Choosing a trustee for a planned gift continues to be an increasingly complicated matter. In this edition of Gift Planner's Digest, Elizabeth L. Mathieu, Esq., President of Neuberger Berman Trust Company discusses six elements of selecting a trustee for planned gift instruments.
The relationship between a trustee and beneficiary, between an investment manager and a customer, and between a development professional and a donor, like many others, have both professional and human features. However, historically, articles about these relationships focus on the professional aspects of the relationship between trustee and beneficiary, between investment manager and customer, and on the human aspect of the relationship between the donor and the planned gift officer.
Jay Hughes1 speaks about the trustee/beneficiary relationship as sometimes akin to an arranged marriage over which the beneficiary has had no influence in the arranging, and further has no information about how to evaluate and participate in that relationship over the term of the trust. This certainly can be true in cases in which grantors establish estate tax-motivated trusts for heirs without consulting them or involving them in the process. This might also be true if a charity chooses a trustee to administer, and an investment manager to manage all of its charitable split interest gifts without investigating how they approach their professional and human responsibilities as representatives of both individual and charitable beneficiaries.
Donor dissatisfaction with such advisors can result in a reluctance to make, or recommend to others, future gifts.2 Donor satisfaction with them, however, can result both in additional future gifts and in donors recommending planned giving to others. Therefore, good trustees and investment managers can be key to developing a successful planned gift program. This should be even more true in the future as we face increasingly complex legal and tax rules pertaining to charitable and other gifts, a growing number of donor advisors who may or may not understand the esoteric nature of charitable giving, and volatile investment markets.
Indeed, the size, number, and complexity of planned giving programs have also been growing dramatically over the past 10 years. In light of these trends, there is an increased demand for professional trustees of such programs. The purpose of this article is to assist development professionals in choosing and monitoring professional trustees. It does so by suggesting questions to explore in regard to both the professional and human approach trustees take with charities and donors.
The trust business used to be quite straightforward. The grantor would choose a trustee from among the following five possibilities. Choice would be based on his or her trust of a particular individual:
However, in the case of a planned gift program, a beneficiary-the charity-rather than the grantor chooses the trustee to represent both income and remainder beneficiary interests. When a grantor asks a charity to take over the responsibility of choosing the trustee, he/she is giving up the natural right to choose a trustee, but not the natural right to be fairly represented in that choice, and by the trustee chosen. Therefore, it could be argued that the standard of care exercised by the charity in choosing a trustee must be high and the approach to evaluating and monitoring a trustee should be understandable to the grantor.
Further, a number of trends over the past decade complicate the task of choosing a trustee for a grantor. With respect to available trustees, historically, several major money center banks provided comprehensive planned gift services to a limited number of charities offering programs. Today, an increasing number of banks and brokerage houses offer different types of planned gift services for different types and sizes of accounts with a decreasing number of specialized professionals available to provide such services.
Some of the traditional providers are now leaving the business. At the same time, annual fees for trustee and planned giving services are rising, and minimum account sizes, or annual fees, are being imposed by those providers who are available.
Further, institutional trustees are increasingly outsourcing various aspects of such services including tax preparation, investment manager selection, and custody and recordkeeping-particularly for pooled income funds and charitable gift annuities. Therefore, to be fully informed, the development professional should inquire about the services provided by the vendors chosen by the fiduciary as well as those provided by the trustee directly.
In choosing advisors to support the choice of trustee, today there are fewer trust, tax, and estate planning experts in law firms as younger estate planners are joining banks and trust companies with increasing frequency. At the same time, law firms are not attracting major new, young talent in this area of the law that includes charitable giving. As a result, there may be fewer professionals on whom the development officer could rely in the near future.
In light of these trends, choosing and monitoring a trustee is a more daunting task than it was in the past. However, if the development professional takes the time to systematically analyze both the technical and human aspects of service delivery by trustees, he/she will have a greater chance of developing a successful long term strategic partnership with a trustee to sustain the needs of both donors and charity over the long life of a planned gift.
This article suggests that there are six principal topics that should be explored with potential trustees: business plan; charitable expertise; client relationship approach; trust accounting; and charitable investment policy and fees.
These six topics are set forth below with a list of concepts to explore under each heading. The importance of each topic, and desired responses by trustees, will be determined by the needs of each particular charity and its donors. The human, or personal, aspects of service are indicated below by bold text.
Choosing a trustee for a planned gift continues to be an increasingly complicated matter because of the evolution of the trust industry to many types of institutional trustees, the growing sophistication of donors, and at the same time, the shrinking number of advisory professionals on which a charity may rely. The questions that should be asked to ensure that a high standard of care is exercised in the choice and monitoring of trustees should change over time as these trends continue. Nevertheless, it is hoped that the list above should be of some assistance to development professionals charged with evaluating outside trustees, and developing a partnership with such trustees to serve the needs of donors over the life of a planned gift.