The National Heritage Foundation has issued a press release in which it responds to a recent $9 million adverse jury award in a case involving a charitable split dollar plan and announces its plans to appeal the verdict.
Full Text:
National Heritage Foundation
DATE: September 17, 2008
SUBJECT: Press Release Regarding Split Dollar Suit
National Heritage Foundation, Inc. was established in 1994. Since its inception, it has helped make numerous charitable projects a success. By establishing a subfoundation at the National Heritage Foundation, a donor can assist their favorite charity or local community need and take part in making a difference.
Between 1997 and 1999 National Heritage Foundation participated in a number of charitable split dollar plans. At that time, these plans were recognized and approved by the IRS, tax planners and tax attorneys alike. In a nutshell, under the plans, a donor could make a donation to a charity, and if the charity used the money to pay premiums on an insurance policy insuring the donor’s life, the charity could split the death benefits with the donor’s chosen beneficiary. In 1999 a law was passed that essentially prohibited the “split benefit” between the charity and the donor’s chosen beneficiary.
In 2005, NHF was sued by a Texas couple in connection with charitable split dollar plans. In 1997, the plaintiffs created Trusts that participated in the split dollar plans. When the law changed, their estate planning attorney, who was the Trustee of their trusts, transferred the ownership of the policies to NHF, in order to benefit a local order of nuns, the charity that the plaintiffs had designated as the cause they wished to support. Under the new law, a private person could no longer be a beneficiary on an insurance policy owned by a charity. Therefore, as owners of the policies, NHF first changed the beneficiary to NHF, and ultimately changed it to the order of nuns selected by the plaintiffs.
In their lawsuit, despite the fact that they had at their disposal the advice and counsel of their estate planning attorney, financial planners and CPA, the plaintiffs claimed they were unaware of the change in law and their Trustee’s transfer of the policies to NHF for the purpose of transferring the beneficiaries in order to eliminate the IRS issues. They further claimed that their donations were not donations, but were only payments made for their insurance premiums. However, from 1997 through 2003, the plaintiffs took charitable deductions on their tax returns and represented to the IRS that the donations were “unrestricted” contributions. Consistent with its charter, at all times, NHF’s primary focus and concern was for charity, and all actions taken by NHF were for that very purpose.
In a split 10-2 verdict, despite significant evidence to the contrary, the jury found in favor of the plaintiffs. NHF respectfully disagrees with the verdict and plans to appeal its findings. NHF is hopeful that the appellate court will address significant legal and factual issues raised in this case that will alter the outcome. While that appeal is pending, NHF remains committed to its core philosophy of supporting charitable endeavors on behalf of its many committed donors.
Sincerely,
John T. Houk, President
800/986-4483
Comments
Verdict Against NHF
NHF Lawsuit
Verdict Against NHF
If taxpayers depended on validation from the marketing departments of insurance companies, the assertions of insurance agents and promoters instead of the objective advice of independent experts who had no financial stake in the process, then it should be no surprise that these players shot themselves in the foot. Given the headlines today about financial products which no one really understands, this is another cautionary tale of complex ideas with too little backing from people who have worked in the field for years that, once exposed to scrutiny, fell apart and the participants have lost much more than they originally invested.
Vaughn W. Henry Springfield, IL
Verdict Against NHF
What gets me in this case is why the professionals were not found liable as well if, NHF is correct, and the client's counsel dealt with NHF in fixing the plan after the IRS ruling came out prohibiting the plans. To me, if the client was being represented by counsel, they suffer if their counsel is incompetent with recourse against the counsel. Of course, the jury could have decided that the client's counsel was conflicted and acting as an agent of NHF so NHF should be guilty as well, or that they were all jointly and severally liable and maybe the statute of limitations ran out on the professionals involved.