Protecting Your Legacy

By all accounts, Albert C. Barnes, the patent-medicine millionaire whose legendary art collection has been the center of legal controversy, was to say the least a strong-willed man. When a Pennsylvania judge ruled in January that the museum The Barnes Foundation had set up in the 1920’s could be moved from its neo-Classical building in rural Merion, PA, to Philadelphia, the age-old image of a dead man rolling in his grave sprung to many minds.

That’s because Barnes had stipulated in the charter and bylaws of his foundation that no picture in the collection could be lent, sold or ever moved off its walls. While some estimate the value of Barnes’ Renoirs, Cezannes and Picassos in the neighborhood of $25 billion, others simply call it priceless. Yet, ironically, because of Barnes’ dying wishes, the Foundation itself has been running in the red.

As art pundits line up on both sides of the issue, the situation also raises questions in the minds of those who are determined that their legacies be dealt with as they see fit. How can you ensure that if you leave your money to Harvard, it won’t end up at Yale? If cancer is the cause you care about, can you be guaranteed your trust doesn’t endow a chair in cosmetology?

The Next Best Plan
The short answer is, regrettably, no. “All kinds of things can disrupt a will,” says Millard L. Midonick, counsel with Wall Street law firm Fensterstock & Partners LLP. “There are many legacies vulnerable to failure simply because they’re about to go bankrupt. Then, if it doesn’t work out, the court is allowed to do the next best thing.”

What Midonick describes is the so-called doctrine of cy pres, derived from the French for “so near,” that allows a court freedom in interpreting terms of a will or gift if carrying them out is impracticable or illegal.

In any document that will govern disposition of your money after you have died, it’s important to include language that will not only make your intentions as clear as possible, but will also provide a number of “what if” alternatives, notes Barbara Hauser, an attorney with Cadwalader, Wickersham & Taft, LLP, whose specialty is development of family wealth succession strategies. Further, it’s important to be apprised of changes in the law. It may be fine to leave all your money to charity, but in 49 states out of 50, your living spouse can contest your will seeking so-called spousal benefit if a prenuptial agreement doesn’t preclude it. Hauser notes, “Nearly half our states now permit trusts that last far longer than was ever possible just a few years ago. The old rule of thumb of 100 years is now from 1,000 years to literally forever.”

Creating a Lasting Legacy
Drafting a plan to carry out a family’s legacy and wishes for such an extended time can be daunting. It has become even more important to write the goals and principles into the trust agreement and a plan to adapt to changing times. While charities and causes may come and go, your mission statement should be written to endure.

Perhaps a first, and logical step, is to develop a working relationship with the individuals or institutions that may be the designated beneficiaries of the legacy. In other words, test-drive your plan before you go on to the Great Beyond.

“It’s just common sense for a donor to have a discussion with a charity before any gift is bestowed—whether it’s during the donor’s lifetime or testamentary,” notes Philip Schavone, vice president for donor services and development at the Columbus Foundation in Columbus, Ohio. “That way the donor can assess the capability of the charity to be able to execute the plan.”

Experts concur that it’s better to establish this relationship sooner rather than later. A volunteer relationship can allow you to see how the charity functions and gives the charity additional benefits above and beyond any money designated posthumously. You can contribute time, resources, contacts and expertise, as well as demonstrated commitment to the cause. This can also be an opportunity for you to involve your children or grandchildren in a family philanthropy plan.

Then, Schavone advises, a memorandum of agreement should be drawn up which outlines the terms of the gift. Both donor and charity need to look this over carefully—the donor to determine if it accurately articulates intent and the charity to determine if they can execute the wishes. “Any charity has a right to accept or decline a gift,” Schavone adds.

Building in Flexibility

At the same time, asserts Melissa Berman, president of Rockefeller Philanthropy Advisors, it’s important to “try and get to the root issue of your desires and not focus too much on the mechanics and location.” She urges individuals to ask where it is they wish to make an impact in a broad way. “It’s much easier over a long period of time to focus on a broader objective,” Berman believes. So while making your wishes exactly clear may seem to be called for, it’s not necessarily in your best interest over time.

Charles Collier, senior philanthropic advisor at Harvard University, is also a proponent of flexibility. “We typically include language that says if in the opinion of the present corporation, part or all of a fund cannot be usefully applied, it is within our power to apply the money otherwise, though always recognizing the donor’s initial intent,” he says. This helps solve the dilemma of what to do when a bequest becomes obsolete—for example, an endowment for a medical professorship towards curing a disease that subsequently is cured, such as polio or malaria.

Headline-grabbing stories like that of the Barnes Foundation do have beneficial fallout: not only are they a wake-up call to the public, they also help further understanding of the potential benefits of community foundations. Laura McKnight, senior vice president of development at the Greater Kansas City Community Foundation, and an attorney by training, says “community foundations can play a key role in helping in this situation because they can be entrusted with following the intent of donors. They offer flexibility in a perpetual structure because the agenda that’s put forward is always that of the donor.”

Although death and taxes may be the only things in life that are certain, with careful planning you can create a philanthropic legacy that fulfills your wishes and supports your favorite causes effectively, even long after you are gone.

System Admin

Posted at 1:58 AM, Oct 16, 2005 in Aging | High Net Worth Donors | Philanthropic Strategy | Permalink | Comment