Posted September 1st, 2003

Planned Gifts With Near-Term Benefits

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.

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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