By Jon Tidd, Esq.
Working with a donor to structure a gift can often require more than gift planning knowledge; it sometimes involves using one’s moral compass.
Ethics and charitable giving: Like trying to put your arms around a skyscraper, the subject is much too large and complex to easily comprehend.
Consider the ethical dilemmas inherent in these commonplace actions:
- Issuing a gift receipt for a gift of stock made via depository trust company (DTC) transfer
- Sending a letter to a gift annuity donor telling her what her charitable deduction will be
- Advising a prospective charitable remainder trust donor in writing of the tax consequences of the proposed trust
The DTC stock gift
When is a gift considered complete for tax purposes? Is it the date the nonprofit receives the stock, or the date the stock is wired out of the donor’s account? In today’s volatile equity markets, even one day can make a big difference.
Unfortunately, there is no court case, Treasury regulation or ruling on this point. For the nonprofit to place a value on a gift receipt for a gift of DTC stock is, in effect, to give legal advice to the donor, because the donor will surely take that value and run with it.
But there is a way out. According to IRS regulations, a gift receipt for a noncash gift need not state a value and donors can be advised to determine the gift’s value for tax purposes in consultation with their advisors. If the nonprofit decides to include an estimate of the value, however, the gift receipt can include a statement that the value shown is not necessarily the amount of the donor’s tax deduction for the gift, and that the donor needs to check with his or her own tax advisor to determine how to claim the gift for tax purposes.
The charitable deduction problem
Let’s consider sending the gift annuity donor a letter listing her charitable deduction for funding an annuity. What’s wrong with this? The computer software provides the correct deduction figure, doesn’t it?
Well, maybe. But then again, maybe not. After all, the donor’s overall federal income tax charitable deduction for the year is subject to various limitations. In addition, keep in mind that the donor can elect to use the discount rate for one of the two months preceding the gift month if the proper election is made on the tax return.
Giving a gift annuity donor a charitable deduction figure without also providing some carefully worded caveats is not the right thing to do, legally or ethically.
Advising the CRT donor of tax consequences
No matter the situation, it is not legally or ethically appropriate for a development officer, even if he or she is an accountant or lawyer, to advise donors or prospective donors on anything other than the organization’s policies, such as its willingness to serve as a trustee or gift crediting.
Providing information is one thing. Advising—that is, giving tax or other legal advice—is quite another. Many donors want advice from gift planners. Gift officers must resist this pull while still being helpful.
What emerges so far are two important points: 1) In the gift planning arena, it is better by far to anticipate and thereby avoid problems rather than to try to solve problems that have arisen. 2) Part of avoiding problems is being careful, disciplined and precise in the use of language, both spoken and written.
The moral component
So far, we’ve looked at problems we can think of as being ethical in nature but which are actually rooted in the law. Some other ethical problems in the gift planning environment, while having a legal dimension, also have a very strong moral component.
Suppose a development officer is working with an elderly individual who places absolute trust in the development officer and is looking to him to guide her in making the best decision as to how to make a sizable “life income” gift. The development officer is convinced a gift annuity is the best gift plan for the donor. His CEO and business officer want him instead to heavily promote the use of a charitable remainder annuity trust (CRAT), which puts his organization at less risk but places the donor at a higher risk of corpus exhaustion that could result in cessation of payments to her. A gift annuity may also offer more favorable tax treatment of payments when received.
Since the development officer is caught between duty to the organization and duty to the donor, he should urge the donor to turn to a competent advisor (attorney or accountant, for example) so that he can do his job while being assured the donor’s interests are adequately and independently represented.
Are there any gift situations completely free of ethical considerations?
There are, but they are few and far between. So how should a gift officer deal with this? The best approach is a reflective, mindful one, in which acting in rote fashion is set aside in favor of asking oneself the right questions. To grow as a development officer is to keep getting better at asking those questions—and learning where to go for answers.
Jonathan Tidd is an attorney whose practice is limited to advising charitable organizations on gift planning issues. Jon has served as a technical resource to Sharpe Group for more than 30 years, and is a member of the Arizona, Connecticut, Illinois (inactive), Indiana (inactive) and New York Bars. His clients include a wide range of educational, healthcare, arts, human rights and social service organizations. His articles on charitable gift planning have appeared in The Journal of Taxation; Estate Planning; Taxes—The Tax Magazine; Trusts & Estates and other professional journals.
He contributes regularly to Sharpe Group’s blog. ■