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by Robert F. Sharpe, Jr.
With recent reports that giving in 2010
may be recovering somewhat from the
low points of the recession in 2009, it
may be time to begin turning our attention to
other factors that will increasingly influence the
amount and timing of charitable giving in coming
years.
We are now entering the second decade of
a new century. With the “aughts” behind us, we
have reached an important stage—the “preteen
years.” Just as 10, 11, and 12-year-olds anticipate
their teenage experience, there are certain
things we should be aware of in 2010, 2011, and
2012 as we prepare for the remainder of the decade.
Interrelated demographic, economic, and political
factors now unfolding will almost certainly have an
impact on how we raise the funds that will be vitally
important in securing the future financial well-being of
America’s nonprofit sector and the services it provides.
Aging of the Baby Boomers
The oldest Baby Boomers are now approaching age
65. Some 80 million Americans will reach this milestone
over the next 20 years. The Boomer generation
has defined American society in many ways through
the years and will now transform the American landscape
once again.
By the end of this decade, persons over the
age of 60 will, in the aggregate, make up the bulk
of the donor population, while the number of
donors in their mid-forties to late fifties will be
declining.
In light of this demographic shift, fundraisers
will increasingly need to consider how to make
the process of making gifts—especially larger
ones—compatible with donors’ needs to plan for a
retirement period of 25 years or longer. Whether
we refer to them as deferred gifts, planned gifts,
split-interest gifts, or use some other terminology,
charitable gift plans that combine financial and
philanthropic planning will inevitably assume
even greater importance in our fund-raising
efforts.
In addressing this challenge—and opportunity—it is vital to consider the costs and benefits of our efforts to encourage more effective charitable
gift planning. Simply promoting bequests from those
in their fifties and sixties with life expectancies of 20
years or longer can be expected to have little impact on
actual funds received in the near term. It is, of course,
important to motivate younger persons to consider
charitable gifts as part of their estate planning, but
it will be much more important to work with younger
donors to structure other gifts during lifetime. There
are many ways to make gifts other than immediate
transfers that feature significant flows of spendable
funds for charitable purposes right away or over a relatively
short period of time.
Cautious economic optimism
The recent period of economic turmoil is something
that most of us hope not to repeat. It appears that
the Great Recession may have bottomed out in 2009
and an upswing may have begun. While growth in
charitable giving normally follows economic recovery,
history reveals that it may take until the “teen years”
of this decade to return to the levels of giving last seen
in 2007. For instance, while giving in America bottomed
out in 1933, pre-Depression giving levels were
not reached again until 1937. As recovery proceeds, it
is important that we be prepared to help donors “ease”
their way back into making larger gifts.
Take the case of a 57-year-old who invested
$175,000 in Ford stock for under $2 per share in February
of last year. That stock was recently worth over
$1 million.
While this donor may be reluctant to make an
outright gift of $1 million given current economic
uncertainty, he or she may be interested in using the
stock to fund a charitable remainder unitrust that
would last for a maximum of 20 years and pay 5% of
the value of the trust each year after the trustee sells
the stock and diversifies the investments on a tax-free
basis. The donor would also be entitled to an immediate
income tax deduction of over $440,000.
Suppose further that the donor makes a commitment
to give the first five years of income to fund a gift
that could amount to $250,000 or more. As the donor
has not come to rely on the stock as a source of income,
this could be a nice way for a middle-aged donor to
make a substantial gift in the near term that also helps
provide for economic security over the next 20 years.
Finally, if economic conditions improve over the next
few years, the donor may decide at a future date to
waive further income from the trust and allow the trust
to terminate early, resulting in what could be an additional
gift of $1 million or more depending on the value
of the corpus at the time of termination.
This is just one example of how careful planning
can result in a substantial gift that may not have
occurred if those working with the donor were thinking
in terms of a traditional five-year pledge.
Changing political winds
Few observers would have predicted—or believed—that Congress would fail to act and thereby allow the
estate tax to be repealed for 2010. Unfortunately, it is
now very difficult for wealthy donors and their advisors
to plan for future gifts through estates. Those who work
in development should watch the news and be prepared
to send a message about gifts through estates when
Congress finally acts on the estate tax issue. Unfortunately,
we may not see certainty in this area of the law
until next year following this fall’s election cycle.
Keep in mind, however, that the vast majority
of charitable bequests in recent years have been
received from non-taxable estates. For this reason, it
is important to continue to encourage bequests from
the majority of donors who will be expected to continue
planning their estates despite tax uncertainty.
We will also be seeing changes in income tax laws
in January of 2011 if not sooner, as many of the tax
cuts enacted in 2001 are set to expire at the end of
2010. If Congress does not act, higher-income donors
will face increases in taxes on capital gains and other
income. This will result in additional incentives to
make charitable gifts next year, especially gifts of
appreciated securities where the increase in both regular
and capital gains tax rates will make such gifts an
even more attractive alternative to cash gifts.
Health care and social security legislation in coming
years could also impact the way larger gifts are
planned, so development executives should carefully
follow this area as well.
These are just a few of the factors that fundraisers
will need to address over the next few years. The
much anticipated wealth transfer will be accelerating
and will begin to have a greater influence on nonprofit
funding as well. To participate in the wealth transfer,
however, it will be increasingly important to monitor
the macro trends that will inevitably affect the amount
and timing of this phenomenon and the extent to which
individual nonprofits will participate.
Editor’s note: This article was excerpted from Mr.
Sharpe’s keynote address to the Philanthropic Planning
Symposium sponsored by the Philanthropic Planning
Group of Greater New York on May 26, 2010.
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