Pitfalls to Avoid When You’re New to Your Planned Giving Office
If you’re new to your role in planned giving, either because you’re covering for someone on leave, you’ve had planned giving added to your major gift responsibilities, or you’re new to the field - welcome aboard! PG Calc is invested in your success, and we’ve gathered a list of planned giving pitfalls that could get you in hot water with donors, auditors, or the IRS that we hope to help you avoid.
The phrase “I’m not able to provide you with tax advice” is an essential mantra for any planned giving officer to repeat – with one glaring exception. By January 31st of each year, your organization must send your charitable gift annuity beneficiaries Form 1099-R, letting them know the total payments they’ve received and the tax character of those payments.
Failure to issue your organization’s 1099-Rs to your beneficiaries by the end of January can result in an IRS fine. The longer you wait to correct your mistake, the higher the fines may be; the base fine is $50 per form, so depending on the size of your program, this can be an expensive mistake.
This year, we received many phone calls from charities who started issuing their 1099-Rs in February. In some cases, this stemmed from confusion surrounding the two filing deadlines: 1099-Rs must be issued to beneficiaries by January 31st; a second set must be filed with the IRS by February 28th if submitted via paper or March 31st if submitted electronically. But more often, the calls were from clients covering for someone on leave, or who were new to their position, or who simply did not understand that this was one of their responsibilities until donors called and asked for the forms.
To avoid the pitfall of an IRS fine, or worse, an angry donor, find out who is responsible for creating and filing the 1099-Rs for your organization. If you learn it is part of your job, we can assist you with training on how to run 1099-Rs out of GiftWrap. Even if it is not your responsibility, most fundraisers find they field 1099 calls from beneficiaries throughout tax season, so it is helpful to know exactly when your organization is sending them so you can best reply to your donors.
CGA Disclosure Statements
If you’re lucky in your new role, you’re starting off with a portfolio of loyal repeat donors. If you’re very lucky, they will establish a new gift annuity in the first few months of your tenure. It can be tempting to assume that this type of donor “knows the drill” and doesn’t need a charitable gift annuity disclosure statement for their second or third CGA. However, you have a federal mandate to send the disclosure with each and every CGA gift.
The Philanthropy Protection Act of 1995 requires that charities issuing gift annuities who invest their planned gifts in commingled funds or act as trustee of a charitable trust must provide a disclosure statement. The good news is that a disclosure statement sent when a charitable trust was established is considered to cover any subsequent additions to the trust. However, charitable gift annuities are separate contracts, and each requires a disclosure statement at the time the gift is made. So even if your loyal donor is on their 12th CGA, you need to send them a disclosure statement.
If you use PGM Anywhere, you have access to customizable disclosure statements that also include any state-level disclosure requirements. To make your job easier, you can download and email a disclosure statement to your donors either as a Word document or PDF. To avoid any timing pitfalls, we recommend sending the disclosure statement with your gift proposal.
Does the idea of meeting with auditors cause you to break into a cold sweat? If so, brace yourself. Each year, your organization prepares a financial report according to guidance set forth by the Financial Accounting Standards Board (FASB) that must include the total value of your annuity pool as well as the present value of your gift annuity liabilities. You must also include the FASB liability for trusts or pooled income funds trusteed by your organization. The FASB liability is added to the annual report that goes to your organization’s auditors before being publicly released, and your auditors may call you.
The reason is there are two key factors for the liability calculation that FASB does not specify: the selection of a mortality table, and a discount rate. These choices are left to the charity. Auditors often decline to provide guidance on these factors, although they may shake you off like a baseball pitcher on the mound if you recommend the outdated 90CM mortality table.
Find out who at your organization prepares the FASB liability and what your organization’s methodology is. If you learn from your auditors that you are required to weigh in on the choice of mortality table and discount rate, or even to perform the calculations yourself, PG Calc’s Client Services is available to assist you.
There are twenty-five states that require charities issuing annuities to their residents to register their charitable gift annuity programs:
- New Hampshire
- New Mexico
- New Jersey
- New York
- North Carolina
- North Dakota
- West Virginia
If you work for a national charity that solicits gifts from donors around the country, you’re probably already registered in these states. Or, if your organization’s home state shares a border with one of them, you may have taken the precaution of registering in them so as to enlarge your donor pool.
In any case, state registration is not often a “one and done” procedure. Several of these states also require an annual filing:
- New Hampshire
- New Jersey
- New York
- North Dakota
To make sure you’re in compliance, determine the states in which you are registered and who at your organization is in charge of the annual filing. If you’re not meeting your annual filing deadline, you could be at risk of fines, or worse, losing your gift annuity program’s exemption from being subject to the state’s full insurance code. And if you think annual filing is a headache, it has nothing on the migraine induced by having a state consider your charitable gift annuity to be commercial insurance.
When you’re new to a planned giving role, it often feels as if you’re drinking from a fire hose as you try to absorb your charity’s mission, gift policy, gift minimums, and organizational culture while also trying to connect with donors and prospects. It is all too easy to forget about the “housekeeping” associated with a thriving planned giving program. Just remember, you can avoid most pitfalls if you know what they are and who is responsible for them. Keep asking questions, and if you learn you’re responsible for some of these items, don’t hesitate to reach out. We’re here to help.
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