The Stock Market in Panic: How Bad Is It?

“Over the last seven sessions, the Dow has lost 2,271 points, or 20.1%. Since hitting an all-time high of 14,164.53 one year ago today, the Dow has lost 39.4%.”

“‘We are in a free fall right now and fundamentals have been thrown out the window,’ said Phil Orlando, chief equity market strategist at Federated Investors.”

 “Stocks have tumbled despite a series of efforts on the part of the government to unfreeze the credit markets and get money flowing through the system again.”

Are these headlines from this morning? No. These are from CNN dated October 9, 2008.

One of the best things about growing older is that it gives you perspective. Those who panicked and sold out of the last downturn, or “Great Recession,” missed something spectacular as the market experienced a rebound, up to 29,551 in February 2020.

Yes, businesses closed and people lost their jobs and houses and went bankrupt … I was there for all of it and will wear the scars just as our parents and donors did.  However, I’m going to ask that, while we take all precautions seriously and not downplay this crisis, we take a hopeful attitude. Though diligence and wisdom are necessary during the uncharted waters we are wading, this too shall pass. The important thing is we realize panic and fear can often lead to poor decisions, not good ones.

So, how do we move forward from here? We aren’t financial advisors and we can’t change the direction of the markets. We can, however, use this time to check in on our donors and see how they are doing. We can use the time we aren’t traveling to call and offer a word of encouragement and thank donors for standing with us and our organization in good times and bad. We can let them know they matter to us and our organizations, and though things are difficult today, we will get through this … together.

 

Sharpe Group will continue to post helpful information for you here on our blog and on our social media sites. If this blog was shared with you and you wish to sign up, you can do so at www.SHARPEnet.com/blog.

We can be found on Facebook, Twitter and LinkedIn @sharpegroup.

We welcome questions you’d like us to address. You can email us at info@SHARPEnet.com and we’ll share your question and our thoughts in this blog and on social media.

 

By Tom Grimm, Sharpe Group Senior Consultant

Maintaining Relationships With Donors From a Distance

The Coronavirus or COVID-19 is spreading around the world at an alarming pace. With the uncertainty of its progression, anxiety amongst all is a huge factor. Social distancing has become a popular mechanism to help limit exposure between all of us. It is important to maintain a close relationship with your donors during these uncertain times, even if that means from a distance. We all want to keep others and ourselves safe by making difficult decisions not to travel by plane, congregate in large crowds, and remain at home.

Your donors are likely taking every precaution to stay well. This means visiting donors should be put on hold for the foreseeable future to ensure their health is the utmost priority. Calling your donors to check in on them will show how much you truly care. A simple phone call can go a long way. Remember also that even if your donor isn’t sick, he or she may be feeling particularly lonely and isolated, so phone calls may be just as important to remind them they are not alone.

When it comes to reaching out to your donors, time sensitivity is key, and everyone is different. Some may talk for an hour; some may only want to talk for less than a minute. Keep that in mind when initiating the call. Be sure and leave a message if you get voicemail or an answering machine. The important thing is that your donors know you’re checking on them, even if they don’t pick up the phone.

Here are a few more tips for staying in touch with your donors, especially those who are most vulnerable at this time:

  • Send an ecard for a birthday or other occasion
  • Forward a “feel-good” article with a “Thinking of You” note
  • Invite them to try FaceTime or Skype

In addition to checking in with donors over email, FaceTime or Skype, don’t forget about regular mail. With most people staying at home, reaching out to donors through one of these channels is essential for maintaining the relationship, keeping them informed and letting them know that you are here for them during these uneasy times.

 

Sharpe Group will continue to post helpful information for you here on our blog and on our social media sites. If this blog was shared with you and you wish to sign up, you can do so at www.SHARPEnet.com/blog.

We can be found on Facebook, Twitter and LinkedIn @sharpegroup.

We welcome questions you’d like us to address. You can email us at info@SHARPEnet.com and we’ll share your question and our thoughts in this blog and on social media.

 

By Jana Lawyer, Sharpe Group Senior Consultant

Alternatives to Meeting With Prospective Donors Face-to-Face

Fundraisers meeting donors face-to-face

Dealing with prospective donors face-to-face can be key to raising major individual gifts; however, with the rising concern over the COVID-19 Coronavirus things may become more complicated. Here are some best practices and alternatives to consider.

When meeting face-to-face, practice “social distancing”. Maintain a three to six-foot distance between you and those you are meeting. To prevent the spread of COVID-19, avoid physical contact, such as handshakes. Wash your hands often and avoid touching your eyes, nose and mouth. For more tips, visit CDC or WHO websites.

If meeting with a prospective donor in person seems unwise, consider speaking with them via telephone, leaving a voicemail, or video conference. While these options are less personal than a face-to-face meeting, they can still be extremely effective.

It takes experience (or in-born knowledge) to know how to work with wealthy, older individuals. The key is draw out why the prospective donor wants to support your charity. This may be obvious. For example, he or she may have been educated by your college or well-treated by your hospital. Knowing this, however, isn’t enough. Work toward asking the donor what he or she wants to accomplish with his or her gift. Be a good listener.

Maybe you’ve done all of this already. In which case it may be time to connect your gift planning adviser with the donor’s adviser, whoever that may be. Ideally, it’s a lawyer, but it may an accountant, a broker, a financial planner, etc.

Your gift planning adviser should be experienced deeply in dealing with the type of professional adviser on whom your donor is relying for advice.

Perhaps you and your gift planning adviser can do some role playing for the benefit of your colleagues in the development and finance offices.

By Jon Tidd

For more tips, see “Seven Steps to a Successful Donor Visit.”

How I Earn a Living

In this ongoing blog, I write a fair amount about gift planning strategies. For example, the last two blog pieces were about planning strategies with PIFs. And, in real life, my only clients are charities.

But I earn my living pretty much not by crafting gift planning strategies, but by solving problems and answering questions. (The truth is, most gift planning boils down to nuts-and-bolts thinkng.)

What sorts of problems? All kinds. For example, how to make an important but relatively small change to an existing gift agreement. I advised the gift officer that the donor, who lives in NYC, could go to a lawyer and get a new gift agreement drafted (which the donor and the charity would both sign) but would pay the lawyer a large fee.

Instead, I recommended a simpler, essentially cost-free alternative: a side letter of agreement (modification), drafted and signed by the charity and sent to the donor for counter-signature.

No plaudits, please, but do recognize that problem solving requires (a) understanding the problem fully and (b) knowing the ways (if there are various ways) the problem can be solved.

What sorts of questions? All kinds. For example, whether a charity should accept an offer of $X (a modest sum) in exchange for giving up (relinquishing) its rather remote interest in a fairly large trust that had been created some years ago.

I get a lot of questions like this. They’re not questions of law. They’re policy questions. A lot of what I do is point out that some questions (a lot of questions, in fact) are policy questions. I typically get called about policy questions because someone in the charity’s food chain thinks, “This is a question for Jon Tidd.”

I generally don’t answer policy questions. With rare exceptions, it’s not my job to make policy. But I do offer analysis, and I often make recommendations as to policy in situations where policy is needed but missing.

For help with your organization’s problems and questions, contact your experienced and knowledgeable Sharpe Group Consultant.

By: Jon Tidd

The Pooled Unitrust

Last time, we looked at the total return PIF.

It turns out, IRS regs also permit a pooled unitrust. It’s a pooled income fund that makes a unitrust payout.

It works from a tax standpoint like a regular PIF with one catch. To understand the “catch”, we need to understand how a garden variety PIF works.

Let’s take the usual PIF, which pays out just its regular income, typically its dividends and interest. The PIF may realize capital gain from selling appreciated stock. The realized gain is added to principal.

The PIF pays no tax on this realized gain. Why not? Because of a special deduction, called a set-aside deduction, allowed to garden variety PIFs.

Keep in mind that unlike a CRT, a PIF is not exempt from tax. As to the income distributes to its beneficiaries, it gets what’s called a distributions deduction. So although it’s not technically exempt from tax, it’s functionally exempt from tax.

Here’s the “catch” with a PIF that makes a unitrust payout. It gets no set aside deduction for realized gains added to principal. The result is that the unitrust PIF pays tax on such gains.

Sounds bad, huh? Well, maybe not. Maybe not if the PIF trustee sells just enough appreciated stock to satisfy the PIF’s unitrust payout requirement. Any realized gains that are distributed qualify for the distributions deduction.

I find it interesting the games that can be played with a PIF.

By Jon Tidd

Interest Rates and Gift Planning

I’m a tax lawyer, not an economist, but in my experience and thinking, interest rates play a far bigger role in gift planning than tax laws.

Back in the early 1980s, when interest rates were sky-high, practically no one wanted a gift annuity. Those were the hey days of pooled income funds.

Today, in an environment of low interest rates, low inflation and a surging stock market, gift planning is much different from the early 1980s.

What I see these days is:

    • a fair amount of gift annuity traffic,
    • a fair amount of real estate and CRUT traffic and
    • a lot of interest in using IRA assets to make gifts

Which brings us to the total return pooled income fund. This is a PIF that pays out all of its  ordinary income plus all of its realized capital gains.

I don’t know of a charity that has such a PIF. IRS regs expressly approve such a PIF. It seems to me to make sense given the surge in the stock market. I believe that for some charities it would have a lot of marketing appeal.

By Jon Tidd

A Bit More on the SECURE Act

Some information you may find helpful.

First, for individuals who attain 70.5 years of age after 2019, the age at which RMDs must begin is raised to age 72. Age 70.5 continues to be the age at which QCDs (so-called IRA rollover gifts to charity) can begin to be made…but for individuals who haven’t reached age 72, the QCDs don’t count for RMD purposes because RMDs don’t have to begin until the year in which RMDs occur.  Please don’t blame me for this complexity.

Blame Congress.

Second, an apparent problem. For any individual able to make a QCD for a calendar year, the cap on the total amount of QCDs for the year is reduced by $1 for each $1 the individual contributes to his or her IRA for the year.

Is this going to be a major problem? Time will tell, but I believe it won’t be.

Reason: Almost all really sizable IRAs are created at retirement, when the retiree rolls money from a corporate pension or 401(k) plan tax-free into an IRA the retiree has created.

These are the IRAs from which sizable QCDs are typically made. And the retiree who owns such an IRA is typically going to play golf, travel or spend time with the grandkids rather than take another job and make IRA contributions.

Small QCDs that come from relatively small IRAs are just plain unlikely to be affected by the cap reduction imposed by the SECURE Act.

By Jon Tidd

The SECURE Act: A Good Gift Planning Opportunity?

Author note: This is an opinion piece. Feel free to disagree.

 

At the CGP national conference in New Orleans in October 2019, much discussion occurred in the Leadership session about the charitable gift planning opportunities under the SECURE Act, which was recently signed into law.

The SECURE Act eliminates the stretch-out IRA for non-spouse beneficiaries of a decedent’s IRA. Now, the non-spouse beneficiary must withdraw the entire IRA balance by the end of the tenth year following the decedent’s death.

For a high-earning beneficiary in his or her forties, fifties, or sixties, the tax hit may be tremendous.

Some in the CGP Leadership session argued that this tax hit creates a good opportunity for charities to promote the idea of leaving IRA assets to a CRT for the benefit of such a beneficiary.

One high-profile T&E lawyer I’ve encountered who works on such CRTs is on board as well.

I’m skeptical, although I’ve worked on such CRTs where the intended beneficiary is quite aged.

First of all, a CRUT will have to be used in a low-IRS-discount environment, such as exists currently. The 5-percent probability test will preclude using a CRAT in such an environment for all but the most senior beneficiaries. In January 2020, for example, when there will be a 2.0-percent IRS discount rate, a CRAT for the life of an individual younger than age 77 will flunk the 5-percent probability test.

Second, and more importantly, a CRUT for the life of someone aged 40-60 is going to run forever, practically speaking.

One way to deal with these two issues, which was raised at the CGP conference, is to leave the IRA assets to a CRAT or a CRUT for a fixed tern of 20 years. In my opinion, such a plan may work well for all concerned in some situations.

BTW, I’ve always liked the idea of leaving IRA assets to a CRT for a spousal beneficiary. I see it as a good way to provide and protect.

by: Jon Tidd, Esq

How Should Gifts Be Counted? Part III

Some charities count bequest provisions in wills of living individuals. Usually, the charity requires a copy of that portion of the will that provides for the charity.

If it were up to me, I’d use the “two sets of books” approach discussed last time in connection with pledges. For “public consumption” I’d have a minimum age requirement, such as age 75. I’d also include future bequests in a separate category.

On the closely held second set of books I’d want detail on [a] the likelihood the bequest provision will come into play, and [b] some discussion of the time range the provision will likely come into play.

This discussion of bequest counting is closely related to the discussion of counting pledges.

There are various ways of — arguments as to ways of — counting charitable remainder trusts. If it were up to me, I’d opt for simplicity.

Why simplicity? Any method of counting CRTs is artificial.

There are two simple ways of counting. One is to count the amount transferred to the trust. The other is to count the charitable contribution amount calculated, typically, by the donee organization’s software.

I’d use the charitable contribution amount. Not simply for the sake of simplicity, but also because the software discounts (however imperfectly) for the time value of money.

Perhaps the best simple way to count CRTs is to show two columns: [1] the amount transferred to the trust, and [2] the corresponding charitable contribution amount. If I were a board member, that’s the simple presentation I’d like to see on the closely held set of books.

Anyway, this whole discussion of counting has been heavy on concepts and light on details for a particular reason. The conceptual approach to gift counting allows one to see the forest. The detailed approach is to look at individual trees.

I’d be interested in certain trees but generally prefer to view the whole forest.

by Jon Tidd, Esq

How Should Gifts Be Counted? Part II

Last time, we considered situations in which the donee organization receives an asset currently.

Now let’s look at some situations in which the donee is sure or pretty sure of receiving assets not currently but over time.

The most common such situation is a pledge that is solid. “Solid” meaning likely to be paid.

Charities routinely “book” all pledges at “face value” for fundraising purposes. FASB rules, which are neither rules of law nor rules of fundraising, requires unconditional pledges to be “booked” as income for accounting purposes.

I’m not concerned with the accountants’ books, but I am concerned with the development office’s books.

If it were up to me, these would be my prescriptions for counting pledges for fundraising purposes:

  1. I’d have two sets of fundraising books.One for public consumption, the other just for certain individuals high up in the charity’s food chain. The first set of books would be for “rally round the flag” purposes. The second set of books would be aimed at hard, cold reality.
  2. The first set of books wouldn’t include “junk” but would aim to lift spirits.
  3. The second set of books, the closely held set of books, would mainly focus on big pledges and the likelihood of their being paid.
  4. This set of books, for example, might contain detail about George, who has made a $5 million pledge, and his family members, not all of whom share George’s charitable intent.

This second set of books might lead to a board member’s approaching George with a request to “tighten up” the pledge. I’m assuming here that the board member knows George well and knows how to approach George discretely.

Big pledges, in my experience, are typically papered up so that they’re enforceable. Such a pledge is “tightened up” from a legal standpoint but still might not be paid. The second set of books can lead to high-level, informed discussions not about counting this sort of pledge, but about how both to ensure payment and to avoid conflict with family members.

Click here to read Part III.

by Jon Tidd, Esq