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Giving cycles

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Economic trends shape evolving planned-giving strategies.

By Todd Cohen

With gift planning surging in recent years and expected to produce a growing share of charitable giving, the tools and techniques that donors and charities favor continue to evolve, reflecting the ups and downs of the economy and an increasingly competitive marketplace.

Historically representing 15 percent to 22 percent of overall charitable giving, which for 40 years has grown at an annual pace of roughly 2 percent to 3 percent, planned giving has exploded in recent years, says H. King McGlaughon Jr., professor of philanthropic studies at The American College in Bryn Mawr, Pa.

A planned-giving technique known as donor-advised funds, for example, grew to $17.2 billion in 2003 from $2.5 billion in 1995, he says.

“There’s a consistent long-term trend towards more and more gifts and more and more planned gifts, and that seems to withstand the vagaries of the stock market and economy,” he says.

What has changed in the past five years, he says, are the strategies that charities and donors are using to create planned gifts.

Charitable gift annuities and charitable lead trusts are enjoying greater emphasis in a market that has seen lower interest rates and only modest growth in stock values, he says.

Charitable gift annuities are more popular with donors, he says, because they offer a fixed-income option that is more secure than stock in the current economic cycle, while charitable lead trusts are more popular because their tax-planning benefits rise when interest rates fall.

The same factors have fed an increase in charitable remainder annuity trusts, says Bryan Clontz, president of Charitable Solutions, a consulting firm in Atlanta that advises large charities.

What’s more, he says, charitable annuities have become “exponentially larger.”

During the economic boom of the 1990s, he says, gifts of more than $100,000 or $250,000 would “automatically default” to charitable remainder unitrusts because of expectations that stock values would keep going “up and up and up.”

But with the downturn and a rebound that has been modest at best, he says, donors are putting larger gifts into annuities because they promise more secure returns.

Donors also are making more non-cash gifts such as real estate and closely-held stock that have appreciated at a time when publicly-held stocks have lost value, he says.

Eileen Heisman, president and CEO of the National Philanthropic Trust in Jenkintown, Pa., says the economic turnaround has helped appreciate the value of companies and made closely-held and restricted stock more popular among donors as assets for planned gifts.

“People are feeling more comfortable and looking for capital opportunities, like selling, going public and moving assets within a privately-held company from father to child, or creator to senior manager,” she says. “When the economy is good, it’s good for everybody.”

The upswing in the economy also has generated more gifts of appreciated securities, she says, and has reduced the number of cash gifts, which grew to more than 30 percent of gifts to the trust in 2003 but now have returned to their traditional level of roughly 10 percent.

During the economic slump, she says, many donors used their donor-advised funds as a kind of charitable reserve, dipping into the funds to sustain the pace of their giving while other assets were pinched.

Mike Page, director of planned giving at the University of North Carolina at Chapel Hill, says gift officers and donor advisers are working to master the complexities of planned gifts that include real-estate and qualified retirement-plan assets, which represent the two biggest components of the trillions of dollars in wealth expected to be transferred between generations over the next 50 years.

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