|
by Robert F. Sharpe, Jr.
 Most
charitable organizations and institutions that rely on charitable
gifts for a substantial portion of their funding have guidelines
in place for what types of donations will be accepted—and then
for what purposes they may be restricted. But in order for such
policies to be effective, they must be appropriate to both the
particular organization and the current economic environment.
Well-thought-out
gift acceptance policies are especially important for programs
that actively encourage bequests, deferred gifts, and gifts of
real estate and other non-cash property. Many organizations find
that the beginning of the year is an opportune time to review and
adjust such policies.
Types of property accepted
In
recent years, as investment markets have stagnated while real
estate values have continued to rise, a number of programs have
seen a marked increase in gifts that involve real estate. Many
programs that have policies in place that severely restrict gifts
of real estate are taking a fresh look at these guidelines in
order to avoid rejecting what may, in fact, be very valuable
gifts. Other programs with more lenient policies have learned from
experience the need to tighten procedures governing real estate
gifts in order to avoid repeating unfortunate mistakes.
How much is enough?
Lower
interest rates and yields on other investments have led some
programs to review their policies on the maximum payment rates
allowed for charitable remainder trusts and lead trusts. These and
other plans may suffer unacceptable levels of encroachment of
principal if maximum payment rates are set in accordance with
expectations that were commonplace in the 1990s.
It
may also be necessary to alter default values in software used to
project benefits for donors so that they reflect lower total
return assumptions. More and more organizations are restricting
who is authorized to set investment return assumptions in gift
illustrations. Failure to do so can result in the embarrassing
situation of a gift acceptance committee’s rejection of a gift
offered in response to a development officer’s proposal!
Administrative
expenses may also necessitate adjustments in the minimum amounts
necessary to fund a particular gift. For example, assume that the
average cost of administering a gift annuity for a particular
organization is $100 per annuity per year. For a $10,000 gift
annuity, that amounts to 1% of the initial gift annuity amount. If
the organization pays the 7.3% rate recommended for a 75-year-old
donor under the 2003 rates proposed by the American Council on
Gift Annuities, then a $10,000 gift annuity that costs $100 per
year to administer should result in a residuum amount of $5,000,
or 50% of the amount transferred, assuming the donor lives 12
years. The Council rates are designed to yield an average residuum
of 50%, so this is in keeping with the desired outcome.
Suppose,
however, that the organization accepts gift annuities of less than
$10,000. As we can see from the chart below, the $100 per annuity
expense is fixed and applies to gift annuities regardless of their
amount. A 5.25% return assumption on the annuity funds may cause
some organizations to decide that they do not wish to accept gift
annuities in amounts that would yield an expected residuum lower
than the recommended levels.
The
chart below illustrates why larger gift annuities may yield much
greater benefits as a percentage of funds initially transferred
than smaller gift annuities.
Future
earnings assumptions must be taken into account as well when
setting minimum ages for gift annuities and similar plans.
Note that as long as earnings assumptions of 5.25% are met and
administrative expense is maintained at $100 per gift annuity,
there is no problem achieving or exceeding a 50% residuum amount
for older donors. If earnings fall to 4.25%, however, just 1%
short of expectations, residuum percentages remain in acceptable
ranges for older donors but may fall into negative territory for
younger persons.
Gift
acceptance policies should thus take into account a number of
factors including earnings assumptions, administrative expense
levels, the expected time period until receipt of the gift, and
other factors when setting minimum gift amounts and ages for
various gifts. Some programs may need to adjust policies that were
set at a time when different assumptions were appropriate.
Examining restrictions
Experienced
fundraisers know that donors will often give more when they feel
they have involvement in deciding how the funds will be used.
Organizations that do not allow donors any input in how their
gifts are applied often find it especially difficult to raise
large amounts from relatively sophisticated donors.
But just
as the economic landscape changes over time, so do organizational
needs. In times of steady increases in funding, it may be possible
to impose a broader range of restrictions on gift dollars than is
possible in times of more pressing needs. For this reason,
sections of gift acceptance policies that address permissible
restrictions and minimum amounts required to place restrictions on
gifts may also need to be examined periodically.
It can
be constructive to take a proactive approach. Rather than actively
limiting restrictions on gifts, a better strategy may be to
“carve out” a number of areas of interest. Based on various
mission components, areas of geographic emphasis, or other
discreet “thought sectors,” such proposals can lead donors to
a level of comfort regarding the use of their gifts without unduly
restricting them.
Also,
consider incorporating a statement that enables donors to approve
language that would allow the chief executive officer or other
appropriate party to alter the use of funds with the approval of
the board or other governing body. This will cover instances where
a particular program or service for which funds are restricted is
either overfunded or no longer exists.
Keeping the peace
Besides
controlling costs and helping to channel funds to appropriate
areas of program emphasis, well-considered and current gift
acceptance policies can also help maintain harmonious staff
relations and foster better relationships between donors and those
assigned to steward relationships with them.
By
involving staff from development, finance, program
administrations, and other areas of organizational management
along with volunteer leadership from the board in the process of
creating and reviewing gift acceptance policies, a spirit of
teamwork and mutual understanding can be enhanced. Those who are
not involved in the day-to-day activities of fundraising can gain
a greater understanding of what drives the development process
before the gift is completed. Likewise, those who work directly
with donors can gain a greater understanding of the issues faced
by those who must meet the expectations of donors after the funds
are actually received.
Policies
that are rooted in consensus of senior staff and reduced to
written form can also be very beneficial in helping to preserve
relationships with donors when a gift must for one reason or
another be rejected. If the donor can be furnished written
policies, it is much easier for the fundraiser “on the ground”
to handle any negative reactions. Written policies remove focus or
blame from the contact person and make it clear that the rejection
of their particular gift is the result of policies that had been
considered and determined in the past. A donor may even gain a
greater respect for the professionalism of an organization that is
prepared to quickly respond to an offer to make an unusual gift.
Staff training
Finally,
gift acceptance policies can be an excellent tool for training new
and existing staff. After updating policies each year, consider
holding a series of staff training sessions to explain any
changes. New staff will gain confidence, and veterans will feel
reassured that their management is in tune with the times. All
staff will feel that your organization has taken all steps
possible to assure that they can relate to donors in a way that
communicates a commitment to the highest levels of service and
excellence.
Editor’s
note: This article is excerpted from material presented by Mr.
Sharpe in Session VI of “Major Gift Planning II” entitled
“The Economics of Major Gift Planning from the Charity’s
Perspective.” See page seven for upcoming dates and locations.
|
