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Posted March 7th, 2018

Answers to the Planning Problem

Here’s the gift planning problem from last time.

Don wants his name on Charity’s new clinic building. Charity’s president, Ron, has told Don it will cost him a big chunk of change, $X, in cash or securities or in a combination of both. Don is just about to sign a pledge agreement to this effect when his lawyer whispers something to him.

Don pauses and then says to Ron, “How about if I set up a $Y charitable remainder unitrust for myself and my wife instead. You all will get the entire trust remainder.” ($Y > $X) Don continues, “My wife and I will take a 7% payout for 10 years. Then you’ll get the money.”

Ron says, “Let me talk to my people. I’ll get back to you.”

Ron, who is clueless about such an arrangement, goes back to his office and calls Julie, Charity’s planned giving director. Ron describes to Julie his conversation with Don and asks Julie to prepare a written briefing on the matter. Julie, by the way, is a knowledgeable and experienced gift planner.

As Ron tells Julie, Don proposes to make a pledge of $Y, get his name on the clinic building and pay the pledge over 10 years using a 7% unitrust.

Questions & Answers:

  • Q. Will the gift arrangement work as Ron describes it to Julie?
  • A. No. Don would be making a legally enforceable pledge and then setting up a CRT to pay the pledge with the CRT remainder. That would be prohibited self-dealing, as we’ve seen.
  • Q. Could the gift arrangement work as Don describes it to Ron?
  • A. Yes. It is OK to make an enforceable pledge to create a CRT. Such a pledge, however, leaves open what the charity will receive from the CRT. An unanswered question is whether Don could make an additional “backstop” pledge to ensure that Charity receives at least $Y. I think it is possible to craft such a pledge.
  • Q. In retrospect, why should Julie have joined the meeting between Don and Ron?
  • A. Ron, like many charity presidents, is a “big picture” thinker. He’s not the right person to nail down a big naming pledge where tax law details are critically important. Julie, a “detail person,” should have been at the meeting, at which she would have been a much better listener than Ron.

Both charity and donor should seek advice from a specialist on complicated gift matters.

by Jon Tidd, Esq

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