Ahhhh…the graphic tells the whole story..right? Look at the cool chart and understand how charitable lead trusts work?
Sorry, not this vehicle.
Read this short piece about an actual situation and hopefully you’ll begin to see why it’s worth learning more about lead trusts!
Recently, a client of mine had a donor looking to fund a program that needed $80,000 a year to be fully running. The fundraisers even thought the donor was going to give $1 million to immediately endow it (they would find other funds operate it with more eventually coming from the donor’s future estate)!
But, as we know too often, the donor has the final say. So, when they met with the donor to close in on the whole gift, they were in for a surprise: donor’s advisors told him to put the $1 million into a charitable gift annuity.
Normally, a $1 million CGA is cause for celebration but not this time. What about the endowment to partially underwrite the program while the donor is still alive?
So, back to the donor they went. Donor says no problem, I’ll just give you the CGA annuity each year to fund the program.
Sounds interesting but there’s a few problems. #1 The CGA rate for this donor is 6% – that’s $60,000 a year – short $20,000 a year to fund the program. #2 If the donor is willing to give up the income each year to partially fund the program, why do a CGA? Just go back to the original plan and the donor gets a 100% income tax deduction with no future 1099 tax obligations (the CGA will cause taxable income with an offsetting annual deduction).
Also, this donor has no heirs and is essentially leaving the bulk of his estate to the charity.
Obviously, the donor’s advisors felt that he should hedge his bets – if need be, he could always keep the income. So, there is bit of concern that the donor might need the income or assets in the future.
The deduction is important but not overwhelming important as the donor was willing to take the lesser CGA deduction, only around 30% of the million.
Anyway, what does this have to do with lead trusts?? No heirs to send the assets to. A CGA.
But wait. Think about this option via a reversionary grantor lead trust we offered the donor in addition to the CGA option.
We ran a 10-year, 8% grantor lead annuity trust with remaining funds in the lead trust going back to the donor after the trust term (remember, most assets in the estate are going to the charity anyway). (“Grantor” also means the donor gets an upfront deduction, but has to pay taxes on any income/gains incurred in the trust during the term)
Look what this option offered the donor and the charity:
- $80,000 a year from the lead trust to fully fund the program.
- Higher income tax deduction than the CGA (from $300k range to $400k range)
- Donor control! The donor could trustee this himself (with help from his lawyers), meaning he could put an income producing asset in the trust like real estate which has enough income to pay the charity and upside growth potential!
- All remaining funds/assets in the lead trust go back to the donor at the end of 10 years.
Downsides of the Lead Trust here?
- Annual tax burden for the grantor lead trust significantly higher than the CGA (which has an offsetting annual income tax deduction for each year’s gift).
- Much more complex gift – would require active attorney involvement throughout the trust.
Think about the possibilities? Have you dealt with any unusual situations that could have been solved with a creative lead trust option?
Stay tuned for what actually happens (when I find out!).
Ok, I’ll admit that I’m a bit obsessed with my alma mater’s (Rutgers) sports programs – as challenged as they have been – so almost everyday I tend to google Rutgers to see more news about their sports programs and whatever else pops up.
And, today there was typical bad news for Rutgers’ fans on the sports side but on the Planned Giving side, they hit a home run!
Take a look at this article about a $500,000 planned giving/legacy commitment:
It isn’t perfect but let’s start off with the positives:
- It’s a living donor! Research backs up the idea that living peers are the best inspiration to put out in front of potential planned giving donors.
- The donor is known publicly already for her association with Rutgers – a familiar face, an alumnus to boot!
- The commitment is connected to an already existing planned gift (endowed scholarship) that has results already (150+ scholarship recipients).
- The original gift in memory of her late husband is mentioned – powerhouse planned giving motivation.
- There’s a great story to go along with the planned gift – donor is committed to helping people in tough circumstances reminiscent of her own circumstances (talk about planned giving motivation).
- A few nice quotes. My favorite: “Investing in our Rutgers students is a return investment in the future generations of our communities. Thank you, Rutgers, for giving me so much.”
- She’s a leader in the Rutgers community – hopefully other leaders will get the message.
- Hey, it’s a story about a planned giving commitment. Let’s not forget that point.
What was missing?
- Contact info to talk to Rutgers fundraising staff about doing your own planned gift! A picture of the contact at the end of the article with phone and email would be awesome.
- A call-out or side-bar with a paragraph or two about legacy/will commitments.
And, I hope RU staff will use this article in different venues. It’s well written and can be very powerful in getting others to start thinking along the same lines.
And, you never know. Maybe the next 4-star recruit will say yes!
Over and over, I have conversations with planned giving directors – excellent ones with years great results – but it always comes down to: what have you done for me lately.
Quite often there is a new VP for development every year or two – so the new VP wasn’t around to watch the planned giving program grow into what it is now (often bringing in millions of dollar of revenue).
So, with a new VP who is under pressure to get results, they look at the planned giving director and wonder – what’s this guy (or woman) doing for us?
They sometimes bring in a consultant who usually understands what the VP wants to hear – do something different and you’ll do better.
It’s a terrible cycle I see happening all the time.
This is the curse of the field of planned giving. Planned gifts are the ultimate long play (with your donors) but the VPs making the decisions over the planned giving program don’t have patience or luxury to watch the program grow organically.
This is why I have turned to Surveys and Matching Gift Campaigns to get fast results (at least in terms of numbers of new legacy society donors and real prospects).
So, if you have made it through this short lament and relate to this issue, I am about to offer a webinar at NOON EASTERN TODAY – click the link to learn more – this could easily be the best $75 investment your organization has ever made!