Testamentary gifts (gifts made at death) are the most common type of planned gift, estimated to be 80% or more of planned gifts received by charities. Donors typically have to confront complicated family and financial issues in the estate planning process. Ask any gift officer who has been involved in planned gift fundraising. They can tell of donors sharing compelling stories of family addictions, marriage instability, costly medical conditions, and financial mismanagement. Donors anguish over leaving a potentially large inheritance to a family member who may lack the skills to prudently manage the inheritance. To complicate matters further, the donor is conflicted about making a final gift to a favorite charity from their estate that will divert assets away from a family member in need of financial support. A testamentary life income gift that will pay steady income to their family member for life, with the remainder going to charity when the life income gift terminates, may be the answer for such a donor. The role of the gift officer is to educate the donor about the possibilities, and if the donor has interest, to encourage a collaborative discussion with the donor’s financial and estate planning advisors.
Mike is a senior consultant at PG Calc supporting our retainer and project consulting clients. Mike brings extensive gift planning and legal expertise to his consulting role at PG Calc. His experiences as a front-line gift planner and director of three active gift planning programs have taught him that the most successful planned giving programs – and planned gifts - require collaboration. Mike had broad responsibilities at all of the organizations where he has led gift planning programs, including ensuring best practices and efficiency in gift planning administration, legal compliance, stewardship of legacy circle members, multi-channel marketing efforts, and liaison among legal, investment, and custodian bank professionals.
The role of the gift officer is becoming increasingly complex. New tax laws and IRS regulations are placing gift officers at risk for crossing a red line that should never be crossed – the line between gift officer and financial or tax advisor. Even though much information may have been shared with them by the donor, gift officers need to know how to provide information to a donor without making assumptions about a donor’s complete financial or tax situation – assumptions that may be wrong and that could result in a donor not realizing the tax benefits they were assured of receiving.
Astute gift officers recognize opportunities for giving, and then seize the day! Such is the moment in some red-hot real estate markets where prices are exceeding the highs reached prior to the Great Recession. Owners who watched as their equity evaporated during the downturn may now be thinking this is the time to cash in on their profits. This may particularly be the case for donors who own infrequently used vacation homes and investors with rental properties who no longer wish to deal with tenant idiosyncrasies. However, sellers of these properties will not receive the generous exemption from capital gains taxes afforded to those who sell a principal residence.
It’s simply a matter of supply and demand - when demand outstrips supply, prices rise. That is the state of today’s real estate market in many parts of the country, and therein lies the opportunity for gifts of real estate. According to statistics issued by the National Association of Realtors, in April 2018 the median already-built home price rose 5.3% over the prior year, the 74th straight month there’s been an increase in the price of already-built homes. At the same time, the number of homes for sale fell over the prior year for the 35th consecutive month. In short, supply is limited and demand is outstripping supply, causing prices to rise for already-built homes.
The significance of bequest commitments and the dollars they will ultimately bring to charitable organizations are often ignored or underutilized in financial planning. Yet, bequests are the largest source of planned gift income for most charities with planned giving programs (and in fact are often a large source of income for charities that don’t think they have a planned giving program). A simple analysis of your bequest expectancies can translate donors’ commitments into projected future income streams. This is valuable information for your board and other leadership and should foster a greater appreciation for the role of bequest commitments and the planned giving staff who obtain and track them.