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Initiating a planned giving program

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[Publisher’s note: The Philanthropy Journal does not necessarily endorse the opinions, products or services offered or cited in this paid advertorial.] 

By Nola Miller

What is a planned gift?

Planned gifts are arranged through instruments (often maturing at a future date or event), as opposed to cash, pledges, in-kind, or other traditional forms of giving.  For the donor, potentially beneficial by-products of the planned giving process can include income and estate tax savings and addressing other financial planning goals.

Gift planning and the development process

Over the years, many nonprofit executives have claimed that implementing a planned giving program will only detract from the resources available to meet today’s needs.

However, for the most part, donors are using resources available through their annual disposable income to support the ongoing operational needs of the organization. When it comes time to leave a legacy through a planned gift, donors make distribution decisions concerning their entire accumulated assets.  As a result, there is rarely a conflict among an organization’s various fund raising programs, so long as they are properly presented.

In fact, a strong annual giving program is essential to creating an effective planned giving program. Your donors may not consider entrusting your organization with their accumulated assets if they are not willing to support the ongoing operating needs.

An effective planned giving program may actually strengthen the annual and capital giving programs.  Donors who have made significant planned gifts to help ensure the long-term financial viability of the organization often feel that supporting current needs bolsters and affirms their planned gift commitments.

Patience and persistence are important attributes required in developing a planned giving program. It is critical that governing boards develop long-term planned giving objectives when evaluating the current performance of nonprofit staff.

Phases of the gift planning process

* Phase I – Bequest and beneficiary designation

This phase is basic, but the results can be rewarding.  It requires an understanding and implementation of a practical wills and bequests program for which effective educational efforts, marketing and public relations programs are critical elements. For many organizations, it may not be necessary or prudent to progress beyond this stage of the planned giving process.

Bequests

  • No other source has greater promise for an organization than a bequest program. Approximately 80 percent of the planned gifts received by nonprofit organizations annually come in the form of bequests.
  • Create a “legacy society” by board resolution and give it a name.
  • Promote the society in every way possible – newsletter, mailings, brochures, etc.
  • Write members of donor base and announce the new society. Encourage participation in society activities and ask them to let you know about their bequest intentions.
  • Plan the first annual event for the new legacy society.
  • Recognize bequests in newsletters. Keep the society and its activities visible.
  • With a bequest program in place, you provide a valuable services, a means of encouraging and assisting your donors in making final arrangements for the benefit of family, friends and causes they choose to perpetuate.

Life insurance

  • By contacting his or her insurance agent, a donor can change the beneficiary on an existing policy naming your organization as a primary or a contingent beneficiary.
  • Life insurance policies originally purchased to satisfy a need that no longer exists are excellent candidates for a charitable gift.
  • A donor can make you the owner and beneficiary of a life insurance policy and take a tax deduction for the value of the policy.
  • Using the tax dollars saved by making a major gift, a donor may be able to purchase a “wealth replacement” policy for the benefit of heirs.

Retirement plans

  • A growth of retirement plans during recent years has been significant and most donors simply are unaware they can designate your organization as a beneficiary.
  • Even listing your organization as a contingent beneficiary can result in sizable gifts.
  • Recognize donors in your “legacy society” along with your bequest donors.
  • Note: Until December 2007 (with possible extension) – Pension Protection Act of 2006 – Charitable IRA Rollover. The provision allows individuals to make distributions from their IRA account directly to your organization without recognizing the distribution as income.  Key points can be provided upon request. An important marketing opportunity.

* Phase II – Life income gifts program

This phase assumes an advanced understanding of planned giving options and commitment of the resources necessary to move successfully into a fully developed planned giving program.  It builds on the successes achieved in Phase I by continuing educational, marketing, and public relations efforts.

Charitable gift annuity (GA)

  • Gift annuities are simple contracts between your organization and donors. They are easily understood and do not require an attorney.
  • The donor receives a fixed income for life and your organization receives the remainder at the end of the donor’s lifetime. The donor is entitled to a tax deduction and some tax-free income, depending on the funding asset.
  • The issuance of a charitable gift annuity is highly regulated in some states and special licensure may be required.

Charitable remainder trust (CRUT)

  • CRUTs are popular arrangements due to the variable income and ability to add gifts at a later date for additional income.
  • The trust provides a variable income to the donor or other beneficiaries for life, or a specified number of years, leaving the remainder to your organization at the end of the trust.  Within limitations, the donor determines the amount of income to be received.

Charitable remainder annuity trust (CRAT)

  • CRATs offer peace of mind by providing a fixed income for life.
  • The trust pays the donor a fixed income for life, leaving the remainder to charity at the end of the trust life.

Gift of residence or farm with a retained life estate

  • The donor transfers title to your organization, but retains the right to use and enjoy the property for life.
  • The donor continues to pay maintenance and upkeep of property.

Phase III – Charitable gift and estate planning

This is the most proactive option, at which organizations engage in professional gift planning and counseling with prospective donors.  It involves well-trained third parties, such as attorneys, accountants, financial planners and other members of the planning team in the dialogue with
the prospective donors.  It requires the retention of a level of professional expertise and training which many nonprofits may not have available on a full time basis.

Charitable lead trust (CLT)

  • The trust pays your organization an annual income stream for a specified period of years, and the remainder passes to one or more specified individuals.
  • This is a complex gift technique and usually appropriate only for very wealthy donors.

Wealth replacement trust

  • This trust involves a CRT in combination with a life insurance policy that replaces the wealth transferred to the trust.
  • The tax savings from the charitable deduction usually funds the life insurance.
  • This arrangement allows the donor to make the gift without taking the wealth away from the family.

Steps to begin

  • Get the backing of the governing board and executive staff, including an approved budget that provides resources for staff and program needs.
  • Establish a board-level planned giving committee to oversee the activities in this area.
  • Adopt planned giving program policies that are complimentary to the existing fund raising program. Include gift acceptance policies, an ethical statement establishing how the gift solicitation and management will be conducted, and a policy on the types of planned gifts that will be sponsored by the organization and who is authorized to negotiate and accept gifts on behalf of your organization.
  • Seek out a mentor, if necessary.
  • Obtain legal counsel and form alliances with professional gift and estate planners in the area.  Join a planned giving council that services the area.

This communication is not a covered opinion as defined by Circular 230 and is not intended or written to be used, and cannot be used, or relied upon, by the recipient, or any other person, for the purpose of avoiding federal tax penalties.  This communication was written to support the promotion or marketing of the transaction(s) or matter(s) addressed in the written communication; and a taxpayer should seek advice based on such taxpayer’s particular circumstances from an independent tax advisor.


Nola Miller is vice president and philanthropic advisor at Wachovia Nonprofit and Philanthropic Services.

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