Real Estate-Funded Gift Annuities

Some individuals who own real estate like the idea of swapping the real estate for a gift annuity. Especially if they’ve grown tired of managing the property and see the gift annuity as a good way of replacing the income the property provides.

This can be a good deal for the donor. And a bad deal for the charity. Why a bad deal? Because the charity assumes a lot of risk.

The chief risk is that when the charity sells, it won’t realize nearly what it expected to realize.

The donor may be OK with the charity agreeing to base the annuity payment on the amount it receives from selling the property.

There’s a problem with this idea, however. The problem stems from the fact that a gift annuity arrangement is a contract, and a contract is not formed until there is a meeting of the minds. If the annuity payment is to be based on the amount the charity receives from selling, there is no meeting of the minds until after the sale occurs.

This means that for tax purposes the donor hasn’t made a completed transfer to the charity until there’s a sale, which exposes the donor, on audit, to any gain realized on the sale.

If a charity is willing to assume the risk, is willing to agree up-front to a specific annuity payment regardless of how much it gets from selling, there are a couple of ways to diminish the risk:

One is to issue a deferred payment gift annuity, deferred for, say, one or two years. This buys the charity time.

Another is for the charity to get its own assessment of the property’s real value and then to discount this value, say, by 10- or 20%. This provides a value cushion.

Personally, I wouldn’t agree to issue the annuity except in extraordinary circumstances … such as an ideal property in a strong and rising real estate market and a great donor. Even then, I’d strongly prefer a flip unitrust to a gift annuity.

By Jon Tidd
 

Giving Real Estate Imprinted Publications

Need something quickly or have a tight budget? Sharpe’s stock booklets and brochures are the most cost-effective solution. Read more about imprinted publications to learn how to add your organization’s logo and contact information to the front and/or back of one of our standard publications.

Giving Real Estate

A companion piece to Giving Securities, this booklet emphasizes the many gift opportunities open to those who own highly appreciated real property. Donors in areas with rapidly increasing real estate values or who hold the majority of their wealth in real property will benefit from Giving Real Estate.

Click here to learn more about ordering this booklet.

Note About the CARES Act

If you have recently ordered, or have been considering, Sharpe Group’s Giving Real Estate booklet, we are making a complimentary insert available highlighting charitable provisions in the CARES Act to include in mailings to your donors.

Click here to learn more.

Questions & Answers About Giving Real Estate

Questions & Answers About Giving Real Estate provides answers to some of the most commonly asked questions about giving real estate, including types of real estate one can give, how to continue to live at the property once donated and the advantages of making a real estate gift.

Click here to learn more about ordering this brochure.

 

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How the IRS Discount Rate Affects Gift Calcs

The IRS discount rate (7520 rate) has a big effect on charitable remainder annuity trust (CRAT), charitable lead annuity trust (CLAT) and gift annuity calculations but has almost no effect on unitrust calculations.

CRAT calculations: The 7520 rate adversely affects two CRAT calculations: [1] the charitable remainder calc and [2] the 5% probability calc … because the 7520 rate is the CRAT’s assumed earnings rate. The less the CRAT is assumed to earn, the less the charitable remainder beneficiary is projected to receive and the sooner the CRAT is projected to run out of money.

CLAT calculations: A low 7520 rate boosts the CLAT payout value, which increases the CLAT’s tax leverage.

Gift annuity calculations: A low 7520 rate lowers the charitable contribution; but it increases the tax-free portion of the gift annuity payments. It also increases the capital gain that’s realized if the annuity is funded with appreciated stock.

Bottom Line: A low 7520 rate is good for cash-funded gift annuities set up by individuals who don’t itemize.

Unitrust calculations: The value of a charitable remainder unitrust (CRUT) remainder is almost unaffected by the rate, as seen from this table (recipient is aged 70):
 

 
The table shows there is little to be gained by electing a prior month’s higher 7520 rate in the case of a CRUT. What’s mainly achieved is the hassle of filing a 7520 rate election with the tax return on which the CRUT is first reported.

The reason the CRUT remainder value is almost unaffected by the 7520 rate is that the 7520 rate is not the assumed earnings rate of a CRUT. The 7520 rate only bears on how the payout frequency affects the CRUT remainder value.

The payout frequency has a larger effect on the remainder value than does the 7520 rate. The greater the frequency, the lesser the remainder value.

By Jon Tidd
 

Sharpe Personalized Publications

Every donor communications plan requires informational, motivational and educational content for different types of gifts. Sharpe Group publications offer your donors up-to-date information on gift structures that may help them give more than they thought possible.

Use Sharpe Group’s online platform to personalize and order printed brochures targeted to your donors–uniquely styled with colors and images that brand your organization’s message and mission.

Choose an accent color and cover image from the provided selections, or upload your own image and your full-color logo to create a brochure that aligns with your fundraising strategy and fits your organization.
 

Click here to learn more.

 

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We’ve Received the PPP Funds … Now What? (The “All Things Considered” Edition)

I’ve got my memories
Always inside of me
But I can’t go back
Back to how it was
I believe you now
I’ve come too far
No I can’t go back
Back to how it was

Created for a place I’ve never known

This is home
Now I’m finally back to where I belong
Where I Belong
Yeah, this is home
I’ve been searching for a place of my own
Now I’ve found it
Maybe this is home
This is home

Switchfoot (This Is Home)

(Bob speaking) One of my favorite shows on public radio is “All Things Considered.” I couldn’t help but think of that title when I was writing this blog.

Just to recap, our previous blog on this subject outlined considerations for applying for a PPP loan. Many nonprofits did just that and now are faced with what to do with the funds.

As with any big money decision facing a nonprofit, there are many angles the executive team should consider. We’ve laid out what we believe are the most important considerations:

Consider the legal implications and required compliance that accompany the PPP funds.

Compliance will be important in order to have a portion of the loan forgiven. The wording states that the organization must have the ability to prove that their current economic uncertainty makes the loan request necessary to support their ongoing operations.

Because the signatory on the application affirms that the applicant needs the money, we would recommend, at a minimum, your nonprofit document your understanding and analysis of the “need” for the PPP funds. Currently, the SBA officials are saying there will be some form of an audit of the need at certain amounts. Documentation should include a review of the funds and their use as well as include the reasoning behind the need.

Further, we would recommend discussing your findings on the use and compliance of the PPP funds with your auditor, banker and board of directors. As we’ve said before, communication with experts and leadership is essential.

Consider the ethical/moral questions you may face by taking the PPP funds.

(Bob speaking) I’ve recently had a discussion with two prominent churches who applied for and received the PPP funds. In both cases, the churches grappled with the ethics of their decision to apply for—and then receive—the funds. In both instances, the churches brought these decisions to their ruling authorities.

The same process should be considered by nonprofits; your board and/or leadership should play a prominent role in the decision whether to accept the PPP funds.

I’ve also spoken with several nonprofit CFOs who decided not to apply for PPP loans on the basis that some employees may not agree with the application and could be vocal about it. In these cases, they determined taking the loan was not worth the risk.

Which brings us to our last consideration…

Consider the potential reputational risk that goes along with taking the PPP funds.

As noted in recent media articles, the reputational risk that could result from negative media should be quantified in making your decision and how you communicate it to your staff and donors.

While it is difficult to fully quantify the reputational risk, one option could involve polling key constituents and board members as to how they would view the organization accepting the funds. Taking the time to reach out for others’ opinions allows your organization to make decisions that are not in a vacuum.

At Sharpe, we have 50-plus years of reputational, relational and technical experience working exclusively with the nonprofit sector. If your organization needs expert counsel in developing an ongoing strategy, we can assist.

 
By Bob Mims, Sharpe Group CFO, and Tom Grimm, Sharpe Group Senior Consultant
 

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Using 20/20 Hindsight for Future Planning: What Nonprofits Should Be Doing Now, Part 2 of 2

The first part of this article was featured in the latest issue of Sharpe Group’s bimonthly newsletter Give & Take. Click here to read it.

Here, I will further explain the provisions of the CARES Act as they relate to nonprofits and then offer ideas to help you evaluate whether your current planned giving strategy is designed to help your organization through future crises.

Engage banking experts for guidance

With the passage of the CARES Act, which provided economic relief to both individuals and businesses, including nonprofits, the time is now to explore whether your nonprofit can receive its share of the benefits. There are four provisions that may apply to your organization, and, as always, it is best to seek guidance from experts,

Paycheck Protection Program (PPP)—not your average type of loan: the forgivable kind

    What is it?

      o Total of $349 billion available to eligible businesses (including nonprofits).

      o Program is administered through local lenders (banks) by the Small Business Administration (SBA).

    • Who is eligible?

      o Nonprofits with fewer than 501 employees.

      o Any affiliations that control the organization must be included with the number of employees in the eligibility count.

    • How much can you receive?

      o Up to $10 million available, computed as two-and-a-half months of payroll costs.

      o Employee compensation for the purposes of the computation is capped at $100,000.

    • How can you spend it?

      o Compensation to any individual up to $100K.

      o Paid sick or medical leave.

      o Insurance premiums.

      o Mortgage interest and rent.

      o Utility costs.

      o Other interest payments.

Economic Injury Disaster Loan Emergency Advance (EIDL)

    What is it?

      o Administered through the SBA.

      o For temporary losses following a statewide economy injury declaration.

      o Losses experienced as a direct result of the COVID-19 outbreak qualify.

    • How much can you receive?

      o Up to $2 million.

      o $10,000 in emergency grants (forgivable) of advance payments while organization’s application is pending.

    • How can you spend it?

      o Paying fixed debts.

      o Payroll.

      o Accounts payable.

      o Other bills that cannot otherwise be paid.

Payroll tax relief (generally cannot be used if your organization uses the PPP)

    • Who is eligible?

      o Nonprofits that have suspended operations (fully or partially) due to government order related to COVID-19 and that suffer greater than 50% reduction in year-over-year quarterly gross receipts.

    • How much can you receive?

      o 50% of the wages (max of $5K/employee) who are not working because of the closure during the period of March 13, 2020, to December 31, 2020.

      o Nonprofits with fewer than 101 employees may claim a credit for employees who continue to work.

Other emergency relief (designed to help nonprofits with greater than 500 employees up to 10,000 employees)

    • The Treasury is directed to implement a loan program that has an interest rate no higher than 2% per year with no payments due the first six months.

    • Funds received must be used to retain at least 90% of the organization’s workforce through September 30, 2020.

Evaluate your planned giving strategy

Now is the time to develop a clear vision of the role of planned giving in your organization’s future. When thinking about planned giving, you should consider the following:

    • Who is eligible?

      o Long-term donors are usually your best prospects.

    • How long until we see a return on our investment?

      o Consistent investment in planned giving over time is essential as planned gifts begin to mature over a six to 10-year period, on average.

    • The million-dollar question: How much can we expect to receive?

      o Up to 100% of a donor’s estate, but usually a portion of it.

      o It is common to receive more dollars from unknown bequest intentions than from those that are known in advance.

      o Average bequests are often around $50,000 nationally

    • How can we spend it?

      o Donor intent prevails on the method of spending.

      o Unrestricted dollars may be spent on operations/programs.

      o Careful consideration should be taken on allocating a portion of planned gifts to endowments.

Build a successful planned giving program for the long-term

Whether you are starting a planned giving program or looking for ways to maximize the success of your existing program, there are questions you can ask yourself to evaluate its effectiveness:

    • Does your organization currently have a planned giving program?

    • How might your organization efficiently invest in a planned giving assessment?

    • Can part or all of your planned giving program be outsourced? Or, should you hire someone dedicated to the planned giving role? How can you find that person?

If you have a mature planned giving program, are you redoubling your efforts to communicate and listen to your donors during this crisis and after?

As we all continue to navigate through these uncertain times, Sharpe continues to draw on our 50+ years of experience in assisting nonprofits in their fundraising efforts. We would be honored to assist your organization in developing a long-term strategy for the future. Contact us for more information.
 
By Bob Mims, Sharpe Group CFO

 
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The Value of Stewardship, Part 2 of 2: Hang a Lantern on Your Problem … Before the Donor Does

Background

In the May/June issue of Give & Take, The Value of Stewardship, Part 1 of 2: First Do No Harm showed how the acceleration of a bequest intention stewarded unsatisfactorily in the eyes of the donor led to its revocation. What is the nature of the risk to the charity when a donor makes a transformational gift during lifetime and dies shortly thereafter? The gift has been paid in full, the estate administered without objection. The heirs were very supportive of the philanthropic goals. What could possibly go wrong? Let’s examine an interesting case.

Michael Moritz was a nationally prominent corporate lawyer at a global law firm. A grateful scholarship recipient, generous donor and a member of the university’s foundation, he made, in 2001, the largest gift at that time ($30.3 million) to endow four faculty chairs and make 30 annual scholarship awards. The university showed its gratitude by naming its law school after him. Sadly, our donor didn’t live long thereafter, killed less than a year later by a hit and run driver.

The controversy

It took nearly 15 years for the controversy to emerge even though the widow had succeeded her husband on the foundation board. The donor’s son, an alumnus and lawyer, learned the endowment had declined almost 28% from its initial value. The goal of awarding 30 scholarships was not met. The son and his mother also objected to the charging of fees up to 1.3% for fundraising purposes, including the wooing of other donors. Finally, the heirs, without much bargaining power after the conclusion of the administration of the estate, began litigation to reopen the estate.

The university maintained that the son had no authority to enforce the contract; evidently, only the attorney general of Ohio does. The university maintained there was no need for the gift agreements to include references to development fees since the fees were lawful and authorized by the foundation board. Furthermore, the donor’s long-time involvement with the foundation necessarily meant he knew of the existence of the charges against all endowments to cover the development expenses of a multiyear comprehensive capital campaign. As of this writing, the Mortiz family is appealing a decision preventing it from reopening the estate. The Mortiz family says, “We love [the school]. But we can’t sit by and see a $30 million (fund) go to zero.” 1

Planning pointers

There are lessons for both donors and charities.

A. Any fees charged against the income and/or principal of the gift should be clearly communicated, especially for transformational gifts. Charities should be prepared to reduce or eliminate their fees for gifts over a certain amount. A gift acceptable policy should make clear whether the institution has the authority or discretion to depart from regular policy.

B. At a minimum, annual reporting should explain the use of the funds consistent with the gift agreement, including scholarships provided, research supported and professorial salaries paid. An excellent practice would be to designate successor recipients of this and any other communications. Counsel for the donor and heirs should insist on this provision to provide legal standing should issues arise about the gift’s administration.

C. At a minimum, annual reporting should explain how the invested funds compared its benchmark returns.

D. Notwithstanding the depth of involvement and legal sophistication of the donor, it is appropriate to create a record of what the donor agreed to so family members and heirs can be assured all the details of a gift agreement were understood and agreed to by the deceased donor.

 
By Professor Christopher Woehrle, Chair & Professor of Tax & Estate Planning Department, College for Financial Planning, Centennial, Colorado

 
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1. See Moritz family challenges Ohio State University for using percentage of endowments to woo more gifts

An Era of Heightened Scrutiny Arising for Donor Advised Funds?

One of the lesser known aspects of a donor advised fund (DAF) is the advisory privilege on investments.1

Presently there are no regulations under sec. 4966 of the Internal Revenue Code (Code) providing guidance. The practice of charities sponsoring DAFs has been to maintain legal ownership and control of the assets after receipt. Failure to do so risks the deductibility of the contribution.

A case winding its way through the United States District Court of the Northern District of California (Court) might ultimately decide when the advisory privilege has crossed the line and endangers the deductibility of a contribution. In December of 2017, the Fairbairns contributed $100 million of lightly traded public stock to the Fidelity Charitable Gift Fund (Fidelity). They were concerned about liquidating all the stock representing 10 percent of the company especially in light of Fidelity’s policy to “sell as soon as practicable.”

Fidelity sold all of the stock during a short period of time. The value of the gift turned out to be closer to $70M.

Fairbairns sued, alleging that they were encouraged to contribute to Fidelity on its promises to employ state-of-the-art techniques to liquidate large blocks of stock and allow them to advise on a price limit.

Fidelity argued that the Fairbairns’ claiming of a charitable income tax deduction on the 2017 return bars them from directing the timing of and the amount of the gifted shares to be liquidated. Fidelity argued that the Fairbairns’ claim of misrepresentation would mean it did not have the exclusive control over the gifted asset as required under Sec. 4966 of the Code.

The Court rejected Fidelity’s argument characterizing the Fairbairns’ instructions as conditions issued prior to the time of the donation and not subsequent to the donation. The Court further noted the legislative history accompanying the codification of the DAF under Sec. 4966 of the Code does not distinguish between a legally enforceable promise made at time of contribution and one made after the donation. Nor did a 2011 Treasury Report to the Congress on Donor Advised Funds.2

The danger to the donor of a lost or diminished income tax deduction arises when the right of advise¬ment becomes interpreted as a legal right of direction able to be legally enforced. While that argument of Fidelity was dismissed during its hearing on its motion for summary judgment, the Court’s order doesn’t preclude it from being raised at trial. The risk to the Fairbairns is winning the argument of enforceable promises that a court interprets as preventing Fidelity from ever having dominion and control. While that may not be a likely or even a correct result, it would be a Pyrrhic victory for the Fairbairns.

For a more detailed discussion of this case, please see my article in the April issue of Trusts & Estates entitled Fairbairn v. Fidelity Investments Charitable Gift Fund: Plaintiffs’ Day in Court Still Possible But Will Victory be Pyrrhic?
 

By Professor Christopher Woehrle, Chair & Professor of Tax & Estate Planning Department, College for Financial Planning, Centennial, Colorado

 

 
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1. Internal Revenue Code, sec. 4966 (d) (2)(A)(iii).
2. See The Joint Committee on Taxation, Pension Protection Act of 2006, Title XII: Provisions Relating to Exempt Organizations, 2006 WL 4791686 and www.treasury.gov/resource-center/tax policy.Documents/Report-Donor-Advised-Funds-2011.pdf. at p. two. The 2011 report notes “In the case of a DAF, the donor is explicitly permitted to advise the sponsoring organization about how the donated funds should be invested and/or disbursed to other charities, but such advice is subject to the DAF sponsoring organization’s ultimate discretion and control.” Notice there is no distinction for when these rights of recommendation exist.

Opportunities to Give

Congress recently passed the unprecedented CARES Act, a $2 trillion stimulus package aimed at helping the American economy and its most vulnerable businesses, small businesses and individuals recover from the repercussions of the COVID-19 pandemic.

Included in the stimulus package is a direct payment of $1,200 to millions of individuals, with an additional $500 for each child. For many Americans, this direct cash payment is a lifeline of support to help keep afloat during a time when many are losing their jobs, having trouble paying rent or are unable to keep food on the table.

There are, however, many Americans who received these funds who are not as negatively affected financially by the coronavirus pandemic. Many are able to work from home or have continued to work in both essential and nonessential capacities and now find themselves with some extra money and a wonderful opportunity to help out those who have been less fortunate.

For those who are philanthropically motivated, there are ways to use the stimulus check to make a difference. There are local food banks as well as funds for restaurant workers, health care employees and other vulnerable populations who could immediately benefit from even a small donation. There’s even a trending hashtag on social media where people can share their stimulus check donation story.

For example, Cameron Crockett chose to give directly by offering his check via Facebook to anyone who was struggling and randomly drew a person’s name to donate to. Or there’s the anonymous “regular” who left a $1,200 tip at a Pine Bluff, Arkansas, steakhouse. There’s also the more traditional route of donating directly to the many organizations who are on the frontlines of COVID-19 relief or making an additional gift to a favorite charity.

If donating your entire check seems daunting, don’t forget you can also help in smaller yet equally effective ways. You can buy gift certificates at local restaurants or hair salons or any other service you would normally use to support your favorite local businesses during this difficult time.

Thankfully, there are as many organizations whose mission it is to help as there are ways to help out, and many individuals have embraced this opportunity to contribute when so many are facing such great uncertainty.

Unsurprisingly, the philanthropic spirit and the willingness to help others is alive and well among Americans.
 
By Grant Miller, Sharpe Group Editor
 

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The CARES Act

The CARES Act creates two incentives for 2020 individual giving:

  • One allows an itemized charitable deduction for up to 100% of adjusted gross income for cash gifts paid in 2020 to qualified charities. The donor must elect this provision. The IRS will instruct taxpayers how to make the election.
  • The other allows a $300 above-the-line (non-itemized) charitable deduction for cash gifts paid in 2020 to qualified charities.

Which charities qualify?

Public charities other than donor advised funds and supporting organizations.

Colleges, hospitals and religious organizations qualify, for example.

What are cash gifts?

Cash gifts include money, checks paid in due course and credit card donations.

But note, there are other forms of cash giving, such as paying a charity’s debt (considered a cash gift to charity).

Unreimbursed volunteer expenses are another example.

Credit card gifts—a date-of-gift problem

A credit card donation is not deemed paid to charity until the charge is posted to the donor’s account as shown on the donor’s credit card statement.

This rule can cause 2020 year-end problems for charities and donors.

What about gift annuities and charitable remainder trusts?

If an individual establishes a cash-funded gift annuity in 2020, does the itemized charitable deduction for creating the gift annuity come within the CARES Act?

Arguably YES, because the cash is paid to charity.

What about a cash-funded charitable remainder trust (CRT)? The CARES Act on its face doesn’t apply because the cash isn’t paid to a charity … it’s paid to the CRT.

What about qualifired charitable distributions (QCDs) from IRAs?

The CARES Act does not change the QCD rules.

The CARES Act, however, does eliminate the requirement of a required minimum distribution (RMD) for 2020. And, remember, the SECURE Act increased the RMD age from 70 ½ to 72 years for individuals who attain 70 ½ years after 2019.

Where do the cash-giving opportunities lie?

I expect most of the 2020 reported cash gifts will be of the $300 non-itemized type.

Large 2020 cash gifts, I believe, are most likely to come from individuals who receive big chunks of cash from selling appreciated assets and face 2020 gain.

Cash QCDs, which have been a good way to give in prior years, continue to be a good way to give.
 
By Jon Tidd
 

CARES Act Communication

In response to the health and financial crisis caused by the coronavirus global pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act has been enacted. The law presents a plan for the government to aid Americans and businesses during these uncertain times. Among the charitable giving provisions, it includes a temporary, partial “above the line” charitable deduction for cash gifts (up to $300) in 2020 to encourage gifts by taxpayers who are unable to itemize under current tax law. The legislation also modifies the limitation on qualified charitable gifts of cash to 100% of AGI for itemizers in 2020.

To help you communicate these provisions with your donors, Sharpe Group has created a new brochure, The CARES Act: Good News When We Need It Most, which outlines all provisions affecting charitable giving in an easily digestible format. This brochure makes an ideal and welcome message to all current and prospective donors, especially in a targeted soft appeal to your gift planning prospects. It can also serve to educate your board, volunteers and staff.

Click here to learn more.
 

Sharpe Group will continue to post helpful information for you here on our blog and on our social media sites. If this blog was shared with you and you wish to sign up, you can do so at www.SHARPEnet.com/blog.

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Should Nonprofits Accept the PPP Money?

In the last few weeks, we’ve been reading press reports that both for-profit companies, like the national restaurant chain Ruth’s Chris Steak House and the NBA’s Los Angeles Lakers, and nonprofit institutions applied for—and received—the allocated resources for small businesses under the Paycheck Protection Program (PPP).

It is likely many organizations with fewer than 501 employees quickly filed an application with their banks to ensure their place in line when the funds were first announced to be available. Now that these resources have been allocated and depleted, and further monies will be made available, we need to consider the implications and demands surrounding the compliance of accepting these funds.

Question 31 of the “Paycheck Protection Program Loans Frequently Asked Questions” is:
“Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?”

The official answer to that question is that borrowers “must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”

We were curious to see what some of our nonprofit colleagues were doing. After speaking with many nonprofits on this matter, we learned:

  • Three decided they did not qualify due to their number of employees.
  • Three applied, received the resources and have subsequently decided to return the funds.
  • Nine applied and decided they should keep it.

What’s the risk in keeping the funds? There are really three risk factors for nonprofits to consider:

1. Your nonprofit should examine their reserves and financial position and ask themselves:

  • Do we have access to a meaningful line of credit or other resources?

    If yes, then the nonprofit should take additional steps and analysis to ensure that reserves are for other specific purposes or that the nonprofit still qualifies as a need for ongoing operations prior to acceptance.

    If no, proceed to the next question.

  • Has our revenue (and/or net revenue) been reduced by COVID-19?

    If yes, proceed to next question.

    If no, consider additional analysis on whether the nonprofit truly qualifies for funding ongoing operations with PPP money.

  • Do we believe we have a good time frame to enable us to recover?

    If yes, consider how much may be needed to recover, and make sure your board signs off on your documentation and analysis.

    If no, begin making plans to use the money, and make long-term decisions that will be necessary to ensure your organization’s sustainability.

Looking at your nonprofit’s unrestricted net assets in comparison to payroll and operational expenses should provide some good direction on the necessity of the funds to help cover costs in a manner that satisfies the “significantly detrimental to the business” question. (Even nonprofits with sizable reserves may still qualify if those reserves have been allocated for purposes other than operational.)

Key takeaway: Your nonprofit should document their reasoning and basis for making the certification.

2. The second thing to consider is reputational risk. For entities like Ruth’s Chris and the Lakers, the negative attention they received in the media may be financially detrimental. The true cost of reputational damage can’t be easily quantified, which is why it is so critical to be prepared—and proactive—when articulating your organization’s need for the funds. Both Ruth’s Chris and the LA Lakers have subsequently returned the money they received.

3. Does accepting government money provide any interference or oversight that could impede the mission of the nonprofit? This question is also likely a board matter in determining the role of the nonprofit and its partnership with the government to accomplish its mission.

Key takeaway: Communication with your board and key donors is vital. If you believe your organization qualifies and warrants the funds offered through PPP, let your leadership and constituency know why, giving them good reason to trust and understand your stewardship of funds received from all sources.

 
By Bob Mims, Sharpe Group CFO, and Tom Grimm, Sharpe Group Senior Consultant
 

Sharpe Group will continue to post helpful information for you here on our blog and on our social media sites. If this blog was shared with you and you wish to sign up, you can do so at www.SHARPEnet.com/blog.

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Navigating Times of Change: Part V – Completeness

There’s a place down by the ocean
Where I take my mixed emotions
When my soul’s rocked by explosions
Of these tired times
Where love sings to me slowly
Even when I feel low and lonely
Even when the road feels like
The only friend of mine

One light, one goal
One feeling in my soul
One fight, one hope
One twisting rope
I’m ready to run where the ocean meets the sky

Where all I need is the air I breathe
The time we share and the ground beneath my feet
All I need is the love that I believe in
Tell me love, do you believe in me?

Tell me love, ’cause you’re all I need
Switchfoot (All I Need)

Think of a time in your past that changed who you are. It could be the day your child was born or the moment you received priceless advice from a mentor. It could also be the tragic experience of losing a loved one or the disappointment of being told “no.” Life events—whether big or small—change us, and, hopefully, even the bad ones can shape us and help us grow.

World events can have the same impact. The Coronavirus Crisis of 2020 will definitely be on the list of events that have changed us personally and professionally.

Putting it all together

Because the effects of the pandemic have been ongoing, we are psychologically creating daily memories of the crisis and its effects on our world and the world at large. It’s unlike almost any other world event unless you lived during the Great Depression. We have had more time to contemplate the impacts on us personally, on our workplace and on our organization’s mission.

We’ve discussed the advantages of being thoughtful, or some might say “mindful,” about how we fundraise and how we invest dollars in the development of the donor lifecycle. How we utilize those dollars is a different matter.

Many nonprofits think of using their dollars in budget cycles of 12 months, and the vast majority are incredibly efficient in their spending of those dollars to maximize each program’s effectiveness. In this environment, it would serve us well to contemplate how to best use fundraising budgets in relation to the health of our mission and organizational strength.

Here are some questions to ask yourself:

  • Should we have a long-term budget (multiple years adjusted annually)?
  • Should we measure budgets in terms of current and long-term cycles where the long-term cycles would include investment in planned giving and investment returns?
  • How can we rethink how we use planned giving maturities?
    • Are they used for current operations?
    • Are they put into an endowment?
    • Are they split into some thoughtful patterns?

A great way to begin this dialogue is to ask some “what would you do?” questions:

  1. What would you do if you received $1 million today?
  2. What would you do with $20 million?
  3. What would you do with $200 million?

Answers may vary and create lively debate for your executive team, all of which is healthy. Many nonprofits we work with are merely thinking about surviving the short term and tyranny of the urgent. Our clients, however, receive the benefit and understanding of thinking through about what the future will look like, leaning into more than 50 years of gift planning experience and expertise.

(This is Bob speaking.) A good friend of mine was formerly a CFO of a very large nonprofit. During the 1960s and ’70s, this nonprofit decided to put 100% of its planned giving maturities into endowments for conservation. At the time, this was a painful but temporary decision; today, however, that trend left a legacy that built a $2 billion endowment.

Due to the vision and legacy of prior leadership’s vision, on January 1 of each year his organization has north of $200 million in investment revenue for their mission. All because my friend and his organization made a decision based on the future. In other words, leave your legacy right where you are, and you can begin right now.

The experts at Sharpe Group can share our experiences with what has worked over the last 50+ years with our clients as we’ve served them through the good times and bad. We’re here to help you begin creating a legacy for future generations.
 

By Bob Mims, Sharpe Group CFO, and Tom Grimm, Sharpe Group Senior Consultant
 

Sharpe Group will continue to post helpful information for you here on our blog and on our social media sites. If this blog was shared with you and you wish to sign up, you can do so at www.SHARPEnet.com/blog.

We can be found on FacebookTwitter and LinkedIn @sharpegroup.

We welcome questions you’d like us to address. Email us at info@SHARPEnet.com and we’ll share your question and our thoughts in this blog and on social media.