Potential Donor Scenario

The prospective donor I am speaking with is age 78, and is living with Multiple Sclerosis. His wife is age 70+ and suffers from Alzheimer's disease. They have two adult sons with families of their own. The donor has informed us that his long term goal is to leave the National Multiple Sclerosis Society somewhere between $50,000-100,000 (he says the kids don't need it). He also plans on leaving a donation to an Alzheimer's organization. What would be the best path?

There are a host of issues in the above scenario, the most significant being the needs the prospective donor and his spouse have. Although your question focused on the charitable pledge, let's first review a few items the couple themselves should do. Incidentally, a properly structured estate plan to protect them can often increase the likelihood of the charitable pledge being realized. This could be an ideal opportunity for a revocable living trust given the tough health issues the couple faces. Since their children are well to do, they may also have tremendous time commitments. A revocable trust with an institutional co-trustee along with one of the children after the parents cannot serve may be the ideal structure to protect the parents without unfairly imposing on the children. This will also give the children a method to be involved on the matters that are most significant for their parents without being bogged down in administrative tasks a bank can handle. If that route is taken, the revocable living trust can include the bequest to the charity, NMSS. The couple's attorney and bank (or wealth manager) can help with these steps.

Next review the investment allocation of the assets the parents have with their financial planner. Many older donors become ultra conservative in their investment approach, limiting themselves to CDs and other assets. If that is the case, it might be possible to have the donor's buy a joint gift annuity that will pay them, or the survivor of them, far more than they are currently earning in interest income. That might not only entice the couple to make a current gift, but may improve and simplify their cash flow issues. If they have highly appreciated securities, especially growth stocks not paying a dividend, that may be another ideal fact patter for a gift annuity. A charitable remainder trust (CRT) would likely be inappropriate for such a small amount.

Depending on the couples income and estate tax posture there may be more advantageous ways to structure the gift. For example, if they reside in a state with no estate tax, and their total estate is less then the federal exclusion amount, in 2007 that's $2 million, their estates will not obtain any charitable contribution benefit from the contributions. It might be more tax advantageous to make gifts of say $10,000/year starting now, realize an income tax charitable contribution deduction, and make up the remainder in their will and revocable trust. For example, in such a scenario their will/revocable trust could state that they make a bequest (and you need to clarify if its on the first or second death) of $100,000 to be reduced by gifts made during their lifetime on account of the pledge. If the couple has a very low income tax bracket they could gift $12,000/year/heir and their sons, who might be in much higher income tax brackets, could make the contribution deductions and realize an income tax savings. That might get the kids more on board with the pledge.

You might consider having the donors sign a pledge agreement now to solidify their commitment while all the above gets sorted out.

While the above may seem a bit complex (and there are lots more options) if you meet with the advisers for the clients (estate planner, accountant, investment adviser), and the clients, the couple of best approaches will often clarify themselves from the facts. The scenario you painted is missing a lot of pertinent facts which, if the couple and the advisers are sitting around a table together, might become clear.

Bottom line - there might just be a lot that can be done to help this struggling couple and their family, and at the same time benefit the charity sooner or even to a greater degree then anticipated. In my neck of the woods that's called a "win win".