OK, so they’re not exactly “dirty” little secrets. But who among us hasn’t had a moment administering a particularly complex gift and thought – what have I gotten myself into?
PG Calc has been providing gift administration services since 2001, and we know that the work we do behind the scenes is critical to the ongoing success of our clients’ planned giving programs. We also know that there are plenty of unexpected headaches that can accompany administering a planned gift.
Here are a few tidbits of “wisdom” we’ve picked up over the past 13 years:
1. Sometimes the governing document is truly messed up: Forget the assumption that you can always refer exclusively to the gift annuity contract or trust document to clarify the terms of the arrangement – some contracts and documents contain provisions that are contradictory, technically impermissible, or even illegal! Working out the answers may require legal counsel.
2. Death may come quickly, but notification can take forever: Gift annuity donor died in 2009; charity notified us in 2014. Who has been receiving the checks? Have they been cashing the checks? How much cleaning up are you supposed to do? Every case is unique, but you may need to take extra steps to secure the interests of the charity, which is, after all, entitled to the remainder of the gift assets upon the death of the final beneficiary.
3. Some donors do not understand the difference between a Schedule K-1 and a Form 1099-R: The beneficiary tax reporting for a gift annuity is done with a Form 1099-R, which is legally required to be mailed no later than January 31. The beneficiary tax reporting for a charitable remainder trust and pooled income fund is done with a Schedule K-1, which is legally required to be mailed by the deadline of the tax return from which it is produced, i.e., April 15. For some donors and their advisors, this distinction can be difficult to understand and may need to be explained, more than once.
4. Tax Season is never truly over: There can be extensions after extensions, and sometimes the IRS questions tax returns that go back many years. We recently responded to a notice for a client that pertained to their 2008 tax return.
5. Sometimes the husband dies and the widow says nothing: Has the widow notified the IRS her husband died? Is the widow still filing joint tax returns? In the case of married couples, the death of the first spouse frequently means the income interest passes to the other spouse, but there are important changes that need to be made regarding the issuance of payments and the tax reporting of the payments.
6. The left side doesn’t talk to the right side: Development and Finance often operate in parallel universes. The administrator becomes the tie that binds. It’s sort of like being the third child stuck in the middle of the back seat in the family car on a hot summer afternoon when no one is getting along. Ugh. Sometimes the administrator has to push the two sides to talk to each other, and it can be an ongoing struggle.
7. Sometimes the terms ‘irrevocable,’ ‘unassignable,’ and ‘nontransferrable’ are not well understood: Donors and their advisors often ask questions about making changes to life income gift arrangements. For example, the gift annuity was set up to make quarterly payments to the donor, but now the donor wants monthly payments– can the arrangement be modified?
8. Just tell the donor she’s lived longer than expected: It can be difficult explaining to a gift annuity donor that although she previously received tax-free income, she is now 105 years old, having far exceeded the longevity expected by the IRS, and her tax-free income expired 20 years ago. The point is that the administration of life income gifts sometimes requires being blunt, in a polite way, about donors’ ages and life expectancies.
9. It ain’t over ‘til they read the will: Whenever life income gift arrangements involve more than one beneficiary, the first death may very well affect the income interest of the other person. Even with spouses, there may be a revocability clause controlling the decedent’s portion of the income interest. You should always insist on seeing the will of the deceased beneficiary to determine the appropriate course of action.
10. The rules are not always well-defined: There can be significant challenges to carrying out the provisions of gift arrangements in cases where the law is silent or unclear. For example, the IRS does not actually specify the calculation methodology to determine the income tax charitable deduction when an annuitant voluntarily relinquishes her annuity interest. At times like this, you may answer based on the consensus of the planned giving community, to the extent that there is one, but also insist that the annuitant seek her own legal counsel.
The continual twists and turns in gift administration can make it especially challenging, but there is never a dull day.
What surprised you about this work? Share your stories in the comments section.
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