Planned-Gift Quiz Was Full of Flaws

To the Editor:

As a lawyer who spends much of his time advising planned-giving programs, I took particular interest in the planned-giving quiz in your edition of August 7 (“Rich Donors Cite Displeasure With Financial Advisers”).

The article pointed out that most of the financial advisers and planned-giving officers to whom the test was given failed the quiz. It’s no wonder. Of the 20 questions, seven of the answers are simply wrong, or the questions were unclear or provided insufficient information.

A few examples:

In Question 5, a donor contributed $100,000 to a pooled-income fund of which he was the only beneficiary. The question asked how much will be included in the estate for federal estate-tax purposes. You state the correct answer is 0. Actually, the correct answer is the entire value of his interest in the pooled-income fund. The donor will get an offsetting estate-tax charitable deduction.

Question 12 is, at best, of a questionable nature. It asks about the percentage limitation for a cash gift to a charitable lead trust. You give the correct answer as 30 per cent. In fact, most people will answer E, 0 per cent, because in most cases no charitable income-tax deduction is allowable at all. A charitable income-tax deduction is allowable for a contribution to a lead trust only where a trust is structured as a grantor trust. Very few lifetime lead trusts are so structured.

I suspect that if you had correct answers, your test takers would have done much better. I think you owe the advisers who were maligned in your article an apology.

Lawrence P. Katzenstein
The Stolar Partnership
St. Louis

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To the Editor:

As an attorney and C.P.A. who now works as a planned-giving counsel for a major university, I was fascinated with the results of your planned-giving survey. If all 1,108 financial advisers and planned-giving officers who had taken the quiz had failed to achieve a passing score, the lack of expertise in the planned-giving community must be even worse than I had feared.

In reviewing the quiz, however, I found so many flaws and inaccuracies in the test itself that I believe any conclusions drawn from it are worthless. Some examples:

Question 3 asks the maximum number of years that a charitable remainder trust can last. The regulations permit a C.R.T. to be established for the life of the initial income beneficiary and then for the shorter of the successor beneficiary’s life or a 20-year period. While the suggested solution is the best of the five choices, it does not accurately reflect the planning opportunities in this area.

Question 19 asks, “With respect to a charitable lead trust, how much of the income on his/her tax return that goes to charity each year must the donor declare?” If this is a non-grantor lead trust, the answer is none as the income is all reported on the trust’s income-tax return. If it is a grantor lead trust, the donor must report all the income of the trust, not just the income that goes to charity. For example, if the trust earned $100,000 and distributed $60,000 to charity, the donor must report all $100,000 on his individual income-tax return. The question implies that he might only need to report the $60,000.

I am disappointed that the so-called planned-giving experts that you relied upon could not devise a test that could accurately access the expertise of the planned-giving community. Hopefully, another method will be devised to insure that we are providing accurate information to our donors.

Geoffrey A. O’Neill
Planned Giving Counsel
University of California at Berkeley
Berkeley, Cal.

The researchers who administered the quiz randomly selected 20 questions from a list of 516 questions developed by 27 legal and financial experts who specialize in planned giving. The experts had been asked to submit technical questions dealing with the kinds of issues that any financial adviser who works regularly with donors should be able to answer. To test whether the quiz was a fair measure of what advisers should know, the researchers first gave it to 41 advisers, then provided them with copies of the correct answers. None of those test takers complained about inaccuracies, faulty wording, or other problems with the quiz, so the researchers administered it to an additional 1,018 advisers. The researchers say that they received no complaints about the quiz from any of the test takers. — The Editors