PG Calc's Planned Giving Blog

Don’t Overlook HSA Beneficiary Designations

A little over a year ago, my wife and I elected to have our family’s health insurance be provided by her employer through a “high deductible health plan,” as defined in Section 223(c)(2) of the Internal Revenue Code.  That plan, in turn, is paired with a Health Savings Account (HSA).

An HSA is usually funded with pre-tax dollars, just as is the case with a traditional IRA or qualified retirement plan.  With respect to my wife’s HSA, this applies to whatever she contributes, as well as to whatever her employer contributes.  Individuals other than my wife can also contribute, just not in a tax-favored manner.  Whatever is contributed, along with anything it may earn, avoids taxation so long as it either remains in the account or is used to pay certain “qualified medical expenses” as defined by law.

My wife is referred to as the “beneficiary” of her HSA.  If a beneficiary dies at a time when his or her HSA still has any money in it, that amount is dealt with pursuant to any designation the beneficiary may have made.  There are three basic successor beneficiary scenarios:

• The successor beneficiary is the deceased beneficiary’s spouse.  When this happens, everything simply stays in the HSA, which at that point becomes the surviving spouse’s HSA.
• The successor beneficiary is the deceased beneficiary’s estate.  When this happens, the HSA dissolves.  Whatever is in it is distributed to the estate, and that amount is taxable to the deceased beneficiary on his or her final income tax return.
• The successor beneficiary is an individual or entity other than the deceased beneficiary’s surviving spouse or estate.  Just as in the second scenario, the HSA dissolves and the money in it is distributed to the successor beneficiary.  The amount distributed is taxed to the successor beneficiary.

Gift planners will recognize that the third scenario is essentially identical to what happens when the owner of a traditional IRA or qualified plan dies.  This means it can be worthwhile for a charity to promote the idea of having supporters – especially those who are not married – designate the organization as the successor beneficiary of whatever may remain in an HSA upon death.

True, the likelihood that significant amounts, or even anything at all, will remain in the HSAs of its donors when they die is probably considerably less than in the case of traditional IRAs and qualified plans.  Still, it can’t hurt to have donors keep their HSAs in mind as they contemplate assets they might use to make a deferred charitable gift.

Charitable Gift Annuities for Domestic Help

When we think of income beneficiaries for charitable gift annuities, most of us picture a donor or a donor and his or her spouse, and these are indeed the most common cases. Yet the donor can name anyone who meets the issuing organization’s minimum age requirement as the income beneficiary. Gift annuities can offer an opportunity for kind-hearted individuals to care for others who need additional cash flow by providing a secure source of payments.

Providing retirement cash flow for a domestic worker

Before Mr. Gregory’s mother passed away some time ago, she made him promise to provide for her longtime home aide, housekeeper and companion, Mrs. Packard, as a reward for her many years of faithful service. Mr. Gregory, age 55, a single man, has been helping to support Mrs. Packard, now 80, ever since with income of $500 per month. Since he is in a 39.6% federal tax bracket, it takes quite a lot of pre-tax earnings to pay her the $500 per month he has been providing. He wonders whether there is a way that he could simultaneously make a gift to his favorite charity and provide for Mrs. Packard more tax-efficiently. He also thinks he should reduce his holding in a particular low-yielding stock. The market value of his shares is $300,000, and his cost basis is $70,000. The stock is paying a dividend of 2%.

The problem

Mr. Gregory has multiple objectives and multiple problems. He wants to support Mrs. Packard and to make a charitable gift. Because of his 39.6% income tax rate, he must earn $828 a month to provide Mrs. Packard with $500 on an after tax basis. At his 23.8% capital gains rate, selling and reinvesting the proceeds from his stock would generate a capital gain tax of $54,740. He only receives $6,000 income from the stock which translates to $4,572 after tax, assuming the stock pays qualified dividends.

The solution

Mr. Gregory could fund a charitable gift annuity with his stock for the benefit of Mrs. Packard that would pay her an annuity of 6.8% or $20,400 per year!

In so doing, he would be making a taxable gift to Mrs. Packard equal to the present value of her payments. Assuming a federal discount rate of 1.4% and payments made at the end of each month, the present value of those payments is the difference between the $300,000 value of the stock and the $141,744 income tax charitable deduction, for a total taxable gift of $158,256. Mr. Gregory could offset the gift with his available gift tax exemption or retain the right to revoke Mrs. Packard’s annuity payments. If he retained that right, then because her annuity of $20,400 exceeds the current gift tax annual exclusion of $14,000, he would have to file a gift tax return each year. So long as any of his gift tax exemption remains available, however, there would be no net gift tax due.

Also, since the annuity is paid to someone other than the donor, a portion of the capital gain ($121,330) is taxable in the year of the gift. Nevertheless, this amount will be more than offset by his income tax charitable deduction of $141,744. Problem solved!

Other situations that may spark interest among potential donors

The tax consequences and benefits described above would apply to an annuity for any beneficiary who is not the donor or the spouse (as recognized for federal tax purposes). Your potential donors could establish similar annuities for aging parents, a sibling who is struggling financially, or a friend.

Somewhat different considerations apply in the case of an employer that wants to establish a gift annuity for the benefit of an employee. If an employer sets up an annuity for the benefit of the employee, in the year the annuity is funded, the employee will have taxable income equal to the present value of the payments. That taxable income is equal to the gift principal minus the income tax charitable deduction as in the gift tax example above.  This could create a cash flow problem for the employee. If the employer were to reserve the right, exercisable anytime, to revoke the employee’s payments, the employee would include in taxable income only the amount actually received year by year.

PG Calc Insights: IRS Releases Latest Statistics on Planned Gifts

The IRS recently published its latest statistics on split interest trusts - charitable remainder trusts (CRTs), charitable lead trusts (CLTs), and pooled income funds (PIFs). The statistics are based on the information reported on Form 5227s filed during calendar year 2011, so they largely reflect 2010 activity. The IRS also has released a paper that analyzes these statistics and provides substantial additional detail about these gift plans.  

You can see the statistics and the papers for yourself by going to the IRS site. The rest of this post highlights some of the very interesting information I have gleaned from there.

Basic Split-Interest Gift Statistics
The table below summarizes information found in separate tables on the IRS site. It gives you a good picture of the number and value of CRTs, CLTs, and PIFs nationwide.

Note: The dollar amounts are in thousands of dollars, so what appears to be millions in total net assets for each gift type is actually billions.

Split-interest trust statistics from the IRS based on Form 5227s filed in 2011

		EOY Book Value (Total Assets)	EOY Book Value (Total Assets)	EOY Book Value (Total Assets)	EOY Book Value (Total Assets)	EOY Book Value (Total Assets)
Item	Total	Under $500,000	$500,000 under $1,000,000	$1,000,000 under $3,000,000	$3,000,000 under $10,000,000	$10,000,000 or more
CLT # of returns	6,617	2,864	1,436	1,306	706	305
Change from 2010	0.1%	-4.2%	9.3%	-5.5%	12.2%	4.1%
CLT Total net assets (Ave value $3,165,337)	$20,945,036	$395,042	$984,235	$2,159,982	$3,726,160	$13,679,616
Change from 2010	8.3%	-9.0%	9.0%	-3.4%	17.5%	8.6%
CRAT # of returns	15,862	12,854	1,652	1,019	275	62
Change from 2010	-6.3%	-5.9%	-10.9%	-5.0%	-3.2%	1.6%
CRAT Total net assets (Ave value $449,917)	$7,136,591	$1,411,278	$1,183,074	$1,646,130	$1,357,376	$1,538,369
Change from 2010	-4.8%	-2.4%	-11.3%	-3.0%	-3.2%	1.6%
CRUT # of returns	93,828	67,211	13,897	9,336	2,642	713
Change from 2010	0.0%	1.0%	-3.7%	-1.0%	-1.1%	-0.3%
CRUT Total net assets (Ave value $926,175)	$86,901,148	$11,668,938	$9,713,830	$14,870,406	$13,180,605	$37,467,369
Change from 2010	-5.1%	0.2%	-3.4%	2.0%	-1.0%	-9.5%
PIF # of returns	1,402	1,070	116	121	71	24
Change from 2010	-0.6%	-0.8%	-1.7%	-3.2%	12.7%	-4.0%
PIF Total net assets (Ave value $935,418)	$1,311,456	$127,767	$82,384	$192,575	$365,321	$543,408
Change from 2010	2.7%	4.4%	8.0%	-4.6%	8.3%	0.8%

As you might expect, IRS statistics show that charitable remainder unitrusts (CRUTs) are by far the most common of the four vehicles listed, outnumbering charitable remainder annuity trusts (CRATs) six-fold, charitable lead trusts (lead annuity trusts and lead unitrusts combined) over 14-fold, and PIFs 67-fold. CRUTs also hold the greatest value in assets, but here CLTs, perhaps surprisingly, come in second, and CRATs a distant third. In other words, CLTs tend to be very large. The average book value of a CLT in 2011 was over $3.1 million, far larger than the average value of a charitable remainder trust or pooled income fund. Nevertheless, a substantial fraction of CLTs, 43%, had a book value of less than $500,000.

When you compare these statistics for 2011 and 2010, you see a 5% decline in the total book value of charitable remainder trusts versus an 8.3% increase in the total book value of charitable lead trusts. The persistence of extremely low IRS discount rates during this period, which work to the advantage of charitable lead annuity trusts, probably explains the robust CLT numbers. Surprisingly, there was an uptick in the total book value of PIFs (2.7%) during this period, but they remain barely 1% of the value of all split-interest trusts.

Benefit to Charity
The statistics above are interesting, but they only hint at the benefit each type of split-interest gift provides to charity. The table below combines the values found in separate tables provided in the IRS’s analysis of the 2011 statistics.

Total Charitable Distributions, by Type of Trust and Charity Type, Filing Year 2011*
(All figures are estimates based on samples - money amounts are in thousands of dollars).

	All Number	All Amount	CRTs** Number	CRTs** Amount	CLTs Number	CLTs Amount	PIFs Number	PIFs Amount
Total	27,992	$3,066,001	$10,084	$1,905,209	17,348	$1,119,219	561	$40,573
Arts, Culture, Humanities	2,575	$158,759	632	$118,253	1,937	$39,759	6	$746
Education	6,275	$741,872	2,634	$586,612	3,352	$135,481	289	$19,779
Environment, Animals	1,789	$30,148	359	$18,101	1,397	$10,189	33	$1,950
Health	3,103	$264,817	971	$234,306	2,068	$29,296	64	$1,216
Human Services	4,104	$99,460	932	$72,069	3,098	$26,292	73	$1,098
International, Foreign Affairs	827	$21,028	248	$15,801	579	$5,227	0	$0
Public, Societal Benefit	4,580	$1,492,081	1,262	$683,743	3,268	$796,286	50	$12,052
Religion	4,372	$194,896	2,939	$154,884	1,399	$36,297	36	$3,714
Membership Benefit Orgs	12	$21	0	$0	1	$4	11	$17
Other	354	$61,917	106	$21,529	248	$40,388	0	$0

*Values in this table determined by adding values for distributions of principal and distributions of income.

**CRT values determined by adding values for distributions from CRATs and distributions from CRUTs.

The values in this table reveal some surprising facts. One that jumps out is that in 2011 lead trusts distributed to charity about 60% as much as CRTs: $1.12 billion versus $1.91 billion.  Which is to say, comparing book values overlooks an essential difference between CLTs and CRTs: CLTs distribute funds to charity every year of their existence while almost all CRTs distribute funds to charity just once at their very end.

Notably, the statistics from two years earlier (2009 filings) showed CLTs distributing not “just” 60% as much, but a full 96% as much to charity as CRTs: $1.22 billion versus $1.27 billion. Why did CRT distributions to charity increase 50% from 2009 to 2011 while CLT distributions to charity declined 8%?

I think the answer rests with IRS statistics that show that what really increased were CRT distributions of principal (CRT distributions of income actually declined during the period). During 2008 – 2010 (again, the period filings in 2009 and 2011 cover), asset values rebounded strongly from their financial crisis lows. The S&P 500 increased 40% during this period, for example. It stands to reason, then, that the value of the assets held in terminating CRTs increased markedly during this period and that charities reaped the benefit of these increased asset values. Although the IRS does not break down CLT statistics between annuity trusts and unitrusts, experience strongly suggests that most CLTs make fixed payments to charity that would not be affected by fluctuations in asset values.

The experience of 2008 - 2010 drives home an important point that I would guess few gift planners pay attention to. The benefit to charity of a CRT, whether an annuity trust or a unitrust, depends a lot on timing, not just in terms of when the trust terminates, but also in terms of the unpredictable nature of the market.  The benefits of a CLT are not prone to the same timing issues.

Conclusion
To me, the most surprising fact to emerge from the IRS data is that charitable distributions by charitable remainder trusts increased 50% in just two years. Upon reflection, I shouldn’t have been so surprised given the strong performance of stocks during 2008 – 2010, but it serves as a good reminder that CRT benefits are closely tied to asset performance.

The data also reaffirm that CLTs play a much larger role in benefitting charities than their number, or even their total asset value would imply. The Federal Reserve has stated publicly that it intends to maintain extremely low interest rates through at least 2014. The IRS discount rate should remain historically low as a result. This means that CLTs should remain unusually attractive for many months to come.

The IRS paper for the 2011 filing year contains much more data and analysis than I’ve reviewed here. I encourage you to read it for yourself and draw your own conclusions.

Managing Planned Giving Staff

Whether an individual contributor or a person with a staff, you have likely played a manager role on a team.  Many organizations operate in a matrix management style - in which a group of professionals with similar skills often belong to one team, but work with several different project managers to complete structured projects and programs.  Still, the transition to management can be tough in any line of work. This post explores both some of the general rules for “people managers” and the more specific rules of engagement in managing planned giving professionals.

General Rules

• Don’t forget what type of support you’ve needed in the past from your managers. While the people you manage won’t need the exact same things from you, it’s a good starting point.
• If you are managing or asked to manage people who were previously your peers, it’s OK to be sensitive about that transition, but you are no less responsible to drive performance from the team. Talk openly about the transition at first, but then put it behind you and get to work. 
• Be sure to balance your focus on “rock stars” and employees that need development. It’s easy to stop paying attention to your rock stars because they are reliable and tend to work independently, but that’s also an easy way to cause them to feel undervalued and they are often the last people you want to lose.
• Be the example. Frankly, you should be the hardest working person on your team.

Managing Planned Giving Staff – The Specifics

• If you were promoted from a planned giving role and are still a gift planner, you are well aware of the obstacles you face. Your team faces the same. These might include: completing administrative tasks without adequate administrative support, territory issues with other development staff, and balancing the requirements of cultivating/stewarding existing donors and attracting new ones without enough hours in the day. Your job now is to remove, or more accurately, manage those obstacles. 
• If you were not promoted from a planned giving role, you are not quite as well aware of the obstacles your team faces.  That’s important to keep in mind. Ensure you are working even more closely with the team to understand the unique goals of gift planners and the methods to accomplish those goals.
• Build a metrics dashboard that makes sense, and then stick to it.  It might be important to you that each member of your team makes 6 local visits per month (for example).  It might also be important that 3 of those six are existing donors.  You might want each direct report to demonstrate that they have one active project in each category: attracting new donors, working with annual fund to search for planned gift potential among annual fund donors, and seeking new gifts from existing life income donors.  These are all examples, and you’ll need to build on them to support the program you require.
• Ensure that each member of your team is reporting on progress against that dashboard. You might decide this should happen weekly or monthly, but you’ll need to be clued in to the progress the team is making toward departmental goals without being overwhelmed by detailed reports. 

Do you have any tips on managing planned giving staff?

Connecting with Planned Giving Donors and Prospects: Content Strategy

Our partners at HubSpot, a Cambridge-based inbound marketing firm, regularly publish remarkable content on their blog at http://blog.hubspot.com.

Recently, they published "How Your Nonprofit Should Be Using Content to Emphasize Donor Impact," which provides some insight into using content to support the non-profit/donor experience instead of the more-often covered company/customer experience. The following are some of my favorite elements mentioned, but you should absolutely read the post yourself. 

• Storytelling.  While both non-profit organizations and for-profit firms use storytelling to encourage their audiences to open their wallets, the goal of your stories should focus on impact, solutions, and results (as opposed to the more traditional exploring the nature of a problem a prospect might have and demonstrating that what you’re selling can solve that problem).
   
• Blogging. Many non-profits have started to blog and build upon this foundation of social media.  It’s a tremendous opportunity to publish timely and relevant information, as well as share stories from time to time about the impact of your organization, an individual that you served, or perhaps a donor story that describes a charitable gift annuity or other gift type in easy-to-understand, peer-to-peer terms.
   
• Message Delivery. The blog post explores how video is a top-notch delivery platform. First, this method enables a personal connection to the viewer and the content, in a way that is fresher than other media.  Second, its "share-ability" score is very high. A well thought out video will be shared in any number of ways, and not just if it’s hilarious. It will be shared if it has emotional appeal. As described in the post, don’t hesitate to appeal to your volunteers or existing staff to help spread your message in this manner.
   
• Nurturing. Firms are always trying to sell to existing clients and penetrate existing accounts even further with more products or services. One way firms do that is with nurturing/cultivation programs. This post explores a fantastic example of a non-profit adoption of that strategy by describing a nurturing program that begins as soon a donor has provided a gift to your organization. The author reminds us that: “The longer someone is engaged with your organization, the higher their contributions become and the deeper their connection is to your mission.” Sounds like something a planned gift marketer might say. : )

  Thank you to Taylor Carrado for a great blog post on non-profit inbound strategy.

How to Make the Most of Your Planned Giving Consultant

There are a number of reasons you might decide to engage a planned giving consultant. On the surface, there may be no other reason than to “increase gifts.” In other words, a program such as marketing might be a top priority. This makes sense, but you’ll also find it helpful to ensure you have the support and infrastructure to build and manage a marketing program or any other aspect of your planned giving effort. Below are some commonly identified needs and some tips to manage your planned giving consultant in these circumstances: 

When you are looking for support to champion an idea internally, be honest with your consultant that obtaining that support from a specific audience is the measure of success.  For example, if your goal is increased resources such as budget or staff, your consultant should be focused on demonstrating return on investment (ROI), whether that be the productivity of gift officers, your marketing budget, travel costs, or the amount of potential gifts. Keep in mind this isn’t an entirely “outsourced” venture; work with your consultant and keep up to date on draft materials to ensure that the tone and nuances of the narrative will help you make your case.

When you are trying to create a workable blueprint , you’re seeking strategy, and it’s important to keep your consultants “out of the weeds.” Work with them so that they understand exactly what resources are available, point out any obstacles that you face to executing your strategy, and finally, partner with them to document clear action steps.  Some of these recommendations may be related to changes in policy and infrastructure, but most would be more procedural in nature and have checklists and assigned responsibilities and goals.

When you are looking for a long-term partner to leverage your knowledge and time, take the extra steps early on to establish communication regimens. These include elements such as best times for phone calls, communication preferences such as email or phone, and whether whether scheduled times are better than ad hoc conversations. Building a solid relationship at the outset will allow you to be fluid later about which tasks are still yours to keep, which ones can be delegated outright, and what knowledge transfer will let you do your job better.

When dealing with a consultant, be assertive. Communication about your specific needs is the foundation of managing a relationship with your consultant. All good partners can react flexibly to the needs of clients so be sure to articulate the results you'll need. 

A New Dawn for CRUTs?

We may be at the break of a new dawn for charitable remainder unitrusts (CRUTs).

CRUTs exploded in popularity in the 1990s, driven in part by financial advisors who recommended CRUTs as a way to shelter donors from significant capital gains tax while enhancing cash flow and supporting their favorite charity. Then capital gains tax rates dropped, the stock market went south, and CRUT activity soon slowed. Now, stronger incentives for high income donors to contribute appreciated assets to fund a CRUT are back.

1. Increase in capital gains tax rates. The top federal tax rate on most long term capital gain income has increased from 15% to 20% for high income taxpayers. The new top bracket applies to married-filing-jointly taxpayers with taxable income over $450,000 ($400,000 for single taxpayers).
   
   What’s more, net investment income earned by these taxpayers is now also subject to the new 3.8% Medicare surtax that is imposed on top of other income taxes. This tax kicks in when modified adjusted gross income is above $250,000 for joint returns ($200,000 for single taxpayers). Net investment income includes capital gain income, so the Medicare surtax effectively increases the top capital gain tax rate to 23.8%.
   
   But we’re not done. Jointly-filing taxpayers with adjusted gross income (AGI) over $300,000 ($250,000 for single filers) must reduce their itemized deductions by 3% of the amount by which their AGI exceeds this threshold. This is the so-called Pease limitation that expired in 2009, but has been revived for 2013 and beyond. Capital gain income contributes to AGI, so for a taxpayer in the new 39.6% income tax bracket, the loss of itemized deductions can add another 1.2% to his or her capital gains tax rate. Now we’re up to a potential total federal tax on capital gain income of 25%. Last year, this top rate was only 15%.
   
   And we haven’t taken state capital gains taxes into account yet. For example, Massachusetts taxpayers could face a total tax rate of 29.0% on their capital gains; California taxpayers could face a total rate as high as 35.0%.
   
   
2. Donors holding more appreciation. Many taxpayers have a lot more appreciation to shelter than they’ve had in years. For instance, the S&P 500 is up about 60% since 2009 and recently exceeded the historic high that it had set back in the fall of 2007.
   
   
3. Interest rates remain at historic lows. Furthermore, Ben Bernanke, Chairman of the Federal Reserve, has indicated that interest rates will likely stay very low through at least the end of 2014. This means that donors are receiving low income from their interest-bearing investments and that’s not likely to change soon. Meanwhile, many of these donors own stocks that pay little or no dividends, but have substantial appreciation that will create substantial tax if sold. In short, low interest rates have many donors looking for ways to increase their cash flow without creating a tax problem.

Given the facts recited above, right now may be a perfect time to attract CRUTs. They offer high income donors an opportunity to increase cash flow, avoid substantial capital gains taxes, and make a generous charitable gift all at the same time.

Here’s an example that expresses the benefits of a CRUT in dollars and cents. Imagine a 75-year-old Massachusetts donor who is in the top income and capital gains tax brackets. She has a block of stock worth $500,000 for which she paid $50,000. The stock pays no dividend. If the donor uses this stock to fund a 5% CRUT, she’ll receive a $300,000 income tax deduction, which will save her about $140,000 in taxes. At the same time, her CRUT will be able to sell her stock without incurring any capital gains tax, preserving the entire $500,000 to reinvest for her and the charity’s benefit. If she were to sell the same stock herself, she would owe $157,000 in taxes, leaving just $343,000 to reinvest. If the CRUT sells and reinvests these assets to earn 2% income and 4% appreciation each year over the donor’s 12-year life expectancy, she would receive payments from the CRUT totaling $317,000 during this time period. She would receive just $103,000 over this time if she reinvested in the same assets herself. Meanwhile, the CRUT would have accumulated over $560,000 in principal to leave to the charity.

Of course, the donor must still want to make a substantial charitable gift. She has given her principal away when she funds a CRUT and cannot get it back. In contrast, she would have almost $550,000 in principal at her disposal at the end of 12 years if she were to reinvest the after-tax proceeds from selling the stock herself, as described. Still, a gift arrangement that can triple the cash flow from her asset, save her significant income taxes, and lend significant support to a charity (or charities) she cares about, is hard to beat!

Big Moments in Planned Giving: Where Were You When...?

Depending on our ages, we pretty much all remember what we were doing when Pearl Harbor was attacked, President Kennedy was assassinated, or the World Trade Center was toppled.  Of course, important events aren’t always horrific ones, so fortunately moments of joy and elation – whether historical, personal, or professional – come to mind for us as well.

As I think back on what I was up to as certain key developments in planned giving were taking place, I find that most of the time I was simply seated at my desk.  Nothing especially unusual about that.  Nevertheless, on at least a handful of cases I was doing something else and can now appreciate the significance of those occasions.

In May of 1999, I was co-chair of my planned giving council’s annual conference here in Seattle. Having been up late the night before wining and dining our speakers and picking up materials from the printer, I was not a good candidate for stopping by my office extra early the next morning on my way to the conference facility. Yet for some reason, I did make it in briefly to check my e-mail and learned that the IRS had extended until June 30, 2000 the window for flipping CRUTs subject to a net income limitation. This was in the days before handheld devices with wi-fi connections were ubiquitous, and in announcing the news from the podium as the conference began, it became clear that I was relaying a tidbit that no one else had learned yet. To this day, I continue to see NIMCRUTs and NICRUTs that were flipped during the extended period and recall in particular a race to help flip one just as the window was about to close.

While driving down Interstate 5 just a few months later, I heard a radio report that President Clinton had vetoed legislation that would not only have repealed the federal estate tax but also permitted IRA charitable rollovers. Both those aspects of the bill eventually became law, although not necessarily in ways any of us would have imagined.

And about a decade ago I was doing something in the file room when I was told there was a reporter on the line who wanted to interview me about the recent decrease in the standard capital gains tax rate from 20% to 15%. I opined confidently that it really wouldn’t have that much effect on charitable giving, a view I have long since ceased to hold.

While I could doubtless dredge up other tales, I wonder what memories other gift planners have of different milestones in the evolution of our field.

Endowment Building: Not a Spectator Sport

Even if a charity does not have any true endowments, it can still create and augment a quasi-endowment, especially by drawing on planned gifts. Many organizations, including those with true endowments, have a policy of assigning to a quasi-endowment all unrestricted bequests and other matured planned gifts. 

Additional options are:

• A percentage of each such gift,
• All dollars over (or under) a certain threshold amount, or
• Some combination of the first two bullet points.

Going yet a step further, a charity could make known to donors ahead of time that if they leave a bequest to the charity, all or some specific portion of the gift will be added to an endowment. Under the law of most states, such an indication, coupled with a donor taking it to heart when arranging his or her gift, would actually be enough to make the gift one for a true endowment.

Read more about endowments and planned gifts by viewing our March 2012 Featured Article Endowments Enable Planned Gifts to Cast a Long Shadow.

Identifying Planned Gift Prospects

The prospecting process can be expensive and complicated. While there are companies out there (good ones) that can screen your fundraising database and provide ratings for planned giving prospects, there are also things you can do yourself to identify those most likely to make a planned gift.

Profile your own donors
One of the easiest ways to begin prospecting is to look at your own realized bequests and completed planned gifts. What characteristics do these donors have in common? Look at your realized bequests and determine the date the will was written and the date the donor died.  On average, how many years passed between making the will and when the gift was realized?  (Try to find out if the will was the donor’s first will or a revision. This can be tricky to figure out.) At what age did the donor make the will benefiting your organization? Are your estate gifts coming from married couples or single individuals? Are your estate gift donors primarily male or female? Had these donor’s made annual fund or major gifts before? How much, in what amounts, and how frequently? What were the connections between the planned gift donor and the organization? Prepare a profile of your donors to incorporate what you learn into your prospecting. 

Mine the annual fund
Research indicates that many donors who establish charitable estate gifts and charitable gift annuities are not comfortable with market risk. They are cautious investors, don’t consider themselves wealthy (even if we do), and are concerned about outliving their resources.  These prospects will be unlikely to have made major gifts in the past. It is likely though that they have made multiple annual fund gifts and they may be for very small amounts. 

Senior leadership and volunteers
Retired board members and senior executive staff of your own organization are likely prospects for planned gifts. Their experience with the organization make them likely to make a planned gift. In addition, their giving can inspire others to consider a planned gift. Consider targeting volunteers, members, if you are a membership organization, or others with a deep connection to your mission. If these prospects also have capacity, they may be good planned giving prospects.

Combination planned gifts
Many very large major gifts contain a planned gift component. Seven and eight figure gifts are often supplemented with a planned gift. Even for the ultra-wealthy, an outright gift of this magnitude can be difficult and not tax-efficient. Consider your largest major gift prospects as prospects for a planned gift as well. Fundraisers whose titles include "gift planning" or "planned giving" should be meeting on a regular basis with major gift staff to discuss their prospects.  Listen carefully for prospects who object to a planned gift because of liquidity problems, estate planning concerns, or the timing of a gift. A deferred gift may help a major gift donor solve financial and estate planning problems and make a gift at the same time.

Prospecting through marketing
General planned giving marketing efforts will identify those not otherwise targeted using the methods described above. Broad-based marketing will target those people who are connected to your organization in some way or are generally supportive of your mission. These may be people who have benefited from the work you do, for example, if you are a social service or health care organization. A membership organization such as a museum or an arts charity will target its members. Some individuals will want to advance your cause because they agree with your mission. For example, a human rights charity or a non-profit trade association will want to support work consistent with their values or interests.