a premium on irrevocable gifts, causing charities to focus their attention on life-income gifts, which only account for 20% of gift planning revenue Better to measure activity and relationshipbuilding activity

31 Gift Counting and Valuation: Definitions Accounting A process of keeping financial books based on a set of generally accepted guidelines and principles, in order to present a fair, comparable and understandable picture of an organization s financial state at any given time

32 Definitions Counting and Reporting Arithmetic activities Counting is the numeric summary of activity, results and progress toward goals Reporting is the process of conveying to a lay audience clearly and transparently what has happened during a specific timeframe

33 Definitions Crediting/Recognition Institution-specific and represents the way each organization grants recognition to its donors. Such recognition need not stem from any of the factors of counting, accounting or valuation, although a given organization may use any of these calculations as the basis of its donor recognition policies.

34 Definitions Charitable Deduction Income tax deduction donor can claim on an income tax return, representing the IRS estimate of what the gift is worth at the moment in time it is donated (snapshot in time).

35 Definitions Valuation An assessment of the actual value of an item to the person or organization that possesses it A reflection of the present value of the ultimate purchasing power of a gift when it matures

36 Uniform Valuation Standards Why have uniform standards for valuation? Estimate the real value of funds raised through a gift planning program Compare the relative value of alternative gift forms for the charitable organization Accurately reflect the present value of the ultimate purchasing power of the gift

37 Uniform Valuation Standards Why have uniform standards for valuation (cont.)? Allow for research into effectiveness of gift planning across the charitable community Costs and benefits of gift planning fundraising Financial effectiveness of a gift planning program Assessment of appropriate resource allocation to a gift planning effort Appropriate gift planning fundraising expectations Purchasing power value to charity of funds raised through gift planning

38 Valuation Methodology Step 1: Determine the total future value of lifeincome gift at its projected termination Variables include: Payout rate Life expectancy or term Assumed investment return Step 2: Discount the total future value back to the present Variables include: Discount rate, based on expected cost rise rate

39 Valuation Example 75 year old donor makes a $10,000 gift to fund a gift annuity paying 7.1% per annum Step 1: Determine total future value Payout rate: 7.1% Life expectancy 12.4 years Assumed investment return (net of expenses) 5% At the end of 12.4 years, the annuity balance, or total remaining future value is $6,657

40 Valuation Example Step 2: Discount total future value back to present Discount rate - 3.4% (long-term inflation rate) Current purchasing power in today s dollars -- $5,632

41 Revocable Versus Irrevocable Gifts Gift planning programs raise both revocable and irrevocable commitments Valuation of revocable commitments requires a third step, application of a probability factor to estimate likelihood of receipt due to the gift s revocable nature Revocable commitment values should NEVER be reported together with irrevocable commitment values

42 Counting and Reporting Standards Different from accounting, valuation, recognition or IRS charitable deduction Campaigns are for a finite time

43 CASE Standards Irrevocable deferred gifts may be included in campaign totals at face value, but both face and discounted present values should be reported. Revocable deferred gifts may be included in campaign totals at face value if they are pledged during the campaign documented, and as long as they are reported separately from outright gifts and irrevocable deferred gifts

44 PPP Standards Set and report at face value three separate goals: An outright goal for gifts usable or that become usable for institutional purposes during the reporting period (whether one or more years) Irrevocable gift goals, for gifts committed during the reporting period but usable by the organization at some point after the end of the period Revocable gift goals for gifts solicited and committed during the reporting period but in which the donor retains the right to change the commitment and/or beneficiary

45 Category A: Outright Gifts Cash Marketable Securities Other Noncash Assets Gift Portion of Bargain Sales Realized Bequests Realized Insurance Proceeds Realized Qualified Retirement Plan Proceeds Existing Cash Value of Insurance Current Lead Trust Distributions Legally enforceable pledges CGA, CRAT, CRUT, PIF Maturations Previously Reported in Category B

46 Category B: Irrevocable Deferred Gifts Life Income Gifts Life Estates Death Benefit of Insurance (in excess of cash value in Category A) Irrevocable Testamentary Pledges Future Lead Trust Distributions

47 Category C: Revocable Gifts Estate Provisions CRT s in Which Donor Retains the Right to Change the Charitable Beneficiary Living Trusts Qualified Retirement Plan Assets in Which Donor Retains the Right Change the Charitable Beneficiary Life Insurance in Which the Donor Retains Ownership DAF Assets Coming to the Charity Revocable or Conditional Pledges

48 Category C: Revocable Gifts-Note Charities may have difficulty assigning dollar numbers to these gifts Charities may choose to provide estimates (see Valuation Standards for Charitable Planned Gifts, probability of receipt formulas) Charities may choose to report numbers of gifts rather than dollar amounts

49 Current Status 2nd edition of Guidelines was published in 2006 with input from a coalition of major universities, charities, and consultants. Guidelines are available at AFP has endorsed the Guidelines CASE has issued revised Management Reporting Standards