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by Robert F. Sharpe, Jr.
 America’s
lackluster economy in recent years has led to increased pressure on nonprofit
organizations and institutions to generate the greatest amount of funding in the
shortest period of time at the lowest possible cost. In light of that reality,
those charged with raising funds for America’s nonprofits may ask themselves,
“How can we afford to invest limited resources in planned giving programs that
may take years to produce results?” Some organizations have been tempted to
devote nearly all their efforts to generating immediate gifts, sometimes at the
exclusion of properly funding planned giving programs. This is understandable
given the common misconception of the true scope of “planned giving.”
In
the common vernacular, planned gifts are typically thought of as gifts that are
not received by nonprofits until the death of one or more persons. This is
certainly the case when considering bequests, gift annuities, pooled income
funds, gifts of real property with a retained life estate, and charitable
remainder trusts that last for the life of one or more persons.
Helping
donors effectively plan their charitable gifts is, however, a much broader
activity that can and should result in gifts that are received immediately or in
the near term. In fact, those programs that neglect the importance of helping
donors plan such gifts do so at their peril.
Recall
the definition of planned giving that is at the base of all of the services
provided by the Sharpe Group:
“A
planned gift is any gift of any kind for any amount given for any
purpose—operations, capital expansion, or endowment—whether given currently
or deferred if the assistance of a professional staff person, qualified
volunteer, or the donor’s advisors is necessary to complete the gift. In
addition, it includes any gift which is carefully considered by a donor in light
of estate and financial plans.”
This
definition was first published in Give & Take some 15 years ago and
is today more relevant than ever. Skillful gift planning can result in gifts
that are received now or over various periods of time and are ultimately used
for any number of purposes.
Gifts
not tied to life expectancy
There
are many planned gifts that are based on timing that is not tied to a
beneficiary’s life expectancy. The most common are outright gifts that involve
property that requires the charitable recipient to interact cooperatively with
donors and their advisors. This includes gifts of securities, real estate, life
insurance policies, retirement assets, and other types of property that require
specialized knowledge on the part of a development officer and/or a donor’s
advisor to complete the transaction. Such assets can produce significant gifts
immediately.
It
is important to remember that the larger a gift, the more likely it is to be
made in a form other than cash. Wealthy persons do not become wealthy or remain
wealthy by keeping large amounts in checking accounts. Experienced fund raisers
know that organizations and institutions that are prepared to encourage and
receive non-cash gifts raise significantly larger amounts than those that are
not.
Other
planning tools such as the charitable lead trust are increasingly being used by
the wealthy to fund larger gifts in today’s environment. As the “next step
back” from an outright gift or a pledge over a period of time, a charitable
lead trust allows a donor to set aside property for a period of time to fund a
charitable gift, while underlying assets are ultimately returned to the donor or
to others the donor determines. Because of the stream of funding devoted to
charitable purposes before the underlying funds are received by heirs or
returned to the donor, the lead trust can feature significant gift, estate, and
income tax advantages.
Keep
in mind also that charitable remainder unitrusts and annuity trusts need not
last for the lifetime of the donor and/or other persons. Charitable remainder
trusts can last for a fixed period of time of up to 20 years. Such trusts can
play a vitally important role in coming years as baby boomers enter what have
proven for older generations to be prime years for major gifts. Some of them
will be able to make significant gifts on an outright basis, but a large number
who delayed having children for a time, or find themselves supporting elderly
parents, will find that the opportunity to make a gift today while retaining
much needed income for a period of time will represent a welcome alternative to
an outright gift.
A
charitable remainder trust for a period of 10 years, for example, may be an
acceptable alternative to a major current gift for middle-aged wealth holders
with multiple economic responsibilities. This possibility expands the universe
of those who can benefit from charitable remainder trusts from a group of
relatively older persons to persons of any age who would like to make larger
gifts but do not feel they can do so before first meeting other economic duties.
Charitable
remainder trusts can be designed to last only for a term of years sufficient to
fund educational expenses, can provide a temporary source of income as a
“bridge” to retirement, or can last for a period of time believed sufficient
to give children an economic boost in early adulthood.
Gifts
for a lifetime
One
of the largest, and growing, sources of funding for America’s nonprofit
community is in the area of gifts received from bequests via wills and other
gifts that take place only at the death of a donor. As previously reported in Give
& Take, the percentage of individual gift income to higher education
that resulted from bequests reached 25% in 2002, the highest percentage in over
20 years.
The
key to maximizing gifts from bequests is to focus on the oldest segment of a
constituency. Studies of bequests at institutions that receive the highest
percentage of income from this source show that wills that include bequests are
executed, on average, by persons in their late seventies who live approximately
four years beyond the time they execute the will containing the bequest. It is
rare that these gifts will be made by persons who have not made multiple current
gifts prior to deciding to include a charity in their estate. Wise gift planners
will be particularly diligent in providing bequest information to long-term
donors, even if none of the previous gifts was of any substantial amount.
The
same is true of gift annuities and other life-income gifts. Based on our
experience, the nationwide average age of persons who enter into gift annuities
is approximately 75 years of age, a few years younger, on average, than the age
of those who make wills that ultimately provide for a charitable bequest. It can
be most economical, therefore, to concentrate marketing efforts aimed at
promoting gifts of annuities to those 70 and older.
When
considering plans to market gift annuities, however, it can be a mistake to
limit all communications regarding gift annuities to older persons. The gift
annuity can be an excellent way for a middle-aged person to make a large gift
while also taking care of a parent. In this case, the younger person is the
donor, but the expected time period until receipt of the gift is based on the
life of an older individual.
In
a similar vein, it can sometimes be very helpful to broadly communicate the
concept of charitable bequests via will and other long-range economic plans to
persons of all ages. Why spend time and effort talking to a 40-year-old about a
charitable bequest? Think for a moment. What are 40-year-olds telling you when
they inform you that they have already included, or would consider including,
your organization or institution in their will? When people include charities in
their wills, there is no income tax deduction, no increase in income, no capital
gain avoided, no estate tax saved for most. So why do they take this step—and
what does it tell us about a person’s level of donative intent?
Ironically,
one of the best ways to discover prospective major donors among a broad mass of
younger donors is to periodically give them an opportunity to let you know they
have decided to elevate a charitable interest to the level of a family member by
including it in their estate plans. Finding such persons as they are entering
their economic prime may be the first step in developing a new generation of
major current donors from among the ranks of the baby boomers.
Out of
the box
Those
that succeed in coming months and years will be those that “think out of the
box.” That means disconnecting from the notion that “planned gifts” are
for the “old” or that “planned gifts” are for the “rich.” Some
programs emphasize gifts for the “old” at the expense of the “rich”
while others overemphasize planning for gifts from the “rich” and don’t
properly serve the “old.” And in all too many cases the young are completely
neglected and some of the largest gifts that could otherwise be received then fall between
the crack that may then exist between “planned” and “major” giving.
Those that succeed in maximizing the funding for their organizations and
institutions in coming years will be those that understand that larger gifts,
whether from the young or the old, will increasingly be enjoyed by those
organizations that take steps to make sure they help their donors make gifts of
the right property in the right amount at the right point in their lives.
This
article is based on session 9, “Planned Gifts With Near-Term
Benefits,” featured in the popular Sharpe seminar ”Major Gift Planning.”
See page 5 for upcoming dates and locations.
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