Mary Worth, chief development officer for GoodWorks Charity just met with Bertram McFine. Mr. McFine agreed to create a charitable remainder unitrust for $100,000 with GoodWorks and has asked Mary to take the next steps in making that happen. Mary has a charitable remainder unitrust agreement template at her office. She drafts up the agreement in light of her conversation with Mr. McFine, has her organization’s attorney review it to ensure it meets the organization’s gift acceptance policies, and schedules a meeting with Mr. McFine to have him sign it.

Is this ethical?

I recently attended the Florida AFP Caucus’ Planet Philanthropy Conference in Boca Raton. During a session on planned giving, this scenario was presented. Many of the attendees who had planned giving experience felt that it was inappropriate for the development director to draft and present for signing to a donor a trust agreement. Why? They noted that the director is an employee of the charity and in this situation the charity and donor are two parties to a contract negotiation. The charity may have interests which are not in alignment with those of the donor. The attendees felt that it would be best for the director to recommend that the donor seek out his own legal advisor and have his lawyer draft a CRUT agreement listing the charity as the remainder beneficiary.

What could happen if Mary Worth recommends that Mr. McFine contact his own attorney then steps away from controlling the closure of the gift?

First, Mr. McFine may forget to call his attorney. It may be less important for him to take the action now than it is for the charity. Good intentions without concomitant action will not lead to a gift.

Second, Mr. McFine’s attorney may recommend against the creation of the trust. This can happen if (1) the attorney does not understand Mr. McFine’s commitment to making the gift, (2) the attorney does not know how to create a charitable trust and he is too embarrassed to admit it (believe me, I’ve seen this happen!) or the attorney does not believe it is in the best interest of his client to make the gift.

Finally, the attorney may add conditions to the trust agreement which are unfavorable to the charity. For example, while Mr. McFine may wish to support the GoodWorks Charity exclusively, the attorney may recommend that he divide the remainder interest among a variety of charities. Or, he may recommend Mr. McFine use a corporate trustee which will diminish the value of the trust through fees and expenses.

The AFP Code of Ethics provides us with guidelines on how to address this conundrum.

Guideline 2, paragraph a. states “Members shall take care to assure that all legally binding gift planning obligations they propose are prepared or approved by qualified legal counsel.”

Guideline 2, paragraph a. allows nonprofits to “propose” gift planning obligations. Therefore, AFP supports the production and presentation of trust agreements (called “obligations” in the Guidelines) by members. The obligations must be prepared or approved by qualified legal counsel. (The use of in-house legal counsel would also assure that Mary is not “engaging in the practice of law without a license,” a violation of state law.) So, if Mary Worth had her organization’s legal counsel review or draft the CRUT, she has met the terms of the Guidelines.

Guideline 2, b. states that “Members shall urge their clients to seek independent, qualified counsel in regard to any legal or fiduciary obligation that a member proposes.” Mary’s obligation is to urge Mr. McFine to seek counsel regarding the creation of the CRUT. It is Mr. McFine’s obligation to do so if he wishes. If he chooses not to seek counsel, Mary has no responsibility to demand he do so.

Of course, Mary is also under an obligation to act with the highest ethical standards and shall “effectively disclose any potential and actual conflicts of interest” (Standard No. 3). But if Mary engages in an open and ethical conversation with her donor, she can manage the gift solicitation process from start to finish, producing a CRUT agreement for Mr. McFine’s review and signing.