Posted January 1st, 2010

Looking to 2010 and Beyond

Robert Sharpe is President of The Sharpe Group. For nearly 30 years, Sharpe has used his extensive fund development, gift planning, and consulting experience to help hundreds of nonprofits plan, develop, and implement successful major gift planning and endowment development efforts. Here he shares with Give & Take his outlook on fund raising in the coming decade and beyond.

Give & Take: We are now entering the second decade of the 21st century. What can you tell us about what you see when considering the fund-raising landscape that lies ahead?

Sharpe: Over the next year, regardless of what effect the economy and adjustments in tax laws may have, we expect to see the continued impact of broader trends that have brought unprecedented change to all aspects of our lives over the past decade.

The growing number of communications channels and the rapidity with which information is distributed make it ever more challenging for charities to get their signals through escalating “noise levels.” It will be increasingly difficult for some nonprofits to attract new donors, and those that are successful may find it just as important to help donors find their organization as it is for them to find donors.

The demographic shifts that have been taking place over the past decade will now accelerate as the first Baby Boomers turn 64 this year. During the 20-year period from 2011 to 2030, some 70 million people will reach the age of 65. A much smaller generation will replace them in both the workplace and among the ranks of donors. Fundraisers will find it hard to succeed without learning to meet the needs of a rapidly aging donor constituency.

For example, a 65-year-old couple today has a joint life expectancy of 26 years. Given this projected longevity, fundraisers should expect to be interacting with at least a portion of the Baby Boomer generation for the next 50-plus years, when the last of the Boomers born in 1964 will be approaching their early nineties.

If ever there were a time when the activity we know as “planned giving” or “gift planning” formed a central part of the funding mix, the demographic trends now in motion in combination with economic conditions and expected tax law changes seem to assure that it is now.

G&T: How do you think the projected transition to economic recovery will impact fund raising in 2010?

Sharpe: Charitable giving did not grow 14-fold along with the boom in the stock market in recent decades, nor did it drop in proportion to the declines of 40 to 50% during the course of the past year. History tells us that charitable giving tends to fluctuate less and, like employment trends, often lags behind the overall economy to some extent.

We expect that charitable giving will increase on the heels of economic recovery as in the past, but the demographic trends noted above will undoubtedly give a different shape to the philanthropic recovery as it takes place. Those who are prepared to help their donors make gifts, especially larger ones, in ways that take into account the other financial realities weighing on the minds of an economically skittish and aging donor base will be at the forefront of recovery.

G&T: Have you noticed any trends in the types of gifts organizations have been receiving in the last year or two?

Sharpe: There is still a tremendous amount of wealth held in the form of non-cash assets of all types. We have seen more interest in gifts of real estate, art, antiques, and other collectibles over the past couple of years as donors have looked for alternative ways to fund gifts. Such items can make very good gifts, but charities must approach each situation with care.

Speaking of non-cash assets, keep in mind that donors are entitled to deductions based on fair market value for securities and other capital assets held for one year or longer. This spring it will be over a year since some donors bought securities at the bottom of last year’s markets, and they now hold stocks that have grown in value 50% or more since they bought them last year. These stocks can make excellent outright gifts or may be used to fund gift annuities, charitable remainder trusts, and other gifts that provide additional cash flow.

It is worthwhile to note that in the most recent year for which IRS statistics are available, charities actually received more support from gifts of publicly traded securities than from bequests (see the November 2009 issue of Give & Take). Many nonprofits would be pleasantly surprised by what could result if they spent even a fraction of the time and energy normally spent encouraging bequests highlighting the benefits of gifts of securities. Both sources of income are of course vital for future success, so there needs to be balance.

G&T: Speaking of bequests, many consider bequests to be the “bread and butter” of their planned giving programs. What would you recommend for those who want to maximize their income from bequests and other gifts that come from a donor’s estate?

Sharpe: The IRS recently reported that over 80% of bequests from taxable estates come from persons who die after the age of 70. Of that group, over 70% die at age 80 and older. Recent studies of just under 5,000 estates received by 42 organizations of all types and sizes reveal that at least 50% of bequests come from persons who make their final wills within five years of death. Other studies over the years confirm this. In fact, in 30 years of conducting these studies, we have never found a single charity for which this was not the case.

Along these lines, it is relatively rare to receive a bequest from a will that was completed more than 10 years prior to death. That is why we have always recommended that the bulk of an organization’s budget and other resources be directed toward influencing bequests from persons with a life expectancy of 15 to 20 years or less, or those roughly 70 years of age and older.

G&T: What other planned gifts will be especially appealing in the near future?

Sharpe: As long as the current economic environment continues, including lower interest rates and dividends, we will see increased interest in certain major gift planning tools. Charitable lead trusts have been the fastest growing of the various charitable trust vehicles since 2001, according to IRS statistics. We can expect a continuation of that trend, especially if the current estate tax exemption levels and rates continue. If today’s lifetime exemption of $1 million from gift taxes is not raised to match the current estate tax threshold of $3.5 million, then there will be even more interest in lead trusts.

If interest rates and/or stock market values rise, charitable remainder trusts and gift annuities should also enjoy increased popularity. Donors appreciate that remainder trusts allow them to make a substantial gift while enjoying tax-free growth in assets and rising income over time.

G&T: Which strategy will be more successful with donors—emphasizing the tax and other financial benefits or focusing on the philanthropic aspects of the gift?

Sharpe: Neither strategy can succeed if the other is ignored or undervalued. If you only emphasize the tax benefits of gifts, donors may be convinced that your gift planning option is indeed viable for them, but then seek out another charity to actually receive the gift. The tax and other financial benefits are essentially fungible in nature, and at the end of the day donors will choose a charity primarily based on non-tax motivations.

On the other hand, if you don’t help donors decide the best options from a tax and financial planning perspective, even an organization with the most loyal donors and worthiest mission in the world will never realize the level of funding that might otherwise be possible.

All of The Sharpe Group’s services are built around the premise that there are five parts to every gift—who makes it, why they give, what they give, when they make the gift, and how the gift is transferred. The best gifts for all concerned will balance those elements in ways that help the donor see their gift completed while maintaining their financial security.

G&T: What advice would you give to someone just starting out in planned giving?

Sharpe: If you are newly responsible for encouraging bequests, gift annuities, trusts, and other similar gifts, begin by talking to everyone you possibly can who has already made such a gift. The donors who take the trouble to notify you of their bequest intentions will often be more than happy to explain their motivations to you. You may also find a number of stories you can use in your marketing materials to help influence others to follow suit (see “In Your Donor’s Voice” on page 2). The same is true for those who have entered into gift annuities and other planned gifts.

The best way to discover prospective donors is to learn all you can about the people who have already given. Remember that your most valuable donors in the future will often be those who have given in the past. If you remain knowledgeable about gift planning, treat everyone with the respect he or she deserves, and demonstrate passion for your organization’s mission, you should soon be on the path to success.

Mr. Sharpe and other faculty members will share these and other strategies for success this year and beyond in the upcoming seminar “Philanthropy in 2010.” See page 3 or visit www.sharpenet.com/seminars for additional information.

The publisher of Give & Take is not engaged in rendering legal or tax advisory service. For advice and assistance in specific cases, the services of your own counsel should be obtained. Articles in Give & Take may generally be reprinted for distribution to board members and staff of nonprofit institutions and other non-donor groups. Proper credit must be given. Call for details.

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