Why Planned Giving Is in Big Trouble

Planned giving is not in good shape, and one reason is the lack of leadership and vision of the National Committee on Planned Giving, the major organization that represents fund raisers who specialize in gift annuities, charitable trusts, and other types of donations that generate special tax and financial benefits for donors.

The committee, whose membership includes 11,000 fund raisers, lawyers, tax specialists, and others who arrange planned gifts, celebrates the number of people who attend its conferences, but it does little to ensure that its members are ethical. A small check — not experience or talent or an empathy for the role of charity in our society — is the sole entrance requirement, and by requiring nothing of its members, NCPG acknowledges that it represents the interests of those who may not be qualified to solicit planned gifts. Instead, for example, of vigorously educating its members and the public with warnings of fraudulent fund-raising schemes, NCPG quietly posts an article about potential scams on its Web site.

The downturn in the economy has made it painfully clear why planned-giving fund raisers hurt both charities and donors if they don’t have the proper ethical training, as well as financial savvy. With most types of planned gifts, the donor receives an income-tax deduction in the year the gift is established, as well as an annual income, in return for irrevocably designating a gift to charity. But planned-gift assets, from which the annual income is derived, are subject to the same market fluctuations as commercial investments. In some severe cases over the past few years, charitable trusts have lost all their value, able to pay nothing to the donor. Even when a trust does not exhaust its entire principal, a reduction in assets can mean a striking reduction in a donor’s income. Donors depend on that income; knowing they will receive it is the only way many of them can make a significant charitable gift.

But the exhaustion of a trust or the severe reduction of its size generates a second disappointment — one that is more important: The charity no longer can expect its gift, which is or ought to be the sole point. The ethical problem is not the sharp drops in the value of so many planned gifts, but the setting of the expectation by fund raisers that all will be well for donors forever into the future.

Yet even the technical expertise can be abysmal. By not appreciating the effect of trust payout rates, investment principles and history, asset allocation, and actuarial and mortality tables — to say nothing of the need to understand a donor’s philanthropic intent — planned-giving officers may as well be performing surgery on the brain, equipped only with the medical knowledge of how to ingest a few aspirin tablets. In the world of medicine, anyone who attempted a sophisticated operation with so little training as that received by most planned-giving fund raisers would be ousted from the profession. The National Committee on Planned Giving, however, has no procedures for removing such charlatans or for protecting the public.

Training in technical matters does not come simply from attendance at conference seminars. While the technical is the first level of learning, ethics ought to be the driving force behind all we do, in applying all the technical aspects. The quest to understand and employ ethical behavior makes learning how remainder values are calculated, and, for that matter, all other technical matters associated with planned giving, mere child’s play. When, for example, donors establish a gift annuity at, say, age 50, they ought to be told that, regardless of how high the current annual payment appears to be, its purchasing power will diminish mightily in the face of inflation over the next 30 years. Further, even its nominal value will appear less significant when interest rates rise again. Even in good times, fund raisers need to keep in mind this truth: Life cycles are longer than economic cycles. Donors who are not reminded mantralike before and as the gift is established that a planned gift is primarily a way to help charity — and not a way that charity can financially help them — will often be disappointed when things go wrong. The planned-giving officer who stays silent on the point is without question violating an ethical standard.

The National Committee on Planned Giving doesn’t seem to see its role as instilling the values of ethics. Indeed, the organization’s mission statement says nothing about ethics, and at last year’s annual meeting, not one of the more than 40 presentations dealt with ethics. It could be that few fund raisers care about the committee’s ethical void. Most people look at ethics as the soft underbelly of planned giving, indeed of all types of fund raising. A flavor of what I’m often told: “I don’t need to learn about ethics — I’m pretty ethical already — but I do need to know about the transfer tax exclusion and how it affects charitable-lead-trust planning.”

Odds are people who say that have very little need to understand the complexities of lead trusts, but they may well need a better grounding in ethics. That someone sincerely claims to be ethical does not make it so. It goes way beyond that. The trick is not only to want to do the right thing, but to have done the work to understand and defend what the right thing is. Watching a professional football team on television does not in any way enable the couch potato to better throw a football. Practice — trying and failing and trying again, actively engaging in the process — is the only way to learn anything. Understanding and employing ethical behavior demand constant intellectual rigor, yet fund raisers too often seem to think they are born knowing how to behave ethically and don’t need to be taught ethics.

The National Committee on Planned Giving should be at the forefront of making it clear why ethics must constantly flow through the all the minutes of a fund raiser’s day. The organization adopted standards of ethical behavior in 1989 and slightly revised them in 1999, but officials of the group seem to think that it’s enough for the standards simply to be in place. But the standards should be like the Constitution, providing only the framework for examining important issues. They need constant attention and must be continuously interpreted given the circumstances of the day.

When a problem arises, it’s usually one borne of an ethical problem. The National Committee on Planned Giving has taught its members to be technical giants while allowing them to become ethical midgets.

Reform will probably not come easily to the National Committee on Planned Giving. The organization’s governing structure keeps the board weak. Each member of the board, except the person who becomes president, serves for one three-year term. After a warm-up year, the president serves in that position for only one year, and a total of five years on the board. This means entirely too much memory and control reside in the staff. The board must be in charge of any organization, the steward of its vision. Longer terms (at least for a portion of the board) and the potential of two consecutive terms (at least for some) would go a long way toward giving the board control that it has never enjoyed. Furthermore — and I say this with no disrepect for the two executive directors who have served the committee — the top staff spot ought to be filled by a person who has, at the least, experience soliciting planned gifts.

The first step that a reconstituted board should take is to revise how the ethics committee works. Today, the people who make up that committee are the former presidents of the National Committee on Planned Giving — and no one else. While all of those people have served the association well, what exactly qualifies a former president, and no one else, as an expert on ethics? It matters not if former presidents are even interested in ethics; they automatically serve on the committee. That indefensible, ridiculous system practically ensures that tough ethical issues will remain unexamined.

The National Committee on Planned Giving needs a vision that includes the possibilities of philanthropy and the effects it should have on society, not just the mundane possibilities, such as increasing conference attendance or promoting the tax benefit of a gift. Until we demand more of those who are admitted, until we better define what minimal ethical standards are acceptable and then scrupulously sculpt them, and until we seriously examine the question of where planned giving is heading, the activity that I would dearly love to call a profession will continue to flounder. Far more ominous, however, is that when today’s empty promises turn into tomorrow’s empty presents, society will slowly but inexorably comprehend the hypocrisy of knowledge without goodness.

Douglas E. White is a partner at North Common Associates, a fund-raising consulting company, in Washington. He is a former member of the board of the National Committee on Planned Giving, where he served as ethics chair. He is the author of The Art of Planned Giving (John Wiley & Sons).