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by Robert F. Sharpe, Jr.
 There
is no doubt the U.S. economy has experienced a recession this year, though
experts may differ on when it began and whether it has actually ended.
Unemployment has risen and many workers—and donors—have lost their jobs. In
addition, investment markets have fluctuated in value, and interest rates have
reached lows not seen in decades. Add to all of this the devastating emotional
impact of the events of September 2001 and this year has shaped up to be one of
tremendous challenge for fundraising activities.
Admittedly, no one could say this year has been
“business as usual.” But many organizations are still raising record
amounts from both current and deferred gifts. Are there steps that you can take
that will boost giving this fall?
First and foremost, it is important not to take a
“one-size-fits-all” approach. Every constituency is different, and
most organizations and institutions have multiple groups of donors whose
interests must be addressed in different ways.
The broad base of regular donors—young and old
During a recession, younger persons, and those
with the least seniority in their jobs, are generally the most vulnerable. But
because the donors to many causes tend to be drawn from the ranks of older
persons, recessions do not usually have a great impact on giving. A retired
person cannot lose his or her job, after all. This is one reason charitable
giving historically does not decline much overall during periods of recession.
Middle-aged
donors still in the work force
Some donors in their prime earning years may
actually increase their giving during recessionary times.
Why? Studies show Americans tend to give about 2%
of their discretionary income to charity. If those who are still working decide
that they need to cut back on luxury expenditures, perhaps the purchase of a new
automobile or a trip abroad, the funds that would have been expended for those
purposes are returned to the discretionary category. These funds are then used
to pay down debt, are saved, or are devoted to other purposes—one of which may
be a charitable gift they may not otherwise have completed.
For this reason, it may be more important than
ever to pay special attention to donors who have given at mid-range levels in
the past. Where possible, approach these donors with a message of thanks for
prior contributions, acknowledge that you realize that some people have been hit
hard financially this year, and ask them for a gift if they feel they can still
afford to give. You may be surprised by how many will decide to “prove” they still have the economic capacity to match or exceed their
past giving history.
The wealthier donor
Wealthier donors of all ages who typically give
from their capital resources or depend on income from trust funds or from their
investments to make gifts may not be as reliable a source for gifts this fall as
they have been in the past. Donors who decided to “stay the course” in
financial markets the past few years may have lost 25% or more of their wealth,
depending on how their portfolios were invested. Those who have sustained major
losses may understandably feel they are not in a position this year to make the
gifts they would like to make. In dealings with this group, patience and
understanding will be required and will be greatly appreciated.
On the other hand, those who cashed out of the
markets before this year’s declines and re-invested in cash and bonds may now
have more wealth than ever, and may thus be able to continue making significant
gifts from their capital resources.
In any event, it may be impossible to know how
recent market fluctuations have affected your constituents, so make certain that
all donors who have made significant gifts in the past are actively thanked for
past support as part of any solicitation this fall and are made to feel you
understand if they are not able to give as much this year.
The "bounce back" effect
Major market indices have been down as much as
25% this year and 35% or more from their peaks in 1999. As of late August, the
markets have recovered to the extent that year-to-date losses are in the range
of 10%. This means that long-term investors who stayed in the markets and did
not sell their stocks may still have significant gains.
For example, if an investor purchased General
Mills stock five years ago for $32 a share, the stock would have peaked in value
at $53 earlier this year. As of August 21, this stock sold at $41 per share.
Despite this recent drop in value, overall this investor still enjoys a 28% gain
in the shares.
If this shareholder believes General Mills will
soon return to previous higher price levels and does not want to sell the stock,
what should she do? If she were also planning to make a $5,000 gift, and has
$5,000 in cash from the sale of other stocks, she should give $5,000 worth of
the General Mills stock that cost $3,900, bypass capital gains tax on the
remaining $1,100 increase in value, and take an income tax deduction for $5,000
that could serve to reduce her income tax by nearly $2,000. She can take the
cash from the sale of the other stocks and repurchase the General Mills stock at
a higher cost basis.
When the “dust settles” she has made a
$5,000 gift and still owns $5,000 worth of General Mills stock, only now the
stock has a $5,000 cost basis. If its value increases again, the investor has
less gain to report; if it goes down, she now has a loss to report on a sale
rather than just less gain.
There may never have been a time when more
persons needed to know about this strategy and are also in a position to take
advantage of it. Donors will seldom, if ever, be aware of this approach and act
on it on their own. Development executives who do not inform their higher-level
donors of this possibility may be overlooking a tremendous opportunity to “jumpstart” stock gifts this fall.
Older donors
Donors who are older and for the most part
retired may have a “love/hate” relationship with the current economic
environment, particularly with lower interest rates. While they “love”
the fact that lower interest rates may have caused an increase in value of
longer-term bonds, they “hate” the fact that income on more recently
purchased investments may be less than they would like. Now is an excellent time
to inform this group that they may wish to make an outright gift using
appreciated bonds, or use cash they would otherwise invest at lower yields to
fund gift annuities and other life income gifts.
Pay special attention to those who have already
indicated they have made charitable provisions in their estate plans. Now may be
a good time to remind them that there is no guarantee that their bequests will
result in estate tax savings. Because of that uncertainty, they may want to make
a gift now that will come to fruition at their death that features increased
income as well as capital gain and income tax savings they can enjoy today.
Act now
These are challenging times for fund development
efforts, but there have been obstacles before that have been surmounted, as will
those that face us today. The key to continued success is to step back and think
about the different groups of persons who support your organization or
institution and consider how their concerns differ depending on their age and
wealth—and then devise appropriate strategies for each group.
Donors can be encouraged to “give their way
out of the market” if they wish to leave. Effective gift planning can help
them diversify their holdings in a tax-favored manner while they make maximum
use of new estate and gift tax exemptions.
There are unprecedented amounts of cash sitting
on the sidelines. It may be best for some donors to give that cash this year
rather than appreciated property and thus take advantage of the ability to
deduct up to 50% of what may be a lower adjusted gross income amount.
Development executives who take the time to make
plans based on careful analysis and execute them swiftly and effectively may
find that 2002 could actually be their best year ever for both current and
deferred gifts!
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September
2002 issue