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Planned giving: Your future is now

May 2, 2012


Donors need to be educated about the advantages of planned, or deferred, giving

In these economically challenging times, it’s especially important that not-for-profits focus on planned giving. Most wealthy donors who pledge to make lifetime gifts or to leave part of their estate to the charitable organization will follow through on their intentions. But they need to be educated about the advantages of planned, or deferred, giving. This article explains the vehicles available to them and how not-for-profits can find potential donors.
In this challenging economic environment, even your most reliable supporters have likely become less so — making balancing your current budget hard and planning for the future even harder. If you haven’t already, put a greater focus on planned giving. Most wealthy donors who pledge to make lifetime gifts or to leave part of their estate to your organization will follow through on their intentions.

However, donors need to be educated about the advantages of planned, or deferred, giving. So your staff and board members should be prepared to discuss them when opportunities arise.

Menu of options

Planned gifts typically are made using one of the following forms:

Direct gifts and bequests. These are made from a donor or a donor’s estate, respectively, directly to your not-for-profit. Generally, the bigger the donation, the bigger the tax benefit. Direct gifts provide the donor a current income tax deduction (subject to annual limits based on the donor’s income). In addition, the donated assets are removed from the donor’s taxable estate, which will reduce estate taxes down the road. Direct bequests don’t generate an income tax deduction, but they generally are 100% deductible for estate tax purposes.

Charitable gift annuities. These allow donors to gift substantial assets during their lifetimes. The annuities can be structured to minimize current income taxes and future estate taxes while providing the donor a consistent income stream during his or her lifetime.

Charitable trusts. With a charitable lead trust, the donor contributes assets to a trust, which pays income to your charity for a set number of years. Then the property reverts to the donor or another beneficiary. With a charitable remainder trust, the donor or another beneficiary receives income from the donated assets for a specified period, or for life, and the remainder goes to your not-for-profit. Depending on the structure of the trust, the donor may enjoy income tax savings in addition to estate tax savings.

Other options that might be appropriate for the donor’s charitable gift- and tax-planning objectives are a donor-advised fund, a supporting organization or a foundation.

Planned giving policies

Just because planned giving vehicles are available, it doesn’t mean your not-for-profit has to accept gifts in all forms. If, for example, your organization is going to accept endowments (gifts that permanently restrict the principal) or contributions that temporarily restrict use, you’ll need an infrastructure that handles them.

And if you haven’t already, decide what type of gifts can be donated. Do you want to accept donations of appreciated securities (which can provide donors with a greater tax benefit)? If so, you must establish a policy for them, such as whether you’ll liquidate these assets in a certain period of time.

With these decisions in mind, adjust your investment policy on restricted gifts and get board approval. Finally, make sure your accounting system can monitor gains and losses. This will help you comply with donor restrictions when spending funds or making investment decisions.

Getting the word out

The best place to start seeking planned gifts is among your not-for-profit’s volunteers and board members. If these stakeholders are already giving their time, they may be prepared to make a long-term commitment in the form of a deferred gift. Even if they don’t make a planned gift themselves, volunteers with social access to wealthy individuals can be effective evangelists for your charity’s cause and the benefits of planned giving.

Next, target outside resources such as financial planners. Meet with prominent planners in your area and explain your needs and your willingness to enter into planned giving arrangements.

Also develop strong relationships with local community foundations. These entities can act as intermediaries between your organization and potential donors, helping you to reduce or eliminate internal investment and infrastructure costs. Plus, they add oversight, which can ease donors’ concerns about your fiduciary abilities.

Long-term thinking

Securing a planned gift can take time, and your organization may not be able to use the donation for years — or even decades. But long-term thinking is essential if not-for-profits are to survive the inevitable economic bumps in the road.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.


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