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A Conversation With Ray Madoff, Author, 'Immortality and the Law: The Rising Power of the American Dead'

July 12, 2010

Ray Madoff is a professor at Boston College Law School, where she teaches trusts and estates, estate planning, and a seminar on immortality and the law. She is also the author of Immortality and the Law: The Rising Power of the American Dead (Yale University Press, 2010), which includes a lively account of the legal framework behind today’s charitable trusts and foundation. An op-ed by Madoff in today's New York Times explains how the growing use of so-called "dynasty" trusts is helping to create a monied aristocracy in America.

The following Q&A was conducted earlier this month by Laura Cronin, director of the New York City-based Toshiba America Foundation.

Madoff_2010 Laura Cronin: Let me begin by congratulating you on writing such an interesting, and often quite funny, book about the serious topics of death and taxes. In addition to being surprised by all the humor in a book on this subject, many readers of this blog might be startled to learn that much of what seems like long-standing tradition in the field of charitable trusts and foundations is relatively new. Can you start with a bit of history?

Ray Madoff: Thank you for your kind words.

This is one of the many surprising things I learned in my study of how the law treats interests of the dead. Private charitable trusts are so ubiquitous and many of them have been around for so long that I assumed this had always been the case.

However, it turns out that for much of this country's early history, while a person could give outright to an existing charitable entity, the law did not grant -- to quote a case of the time -- "every private citizen the right to create a perpetuity for such purposes as to him seem good."

The private charitable trust had been well established in English law and was brought to this country by English settlers. However, after the Revolutionary War, the new American states had to reconsider whether they were going to continue to follow the law of England or to create rules that better reflected the values of the new republic. As historian Lawrence Friedman has described it, the charitable trust, associated as it was with privilege, the "dead hand," and massive wealth held in perpetuity was viewed with particular suspicion.

"Dead hand," of course, refers to the phenomenon of people's wishes continuing to be honored after death. This issue was of great concern to the founders -- particularly Thomas Jefferson -- who felt strongly that worldly goods should be controlled by the living and not the dead.

For much of the nineteenth century courts regularly set aside bequests to establish new charitable purposes. In one of the most notorious cases, a New York court set aside a four-million-dollar bequest from Samuel Tilden, former governor of New York and almost-president of the United States, to establish the Tilden Trust to fund a public library in New York City. The New York courts refused to give effect to the bequest and instead awarded the money to Tilden's heirs. There was such a public outcry over the decision, however, that the New York legislature responded by enacting the Tilden Act in 1893 validating charitable trusts in New York.

It was not until the late nineteenth century when a confluence of events -- including the rise of a new class of wealthy industrialists and growing societal problems in need of resources -- caused people to rethink the value of perpetual private charitable trusts and they regained favor.

LC: You write that "American law grants more rights to the dead than any other country in the world." It might also be said that the U.S. has one of the most highly developed charitable sectors. Is there a connection, and how might providing fewer rights to those creating trusts affect the resources available to the philanthropic sector?

RM: There is undoubtedly a strong connection between our America system of property laws --- particularly the extraordinary ability that Americans have to control their property at death --- and the size of our philanthropic sector. In the United States, individuals have almost unlimited capacity to control their property after death; indeed, the only limitation is that many states provide protections for a surviving spouse. A person in the United States is free to disinherit other family members, including minor children. This differs greatly from most other countries, where people are required to leave as much as 80 percent of their property to their families. That leaves far fewer resources for other beneficiaries -- including charitable ones.

Of course, there is another distinction that's important as well. Many of the private institutions in the United States that are largely funded by the philanthropic sector -- including universities, museums, and healthcare organizations -- are often public institutions in other countries and are funded by tax revenues. I suspect that this public funding gives people a different sense of obligation with respect to private giving.

LC: You argue that "when we increase the rights of the dead, we decrease the rights and opportunities for the living." Does it have to be a zero-sum game? If a donor believes that the cause s/he is supporting cannot be fully addressed in his or her lifetime, can't a case be made for making resources available to keep up the good work beyond the life of the donor?

RM: It is definitely not a zero-sum game and I totally agree that it is valuable to have people commit their resources to charitable work that will continue after their death. The question is how we balance the needs of the living and the deference to the wishes of the dead when there is a conflict? To what extent do we continue to put "protecting the wishes of the dead" above all else?

We are all familiar with instances in which a donor's original wishes seem obsolete to those who are must carry them out years later. As a lawyer teaching other lawyers who will be advising clients about trusts and estates, my question is how do we learn from these examples? What kind of law and policy changes do we need to help those establishing trusts to avoid locking in important charitable resources in ways that are inefficient or impractical?

LC: Julius Rosenwald, founder of Sears, deliberately exhausted the endowment of his foundation before his death. You hold him up as a good example of how to manage a large fortune for charitable purposes. Today, we have several high-profile donors taking his "giving while living" approach, but you point out that most new trusts are still designed to last forever? If the "spend now" approach is better, why isn't it catching on or becoming the norm? And is current law trending in the right direction?

RM: I would like to see more leadership from estate planners and other professionals who advise donors about charitable giving. Donors turn to them for advice for the best way to structure their charitable bequests and it seems like, too often, perpetual life is the rule rather than the exception. This may be based on the misperception that you get more overall dollars by setting principal aside and spending only the earnings. In fact, due to the time value of money, the stream of payments over time never even equals the value of the amount originally donated. Add to this the very real possibilities of waste and mission drift and it seems that educated donors would be inclined to establish shorter terms for their private charitable foundations. A lot of good can be accomplished in a fifty-to-one-hundred-year time frame.

It is encouraging to see that many leading philanthropists are promoting the giving while living approach. The Olin Foundation did well with the spend-out approach. The Atlantic Philanthropies has an end date, and Bill and Melinda Gates and Warren Buffet are speaking out and are encouraging others to follow their lead.

LC: You argue that the American legal system defines charitable purpose too broadly. How would you recommend it be redefined? What are the hazards of having too broad a definition? And what challenges might be involved in making it more precise?

RM: While I argue that the American legal system defines charitable purpose broadly, I do not necessarily say that it is defined too broadly. The reason is that, as your question suggests, more problems might be raised by narrowing the definition than by keeping it as broad as it is.

However, I think it's important for us to recognize how broad the definition of charitable purpose really is. While the general public probably still associates the designation with churches, colleges and hospitals, those of us in the field have heard of 501(c)(3)s for every concern of modern life -- including such seemingly obscure interests as promoting education about Huey helicopters, the kind used in the Vietnam War. The charitable deduction results in a matching gift from the federal government in support of the charitable inclinations of those who itemize for income-tax purposes and those who would otherwise pay estate taxes. Yet, just because something is a 501(c)(3) organization does not mean it is worthy of unlimited government support.

LC: Much of what we do in the charitable sector stems from tax law. What areas of research are you and your students exploring in terms of how the tax code influences the way we give now? And how me might do give better in the future?

RM: I believe that our current laws put too much of a thumb on the scale in favor of preserving perpetual life and not enough in favor of addressing present-day charitable needs. There are lots of legal rules that facilitate the preservation of donor's intent in perpetuity, but fewer rules that ensure that property committed to charitable purpose is accomplishing the most good that it can. It seems to me that it is worth studying ways that we can change the rules to best accommodate the true goals of philanthropy -- bettering the world.

-- Laura Cronin

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