From the Field: Lessons from KETRA | Sharpe Group
Posted February 1st, 2006

From the Field: Lessons from KETRA

The last half of 2005 saw an unprecedented outpouring of support for victims of hurricanes Katrina and Rita. Thousands of Americans responded swiftly to these disasters by giving to aid organizations and other charities involved in the recovery efforts.

In the weeks that followed, Congress was concerned that many organizations could experience reduced giving—as had been observed after the events of 9/11—because donors had given up to the allowable limits by donating to funds for hurricane victims. To encourage charitable giving to a broad range of charities post-Katrina, Congress enacted the Katrina Emergency Tax Relief Act (KETRA). This Act allowed donors to enjoy increased tax deductions for certain gifts made between August 28 and the end of 2005. As we begin 2006, Give & Take talked with several gift planners to find out the lessons they learned from KETRA during one of the most extraordinary year-end periods in recent history.

I was at the NCPG Conference when KETRA was announced. I was wondering how I could put together a mailing about this wonderful law when our university was operating in survival mode. At the time, Tulane was still closed because of the hurricane. Our staff was located all around the country.

The Sharpe Group helped us post a KETRA brochure on our website and send an e-appeal to our donors. We also trained our development officers on the basics of KETRA so they could talk to donors about it over the phone. Our President sent a special letter out to our high level donors about KETRA that directed them to the website and the brochure Sharpe prepared for us.

We were pleased with the response. I think just talking about KETRA set donors’ sights higher. One of the notable gifts was a multi-million dollar gift that was an acceleration of a pledge by a donor who wanted to take advantage of KETRA’s tax benefits. Another donor, who had made modest gifts in the past, made a half-million dollar gift. And then on the last day of the year, which was a Saturday, we got a call from someone who wanted to know more about KETRA and said his CPA was on the line. About 10 minutes later, the donor called us back to make a $100,000 gift. The donor knew about KETRA because we were able to give it so much publicity on our website.

We didn’t get back into our offices until the second week of November. Logistically it was not possible to come back, prepare brochures, and send a mailing. Having the Sharpe brochure available on our website was a lifesaver for us. Without having the information available to our donors, there is just no way we could have gotten the word out.

We initiated several strategies upon hearing about KETRA and immediately sent out an e-mail to all fundraisers, directors, and senior management educating them about the Act and what type of donors could benefit. Early on, we also summarized the benefits of KETRA in an e-mail that the President sent out to all of our board members and VIP donors.

At our planned giving training for major donors last fall, Robert Sharpe talked about the benefits of KETRA to a large group. In addition, we included information on our website with links to various references, prepared a one-page fact sheet for our fundraisers to use in their discussions with donors, sent a summary to a large group of professional advisors, and added information in our year-end appeal. We tried to reach every possible group of donors that we could. We felt this was an opportunity to make another contact with donors and offer assistance instead of simply asking for money.

Our end-of-year fund-raising results were outstanding. We received a gift of almost $1 million as a direct result of KETRA. This gift consisted of mostly cash and some stock. While this gentleman had made gifts in the past, he had never discussed making a gift of this magnitude before. It was my understanding that KETRA was going to benefit his tax situation quite a bit.

Our first step was to order “Giving in 2005: A Special Window of Opportunity” brochures from Sharpe. We then provided KETRA information in mid-October to the senior management of our hospitals, our boards, and members of our President’s Society (donors who give $1,000 or more). For our major donors with large pledges to fulfill we made individual calls to discuss KETRA’s benefits. We also sent out a broadcast e-mail to the 500 or so financial advisors that we work with alerting them to KETRA and referring them to the Sharpe website for more information. We received several phone calls from advisors—including CPAs—thanking us for sharing this important information that many of them had not heard of before. In addition, we also added news on KETRA to our quarterly newsletter that we send to advisors in the region.

A handful of donors—including some of our own finance staff—immediately decided to accelerate their pledge payments. KETRA became a topic of discussion at all our major gift strategy sessions in the fourth quarter. But whether our donors and advisor friends used the benefits of KETRA or not was less important than how much they appreciated our being alert, thoughtful, and ahead of the game in providing information that they might be able to use. Most donors told us that they had not heard about KETRA from anybody else. Some said that their accountants didn’t even know about this. I think it made a big difference that we sent out the KETRA materials as a service to people—donors and advisors alike.

One particularly interesting and important gift had a much greater impact as a result of KETRA. The widow and sons of a beloved physician who passed away two years ago were considering endowing a chair in his memory at one of our teaching hospitals. Sources of funds to meet the required endowment funding level included a remainder interest in an existing CRT, several charitable lead trusts from which the family is able to direct gifts annually, and a new charitable gift annuity to replace (and offset tax on) a commercial annuity redeemed in 2005. There was also the potential for a beneficiary designation from an IRA, inherited by the physician’s widow, which was eventually to be inherited by the sons.

During one of my frequent meetings with the family’s investment advisor, who was strongly encouraging the family to make the gift, the subject of KETRA came up. I raised the possibility of accelerating the IRA gift to take advantage of KETRA and make it a current gift. The advisor thought this was a good idea, and he presented it to the family.

The sons liked the idea. They realized that taxes would take a big chunk out of the IRA before they could receive it. They came up with the idea of doubling the gift from the IRA, and leaving the lead trust alone since their mother enjoys her annual work as a philanthropist. Before the end of the year, close to $1 million was committed—half in cash—because of KETRA.

Everybody benefited—the hospital is now moving forward to fill the endowed chair, the family’s tax problem was solved, the widow is still in the business of being a philanthropist, she will receive income from the new gift annuity, and potential IRA tax issues have been avoided. How good could this get!

We did a variety of things to get the word out about KETRA. First of all, we mailed a special brochure to certain donors, such as those over 59½, those with outstanding pledges, or those who had made gifts through retirement plans, as well as retired faculty and staff. We also added KETRA information to some of the electronic communications going out from the President of the University as well as from individual Schools at Alabama, and we added tag lines about KETRA to our outgoing e-mail correspondences which directed the recipients back to our website where there was additional information.

The whole approach to the communication initiative was to keep the donors informed. Our response was very positive. Our donors were so appreciative of the information that even if it didn’t apply to their tax situation, they often sent in a gift anyway.

We had several gifts come in as a result. One in particular was from one of our most loyal donors. She had maxed out her charitable contributions for 2005 and she sent the KETRA information she received from us to her accountant, who then called us over the holidays. Together we helped her make a gift to fund an endowed scholarship, which zeroed out her tax liability for the year. This was a six-figure, pure KETRA gift.

We sent out a mailing consisting of the Sharpe brochure with a cover letter from our CEO, Bill Novelli. We wanted to let donors know of the recent tax law change that provided them with a unique window of opportunity as they considered their year-end giving. We also mentioned that donors may want to help many seniors who had been affected by the recent Gulf Coast hurricanes, had lost their homes, and needed our help to secure basic human necessities.

We had several gifts that did come in as a result of this mailing, as well as three gift annuities. We were very careful to make sure the gift annuity donors got the advice of their own advisors before completing these gifts.

For the AARP Foundation, this KETRA mailing was more about getting in touch with donors and opening up the lines of communication with some high-net worth individuals who are now considering other gifts, such as charitable remainder trusts and real estate gifts. We got so many calls from donors who were so appreciative of the information and hadn’t heard of KETRA from anyone else. I was able to refer them to our website for more information about the new tax law, and this personal contact just provided another opportunity for us to work with our donors without making a direct ask for a gift.

As quickly as we could, we sent out information to a group of donors we felt would be most likely to benefit from KETRA, so we focused on mailing to those donors who we thought would have an IRA.

One couple liquidated the wife’s IRA and donated the balance of it to us, which was about $75,000. Another gentleman is leaving us his IRA as part of his estate planning. Several other donors wanted to give their IRAs but didn’t meet the minimum age requirements. And we also received several smaller outright gifts as well.

Probably the most important thing that resulted from the mailing was that donors were very appreciative for the information and realized we were staying on top of the laws that might benefit them. The only downside for us was that we knew more about KETRA than most of our donors’ accountants and financial advisors!

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