Everyone wants to leave a mark on the world - or at least, on their communities. The Boston College’s Center on Wealth and Philanthropy found that for many, that "mark" is often found in charitable donations from organizations and individuals.
Between 2007 and 2061, there will be a "Great Wealth Transfer", during which an estimated $59 trillion dollars will be transferred from 93 million estates - of which an estimated $20 trillion will be given as gifts to charitable organizations just like like yours.
These facts reinforce why it’s important for organizations to start thinking now about how they can invite their donors to leave personal legacies through avenues like planned giving.
It can seem daunting to integrate the complexities of planned giving into your fundraising activities. It can also feel awkward to have a meaningful (and sensitive) conversation with a donor about the end of their lives. But, if the experts at Boston College are right, organizations risk missing out if they don’t figure out how to encourage and accept gifts from their donors’ estates.
Brief Explanation of Planned Gift Options
This is a brief run-down of some more common types of planned gifts.
More information can be found online, including at the Association of Fundraising Professionals and The National Association of Charitable Gift Planners.
Wills & bequests (revocable gift)
Donor may designate a revocable gift by naming organization a policy beneficiary
Stocks and Appreciated Securities
Claim charitable deduction for full, appreciated value
No capital gains tax
If donor holds certificates, they mail unsigned certificates and a signed Stock Power form in a separate envelope.
Securities should be marketable so nonprofit can sell them to support mission
Value of mutual fund share is its public redemption price on day it reached nonprofit’s account or was reissued in organization’s name.
Closely held stocks (unmarketable) can be donated, but the corporation must be willing and able to redeem shares in a reasonable time period.
Donor Advised Funds – Irrevocable gifts
Life insurance
New or currently in force policies or paid-up policies
If policy is paid-up, donor may claim a charitable deduction
If policy requires premium payments, organization or donor needs to continue making payments.
Estate replacement for heirs (often done with second to die plans)
Retirement Assets
IRAs, 403(b), TIAA/CREF
IRD tax issues
Life income plans
Charitable Gift Annuities (charity usually controls)
May be immediate, deferred or flexible
In return for a contribution of cash or securities, donor receives a fixed income, each year, for the rest of their life, or for the lives of two people. The payout rates are based on your age at the time the gift is made. The yields are generous and are guaranteed NOT to change for life. The gift is irrevocable so the donor will be entitled to an immediate charitable deduction from income tax for a portion of the contribution.
Fixes income (percentage of the initial gift value)
Tax benefits (income, estate, & capital gains)
Pooled Income Funds (charity usually controls)
A trust, co-mingling assets of various donors
Variable income based on investments – “a charitable mutual fund”
Tax benefits (income, estate, and capital gain)
Charitable Remainder Trusts (donor usually controls)
Charitable Lead Trusts (donor usually controls)
Income to nonprofit, remainder to heirs
Reverse of the unitrust
Tax benefits (income, estate, & capital gains)
Property/life estates
Can lessen capital gains tax
Donor can retain the right to use the property during their life
Appraisals should be obtained by the donor
Use of donated personal property must relate to organizations mission for donor to deduct full fair market value
Valuation issues can be complex, particularly for businesses
Unitrusts
Variable income (% of assets valued each year)
Tax benefits (income, estate, & capital gains)
4 types: standard, net income, net income with makeup, flip
Four-tiered income taxation
Planned Gifts Don’t Have to Be Complicated
Yes, planned giving can be complicated. Deferred gifts like charitable remainder trusts and charity lead trusts usually involve an attorney, a financial planning specialist, and a fundraiser with specific planned giving experience. That doesn’t mean all planned giving has to be complicated. Here are a couple of simpler ideas you can easily incorporate into your fundraising efforts:
Bequest
What better way for a donor to support you after they pass away than by naming you as a beneficiary in his or her will?
Establish a “Legacy Society” (or whatever you want to call it) and encourage donors to tell you if they name your organization in their wills. Because bequests are revocable it’s not a good idea to include them in campaign or other fundraising totals. But in true donor-centered fundraising, you should celebrate the forward thinking of this very special group of donors!
Life Insurance
These enable donors to make a larger financial commitment for a fraction of the cost and name your organization in a paid in full policy (key words being “paid in full”). They can be structured so that you are a beneficiary and will receive payment upon the donor’s death. If the donor wants to make an immediate gift using a life insurance policy, he or she can name the organization as both owner and beneficiary of the policy.
At some point, you may want to add a planned giving specialist to your staff who can manage the more complicated giving vehicles. You can also work with a planned giving consultant who can provide valuable insight on this type of giving.
What do you do with these planned gifts when you do receive them? It depends. Many organizations choose to use bequests to develop or grow an endowment, since their timing can’t be predicted, and also to honor the spirit of giving in perpetuity. Be sure you discuss this gift designation with your donors. Depending on the size of the potential bequest, a particular donor may wish to have it used for a different purpose. The point is to keep an open dialogue in understanding the donor’s and your needs.
Anybody Can Be a Planned Giving Donor
There is no one type of planned giving donor. Of course, there are those who tell you they put your organization in their will. One of these individuals may be a great person to name a chair of a newly-founded “Legacy Society.” He or she can set an example, and help identify and provide guidance to other potential planned giving donors.
Then, you can reach out to your Board and other volunteers to become other founding members of the Legacy Society.
Many organizations assume that their planned giving donors are within their major gift prospect pool. In fact, your best planned giving prospects are often those donors who have been supporting you at lower amounts for a very long time, say over the last eight to 10+ years. They understand what it means to be in it for the long haul.
While their giving levels may be lower now, their assets may enable them to make a larger financial commitment in the future.
Market, Market, Market
Make planned giving promotion an integral part of your donor communications activities. Put a simple note at the bottom of your appeal letters, as an insert in your next mailing, and in the signature of your staff’s emails that asks people to consider your organization in their estate plans.
Develop a "Legacy Society" page for your website that offers standard language to use in a will that names your organization as a beneficiary, and includes a form the donors can send to notify you of their bequest intentions.
Run an article in your newsletter that profiles a donor who made a bequest or other type of planned gift to your organization. With this consistent communication, you never know who will surprise you with a six or seven figure bequest.
While we’re all focused on the here and now, remember that focusing on planned gifts is a wonderful opportunity for your organization to plan for its long-term sustainability.