Where Do Gift Planners Come From?

Where Do Gift Planners Come From?

Article posted in Practice on 13 October 2015| comments
audience: National Publication, Ron Brown | last updated: 14 October 2015


Don't miss the chance to learn about the founding events of American gift planning!  If you come to the National Conference on Philanthropic Planning (NCPP) in Orlando, please attend my Summit Track session.  See the outline below, to be accompanied with colorful illustrations and illuminating audience discussion.  NCPP registration information is at: https://eiseverywhere.com/ehome/112360.  Write to me at rbrown.pghistory@gmail.com if you have questions or comments, or want to bring this presentation to your home town!

By: Ron Brown (rbrown.pghistory@gmail.com)
Senior Philanthropic Advisor for Gift Planning, Columbia University
Founder/writer for

I. Three events are part of a charitable gift planner’s DNA:

A. John Trumbull’s gift annuity with Yale College (1831). Benjamin Silliman and Peter Augustus Jay overcame tremendous challenges in realizing the earliest known modern gift annuity. The contracts drafted by Jay influence every American life income gift to charity.

B. The Actuarial Revolution in Gift Planning (1927-present). Thanks to George Huggins, the benefits of life income gifts to charity are measured by an “actuarially ascertainable value.”

C. The Tax Reform Act of 1969: Congress aimed to reform un-American uses of charitable trusts and private foundations. TRA69 introduced dramatic changes for charitable gift planning.

II. John Trumbull’s gift annuity with Yale College (1830-1831): the heroic roles of Benjamin Silliman and Peter Augustus Jay

A. Benjamin Silliman, Yale’s first Professor of Natural Science, visited his uncle-in-law John Trumbull’s apartment in lower Manhattan in 1830. Trumbull was one of the country’s most famous artists, whose paintings of the American Revolution had been selected for the Rotunda of the new U.S. Capitol Building.

Q: “What are you going to do with your paintings?”

A: “I will give all my paintings to Yale for the benefit of poor scholars if the College will pay me a competent annuity for my life.”

B. This is the best-documented gift-planning process a historian could ever hope for (see bibliography below).

C. Imagine yourself in John Trumbull’s apartment that day. What do you want to know to decide whether this offer of a gift will work?

D. Challenge #1: financing construction of the world’s first college art gallery. Surprisingly, the Connecticut legislature provided public funding for a private college.

E. Challenge #2: financing Trumbull’s life annuity payments. Trumbull’s thoughts on his probable longevity, investment returns during his life, and the present value of his life annuity.

F. Challenge #3: creating the first American legal contracts for a charitable gift annuity. Peter Augustus Jay’s innovative Annuity Bond and Indenture.

Segue: Peter’s father was John Jay, first Chief Justice of the U.S. Supreme Court and President of the American Bible Society (ABS). Peter was Chair of the ABS Legacy Society. His committee approved the Annuity Bond issued by ABS in 1843. The Annuity Bond program of the American Bible Society became extremely successful, providing a model for other charities in the late 19th/early 20th century.

III. The Actuarial Revolution in gift planning: George Augustus Huggins and the first ten Conferences on Gift Annuities (1927-1959)

A. How were nonprofit organizations issuing charitable gift annuities in the Roaring Twenties?

1. Examples of promotional ads for Annuity Bonds.

2. Risky practices: financing annuity obligations out of current operations; inadequate/nonexistent reserve funds; “decimal plan” for rate-setting; competition for donors by offering higher rates; multiple/young beneficiaries; inattention to state laws and regulations.

B. The Actuarial Revolution: George Huggins introduces “an ideal plan for the gift annuity business,” a new paradigm based on the life insurance industry.

1. Managing mortality risk using empirical evidence and probabilities.

2. Gift annuities are gifts, not investments.

3. Setting a target for the charitable residuum (70%!).

C. Best practices developed through the Conferences on Gift Annuities (1927-present), America’s first national association of charitable gift planners:

1. A voluntary national system for setting gift annuity payment rates.

2. Ethical and practical rules for gift annuity terminology and marketing.

3. Limiting the number of annuitants in a contract.

4. Professional networking, training, and administrative manuals.

5. Public policy research and advocacy.

6. National research on annuitant mortality, investment experience, gift annuities and charitable remainder trusts.

7. Managing the investment of annuity reserve funds during George Huggins’ tumultuous times: the stock market crash in October 1929; the Great Depression; a steady decline in interest rates from 1920-1946; World War II; economic recovery and the Baby Boom.

Segue: as with gift annuities, the tax deduction for charitable remainder trusts became “the actuarially ascertainable value” of the charitable remainder interest. Wealthy donors could and did abuse income and estate tax provisions in the law until the Tax Reform Act of 1969 defined and required the use of unitrusts and annuity trusts, and strengthened the rules applying to pooled income funds (PIFs).

IV. The Tax Reform Act of 1969: what was un-American about charitable trusts and foundations that Congress needed to reform?

A. Economic and political contexts.

1. “Golden Age of American Capitalism” following World War II.

2. Rise of the Soviet Union and “Red” China – armed with nuclear weapons.

3. Senator Joseph McCarthy’s investigations of subversive anti-American activities.

B. Abuses of private trusts and foundations motivated Congressional action:

“The complex system of federal charity legislation has not developed with a particular logic or plan but largely in response to perceived abuses of charitable status. A primary catalyst for imposing accountability under the tax system has been the private foundation.” (James J. Fishman, The Faithless Fiduciary, page 285)

C. 1952: Congressional hearings on subversive political activities of private trusts and foundations.

D. Also in 1952: Conference on Wills, Annuities and Special Gifts with 387 participants. Two samples from the presentations:

“There is a most interesting series of hearings going on in Washington . . . on the question first whether foundations are being perverted for concealed business purposes, and second whether they are lending themselves consciously or unconsciously to subversive purposes.”

“Men and women are interested, in the final analysis, in leaving their wealth to the cause and causes that will make America more American in this gigantic struggle between the two remaining dynamic philosophies of life among men.”

E. U.S. Representative Wright Patman (D-Texas): a shift from political subversion (private foundations infiltrated by Communist sympathizers) to economic populism (wealthy individuals using charitable trusts and foundations to manipulate the rules of charity for unfair economic advantages that the other 99% of American taxpayers are required to subsidize).

F. February-April 1969: House of Representatives hearings on private trusts and foundations, and tax reforms affecting wealthy individuals.

1. Some of the richest Americans were not paying income and estate taxes; charitable benefits used as a “loophole” (100% deduction – esp. gifts of art with inflated appraisal values); transferring assets to charitable trusts and foundations while still maintaining control; manipulating businesses and sheltering income; creating NICRUTs that had an “ascertainable actuarial value” (based on an IRS assumed yield/beneficiary payout of 3.5%) but that were invested selfishly in high yield/high risk assets that exhausted the trust principal, with little or nothing left for charity.

2. Summary of House bill – Congress did not aim to create ways of giving, but rather to reform habits and practices of giving that had long existed and were not functioning as intended.

a. Increased charitable deduction AGI limit from 30% to 50% for gifts of cash, but disallowed deduction for appreciation element for gifts of tangible property, esp. works of art. Also ended the 100% deduction limit previously available for top donors.

b. Criticism of net income charitable remainder trusts (NICRUTs), a form of gift with roots in ancient Greece and Rome that was popularized in the 1920s in America.

c. Introduction of qualified (safe harbor) forms of unitrust and annuity payments (CRUTs/CRATs and CLUTs/CLATs).

d. 5% payout rule for private foundations and charitable remainder trusts.

e. CRTs made subject to the private foundation laws prohibiting self-dealing.

f. Disallowance of capital gains tax deduction for gifts of appreciated property.

g. Four tier system of accounting for taxation of trust payments.

Result: alarm bells in charitable community!

3. Senate hearings drew more substantial charitable testimonies than in the House, but the charitable world was not represented by strong national organizations and national data was scarce.

4. Summary: outcomes of TRA69 affecting charitable gift planning (in addition to the list above):

a. Net income plus make-up charitable remainder trusts (NIMCRUTs) allowed.

b. Pooled income funds recognized in the Tax Reform Act of 1969. PIFs were in use in the United States in different forms since at least the 1920s. Pomona College Life Income Plan (1944) publicized PIFs to a national audience.

c. Retained life estates allowed.

G. TRA69 was received with confusion and consternation. Uncertainty hindered new gifts.

1. Formation of local/regional planned giving councils and rise of expert consultants to understand the new laws.

2. Eventual recognition that TRA69 provided “safe harbors” for charitable gift planning.

H. Then what happened? Founding of planned giving software firms: PhilanthroTec (1983), Crescendo (1984), PG Calc (1985). Tax Reform Act of 1986: CRTs as “tax shelters.” Creation of the National Committee on Planned Giving (NCPG) in 1988. Adoption of the Model Standards of Practice for the Charitable Gift Planner (1991).

V. Take-Aways for Charitable Gift Planners

A. People have made gifts for charitable purposes and received payments back for life for more than a thousand years. Tell your gift planning colleagues, donors, clients, seminar and conference attendees about their true history.

B. Congress aimed to regulate common practices through the Tax Reform Act of 1969. Elected officials did not intend to create new ways of giving. Review/change your materials as needed to reflect the legislative history.

C. Look in your archives for historical gold. When was your organization’s first bequest? Your first gift annuity or CRT? Are there donor stories in your early Board minutes or reports?

D. Keep reading and learning. See the bibliography below. Read Gift Planning History.org and register for free updates. In 2016 the essays will be published as a book. They may soon be a major motion picture (or not).

E. Schedule a unique and enjoyable historical presentation for your planned giving council. Hold a seminar for those who want a deeper dive.

Selected Bibliography:

The story of John Trumbull’s gift is the earliest fully-documented gift planning process in America. The most important primary source is Benjamin Silliman, “The Trumbull Gallery: History of the Paintings, July 3, 1857” in Reminiscences and Miscellaneous Notices, June 18, 1857, Yale University Library, Silliman Family Papers, MS 450. Yale has many related reports, letters by Silliman and Trumbull, and the original gift contracts. Trumbull published the Annuity Bond and Indenture contracts and a very brief description of his gift in Autobiography, Reminiscences and Letters of John Trumbull, from 1756 to 1841 (New Haven: B.L. Hamlen, 1841).

Theodore Sizer, a scholar who served as director of the Yale University Art Gallery, published parts of Silliman’s essay and provided important contextual details in The Works of Colonel John Trumbull, Artist of the American Revolution, rev. ed. (New Haven and London: Yale University Press, 1967).

For a discussion of these and many other sources see Benjamin Silliman: The Gift Planner Behind the First Modern Charitable Annuity at http://www.giftplanninghistory.org

George A. Huggins made presentations at each of the ten Conferences on Gift Annuities held during his lifetime. All of the conference presentations and related materials from 1927-2012 are available at no charge on the American Council on Gift Annuities (ACGA) website at http://www.acga-web.org/resources-top/surveys-reports-conference-papers-...

The early conference reports and many other sources are discussed in Calculating Gifts: George A. Huggins and the Conferences on Annuities, 1927-1959 at http://www.giftplanninghistory.org

Hearings before the Select Committee to Investigate Tax-exempt Foundations and Comparable Organizations, House of Representatives, Eighty-second Congress (Washington, D.C.: GPO, 1953) is available at http://www.deliberatedumbingdown.com/OtherPDFs/Tax_Exempt_Foundations_He... Also see Conference on Wills, Annuities and Special Gifts (New York: National Council of the Churches of Christ in the United States of America, 1952).

The complete, multi-volume hearings of the House Ways and Means Committee and the Senate Finance Committee on the Tax Reform Act of 1969 (H.R. 13270, 91st Congress, Public Law 91-172) are available online at https://bulk.resource.org/gao.gov/91-172/000063E8.pdf (House) and https://bulk.resource.org/gao.gov/91-172/000063E5.pdf (Senate).

The summary of the House bill which was published on August 18, 1969 is at http://www.jct.gov/s-61-69.pdf. The General Explanation of the Tax Reform Act of 1969 published by the staff of the Joint Committee on Internal Revenue Taxation on December 3, 1970 is at http://www.jct.gov/s-61-69.pdf.

For information about tax implications of charitable remainder trusts and gift annuities before the Tax Reform Act of 1969 see J.K. Lasser, How Tax Laws Make Giving to Charity Easy (NY: Fund & Wagnalls Company, 1948) and The Case For Deferred Giving, ed. by Charles F. Isackes and David W. Clark (Washington, D.C.: The American Alumni Council, 1966).

There are good discussions of the 1969 Congressional hearings in James J. Fishman, The Faithless Fiduciary and the Quest for Charitable Accountability 1200-2005 (Durham: Carolina Academic Press, 2007), pages 283-299 and Peter Dobkin Hall, Inventing the Nonprofit Sector and Other Essays on Philanthropy, Voluntarism, and Nonprofit Organizations (Baltimore and London: The Johns Hopkins University Press, 1992), esp. pages 66-83.


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