An interview with Andy Fussner, Vice President of Estate Settlement for the American Heart Association, about non-probate estate gift settlement.
The planned giving community has long encouraged donors to look at their retirement plans and life insurance policies along with their wills as a source for charitable giving. One quick and easy change to a beneficiary designation form can result in a significant charitable gift with welcome tax benefits.
While simple for the donor and always appreciated by the recipient organization, such gifts can sometimes lead to long delays and paperwork headaches for charities when they act to secure the gift the donor intended.
As Vice President of Estate Settlement for the American Heart Association, Andy Fussner has seen these issues unfold firsthand and on a large scale. Here he shares with Give & Take some of the reasons behind the distribution delays that are currently frustrating many charities. Next month’s follow-up interview will outline some of the solutions and best practices Mr. Fussner and his staff have developed to speed up these distributions.
Give & Take: How did you become involved with estate settlement?
Andy Fussner: Before coming to the American Heart Association, I worked a number of years at a law firm in Tampa practicing estate planning and tax law. About 17 years ago, I had an opportunity to join the American Heart Association as a planned giving director. Over time, my role evolved into my current position, Vice President of Estate Settlement. I oversee estate settlement and bequest administration for the American Heart Association nationwide, and we have settled over 10,000 testamentary gifts during my tenure. I also work very closely with our planned giving office because we feel bequest administration is a vitally important “feedback loop” for planned giving.
Give & Take: Can you put the recent surge in non-probate gifts from deceased donors in perspective?
Fussner: Estate settlement involves a mix of different types of gifts: will bequests, trust bequests, beneficiary designations on financial arrangements such as IRAs, life insurance and so on. Estate gifts to the Heart Association are primarily wills and revocable living trusts. Over the last 10 years, however, we’ve seen a dramatic increase in other beneficiary designations, mainly retirement assets and pay-on-death instruments. Right now, these types of gifts make up about 20 percent of our estate gift income, but they are definitely growing.
Give & Take: What are some of the problems you are encountering with these gifts?
Fussner: Non-probate estate gifts, such as the ones made through beneficiary designations, used to be the estate settlement department’s favorite type of gift. The institution holding the asset would send us notification that the donor had died, accompanied by a one-page beneficiary claim. Three or four weeks later we would get a check.
After the enactment of the Patriot Act in 2001 and the FINRA Know Your Client Rule that became effective in 2012, banks and other financial institutions that manage those funds have had to jump through a lot more hoops. Now when we are notified that we are a beneficiary, we are required to open an account at the institution that is holding the funds. That entails filling out a seven- or eight-page application that asks for information about our organization and its assets.
We then must identify an individual at our organization to provide his or her personal information such as investment experience, Social Security number, driver’s license number, home address and so on. By having us open an account, the financial institution is then able to confirm that the American Heart Association is not a conduit for transporting terrorist funds.
After the account is opened, the institution can transfer the assets from the donor’s account to the charity’s account. When we want to liquidate the assets, however, the institution starts a whole new verification process before they will release the funds. When that process is finally complete, we typically close the account—until the next time we get a notification, and the process starts again.
Distributions now take typically three or four times longer than they used to. And it’s probably ten times as much paperwork. Additionally, sometimes we have problems opening an account. Because we’re opening an account for a corporation, the institution wants to make sure that the person opening the account is an authorized signatory for that corporation. The transferring institution wants to have a corporate resolution granting authority to an individual to take certain actions, and ideally they want to use their own corporate resolution (which would have to be approved by the charity’s Board). All of that takes time.
Give & Take: I understand that many financial institutions require that the charity representative’s signature be “medallion signature guaranteed.” Can you discuss what that entails?
Fussner: There are various levels of signature verification used on official documents. Beyond witnesses and notaries, there is a level called “medallion signature guaranteed.” It’s basically a stamp awarded by a bank during a transaction such as the transferring of stock or some other asset. The medallion signature guarantee means that the bank is essentially guaranteeing your signature and providing insurance to the transferring institution that you are who you say you are. If you then tricked them and ran off with the funds, the bank would be on the hook.
Because of the risk, many banks simply will not offer a medallion signature guarantee anymore. And if they do offer it, they want the charity to be a client and require the person wanting the guarantee to be a signatory on the account. Even if the institution is willing to do it and they’re willing to use your signature, there’s another problem. The bank, understandably, wants information about the asset being transferred. After all, they are going to be on the hook for it. The problem is, the institution that has the asset to be transferred often won’t give the charity information about it—what it is, how many shares there are, the total dollar value—until they get the paperwork from us, so we fall into a Catch-22. The institution giving the medallion guarantee won’t stamp it until they know about the asset, and the institution transferring the asset won’t give us the information we need until we get the medallion guarantee. I understand why it’s happening, but we are caught in the middle.
Give & Take: Are you ever in a situation where you just can’t work out a resolution?
Fussner: So far, we haven’t given up, but some settlements have dragged on for as long as 12 months. It becomes a lot more work on our end and delays the distribution process, which prevents the money from being used toward our mission and adds to our administrative costs. We would much rather spend our time raising money than collecting it. ■
Click here to read part two: Mr. Fussner offers ideas on how to facilitate non-probate estate gift settlement.