Thursday, February 28, 2008

"Social Capital" and Estate Planners

On January 28, 2008, an editorial published in the Tribune-Democrat (Johnstown, PA) entitled "Status quo must go: Millions of dollars at risk", by Stephen Purich, urged estate planners (attorneys & accountants) to become "proactive" in influencing how clients' bequests could be directed in testamentary documents to local charities.

The editorial states: "
We must inspire our wealth holders to be more diligent in their planning, and challenge the professional advisers to be more proactive."

Millions of social capital dollars are currently at stake in the Johnstown region. The question is how, not if, that money will be used and whom it will benefit.

When the Community Foundation for the Alleghenies held a kickoff for a marketing campaign in December, 78 invitations were sent to professionals in Johnstown – mostly lawyers and accountants – but fewer than 10 chose to attend.

The foundation’s mission is to promote sound estate planning to preserve social capital in the region. The invitation stated that activity created by this initiative may have a substantial impact on their businesses and the future of our community.

If these are serious issues involving professional careers and virtually millions of community dollars, then why such a tepid response? Lack of experience in planned giving and apathy are usually the biggest stumbling blocks.

Most professionals do not recognize that estate giving is a viable option to sound estate planning.

After all, who promotes planned giving? Charitable organizations and a few individuals from the financial service industry. Both are dismissed as having a vested interest. One group wants our money, and the other wants to sell us something. * * *

This is the problem framed by the editorial writer:
Integrated planned-giving strategies are used so infrequently that they are not familiar to most advisers, including some of the nation’s most prominent estate planning lawyers.

There is a significant disconnect between perception and reality. * * *
The editorial raises, and then counters with statistics, two "perceptions" involving estate planners and their clients:

  • Perception: Estate owners have advisers who are specialists in planning, and have their clients’ affairs in order.
  • Perception: If planned giving was such a good idea, it would be promoted by my advisers.

The writer asserts that the realities are different; and he (a retired financial advisor) focuses on one effect: "As a result, few professionals are fluent in the art of charitable estate planning, which often results in either passive indifference or even skepticism."

The editorial's main point is that "the region’s substantial social capital reserve" should be retained locally, in the form of philanthropic gifts to local charities:
Social capital in estate planning is the money that can not be kept by the family at someone’s death. It is found in two forms – charitable gifts and taxes.

Taxes are defined as government-controlled social capital, while philanthropy is defined as personally controlled social capital. Both forms are intended to contribute to the general welfare of the country, and nearly everyone participates – in one way or another.

Social capital at death transitions from personal to public money. When it unnecessarily leaves the community, it affects the future of all of our children and grandchildren, not just those of the estate owner. * * *

I do agree with some points made in the editorial, such as:

  • Planned giving can be a very positive experience. It can define who we are as individuals and as a community.
  • It is a once-in-a-lifetime opportunity to teach children the importance of good stewardship and foster their responsibility for wealth.
  • [A] foundation can provide the vision and leadership.
  • It’s up to the citizens to transform that vision into reality.

What I dispute is that attorneys and accountants should become advocates to influence a client into charitable giving. These professionals must remain independent, responsive to the client's wishes alone, and trustworthy in implementing a client's intentions.

Certainly, for attorneys, these are basic ethical duties required by the Pennsylvania Code of Professional Responsibility. Furthermore, such influence applied to a client by a trusted advisor could be criticized on the basis of undue influence or conflict of interest, among other grounds.

I applaud the community spirit motivating an educational campaign targeted at individuals and families to act more philanthropically, locally. This is a proper way to invigorate charitable giving.

However, a community foundation should not urge estate planners to become advocates for charitable giving by their clients.

Enabling greater awareness & skill by an estate planner as to charitable giving techniques is laudable; but suggesting advocacy by estate planners for charitable dispositions from their clients is inappropriate.