It is not uncommon for those making presentations about planned giving to begin with references to how “planned giving was created by Congress as part of the Tax Reform Act of 1969.”
In reality, many of the common gift planning tools we use have been around for centuries, and Congress finally enacted rules governing the use of them where tax benefits were desired as part of the 1969 tax act.
Planned giving in the mid-20th century
During the 1950s and ’60s, a number of institutions were broadly marketing to persons outside their natural constituencies what could only be described as tax shelters. Oftentimes the “donors” who availed themselves of these “gift plans” had little or no donative intent toward the institutions that promoted the plans.
These “tax shelter” plans primarily involved the use of charitable remainder trusts. They took advantage of the fact that there were few statutory, regulatory, and court-determined guidelines governing payout rates, discount rates, how trusts could be invested, how the income would be taxed, how much the charitable benefit had to be, etc.
In 1969, in an attempt to limit the abuses it perceived without interfering with the positive uses of charitable remainder trusts and other charitable estate planning tools, Congress gave us very strictly-defined rules governing the vehicles we now know as charitable remainder unitrusts, annuity trusts, pooled income funds, charitable lead trusts, and others.
New laws created new niche
This complex patchwork of arcane laws made it necessary for a group of tax attorneys, many of whom are now well known gurus in planned giving, to “hit the road” beginning in the early ’70s to teach the staff and volunteers serving America’s nonprofits the new rules that governed charitable estate planning.
As a result, many of the persons who entered the field of development during that period naturally assumed that planned giving was something new, primarily based on tax law, and an optional technique that they may or may not wish to append to their programs. These managers often responded by hiring persons who were expected to specialize in understanding and applying the “new” plans put in place by the 1969 tax act. These persons were typically called “Directors of Deferred Giving.” There are still a few persons in America who bear that title, though “Director of Planned Giving” or “Director of Gift Planning” have become more commonly used. In 1972, The Sharpe Group spearheaded that change by adopting the term and suggesting the title as part of an article published in Give & Take in August of that year:
“A donor usually considers a current gift to your institution as a cash outlay now. To make a deferred gift, a person decides to give at some future date, either a number of years from now or at death. A deferred gift is a present decision to make a future gift, evidenced by a legal contract.
While the name, ‘deferred giving,’ is best known to professionals in the field, it is not a term that communicates very much to the average donor. Therefore, we suggest the term ‘planned giving.’ When a person makes a planned gift, it suggests forethought.”
From the early 1970s to today, therefore, many among the leadership of America’s nonprofit community have seen “planned giving” as something new, optional, and in many cases not really a central component of the ongoing development effort.
A brief history of planned giving
In reality, planned gifts are demonstrably as old as Western civilization. Ancient Greek and Roman philosophers, Aristotle chief among them, wrote extensively on various types of philanthropy. Citizens of Rome established perpetual family foundations that were allowed to receive bequests by the first century A.D.
Throughout the medieval period, most social services were performed using the proceeds of rents from land held in charitable trusts, and by the remainders from gift annuities that had been funded for the benefit of the Church.
As part of what we now know as the Reformation, Henry VIII enacted what have come to be known as “Mortmain Statutes” which forbade his subjects to leave land to the Church in perpetual charitable trusts. As a softening of these statutes, in 1531 a law was passed that allowed persons to place land in trust for the benefit of the Church but only for a maximum of 20 years, at the end of which time the land had to return to the family. Then, as now, persons were allowed to voluntarily direct assets for charitable use for a period of time before returning the property to their family. Could this be the origin of what we know today as the charitable lead trust?
From the early days of American society, John Harvard, James Smithson, and others left generous bequests that built the educational, cultural, religious, and social service agencies that still form the bedrock of our country. Ben Franklin and others created charitable trusts, foundations, and endowments that would last 200 years or longer.
The earliest records of gift annuities in America date to contracts issued by the American Bible Society in the 1840s. There is evidence of very active planned gift development efforts including bequests, gift annuities, and charitable trusts in the early part of the 20th century, predating the income, estate, and gift tax codes by decades.
An article published in The New York Times in the late 1930s declared that the colleges and universities that raised more money during the Depression than in earlier years did so because of the “dramatic increase” in bequest income during the 1930s while outright gift sources declined.
These gifts were the result of active planned gift development efforts in the early years of the century. For example, the American Council on Gift Annuities was founded in 1927 and began the process of recommending prudent gift annuity rate standards that continues to this day.
Planned giving in post war America
American society experienced tremendous upheavals during and in the wake of World War II. It was a time of rapid growth in our society when untold amounts of wealth were created. A new generation of management took the helm of a swiftly expanding nonprofit sector. The economic environment was booming, with the majority of the wealth controlled by relatively young veterans who were amassing large amounts of capital.
Campaigns for outright gifts to build American hospitals, classrooms, libraries, symphony halls, and other bricks-and-mortar projects became the dominant form of major gift development. Between the end of World War II and the mid-1960s, what we now know as “planned giving” became less central to the funding process and was largely abandoned as a funding source by a generation of managers of many American philanthropic institutions.
Toward the end of the 20th century and into the early years of the 21st century, however, new challenges that call for tried and true solutions are re-emerging.
The 85-plus age segment is the fastest growing group in America. Their concerns are to assure economic security in what may be a decade or more of remaining life and pass as much of their wealth as possible to their loved ones. These concerns naturally have an impact on, and can interfere with, the desire to make large outright gifts.
Planned gifts hold the answers today, as they have for centuries, to the many dilemmas of older donors as they offer an aging donor population the ability to make substantial gifts while retaining income and other financial benefits for themselves and others for whom they feel economic responsibility.
The generation of “young old” in the 60-85 age range is smaller due to birth rate declines in the 1925-45 time period and in many cases is still actively engaged in the work force and increasingly encountering fears of exhausting their resources in an era of higher costs of health care and other necessities.
It is in this context that many are rediscovering “planned giving” as an answer to meeting campaign and other funding goals. While this method of giving may be new to many fundraisers, donors, and their advisors, its roots are old and deep, and much can be learned from those who have gone before us.
Planning for future success
The coming years will be ones of continued success for many organizations and institutions that cost-effectively incorporate gift planning tools in their comprehensive fund development programs. Indeed, all persons who successfully interact with middle-aged and older donors will need to have at least a conversational knowledge and basic understanding of the most popular gift planning vehicles.
Today the oldest Baby Boomers are applying for Social Security while some of the youngest are still having babies. The Boomers have replaced their parents as the wealthiest generation, but many are facing the dual challenges of pending retirement without pensions and responsibilities for both their parents and children. The reality of their situation will affect how they choose to support their charitable interests.
For nonprofit entities who persist in regarding planned giving as a new, speculative, untried, optional program, the next two decades will be ones that may hold challenges in a world of mature donors who may be increasingly reluctant to make major philanthropic commitments without considering how they are related to their overall financial and estate plans.