There are certain taboos in the fundraising and planned giving worlds. One of the biggest taboos is providing a financial salesman access to your donors – regardless of the “awesome” deals they are selling.
And, this taboo is for good reason – if you give the access, you (the fundraiser) take responsibility for anything that comes out of the introductions, including any embarrassment that the whole ordeal might involve.
But, the nonprofit world also tends to be overly protective and over reactive at times – even in the face of potential good plans for their donors (which by the way help your charity, too).
Here is a new term the planned giving world should add to their list of gift options: Commercially Structured Planned Gifts. Commercial because they usually involve the use of a commercial annuity and certainly involve the use of financial planning vehicles outside of the traditional planned giving world. Without dwelling on any details – we’ll save that for another post – there are definitely circumstances where the use of a commercial annuity, possibly in conjunction with a life insurance policy, can produce a much better deal for the donor and the charity.
What I am talking about is a situation where you have a donor interested in some sort of planned gift option, most likely a gift annuity or other life income plan.
What if the charity really needs some cash upfront, rather than seeing the entire principal locked away in a CGA pool or CRT account for 20 or more years?
What if the charity is not licensed or equipped to manage a lifetime income obligation like a CGA or CRT?
What if the charity is concerned about the risk of over concentration in a gift annuity pool on a large single donor?
What if the donor needs more assets returning to their estate for their heirs?
In any of these situations, if you have a donor ready to put up CASH (as opposed to appreciated assets) in exchange for some sort of life income or term of years income guarantee, it is my hunch that a financial planner who knows how to “arbitrage” with commercial annuities and life insurance can come up with many winning scenarios.
I know we planned giving folks loathe bringing the commercial side of financial planning into our world – too many fly-by-night, get rich quick, schemes have come and gone. And, for the unlucky few charities that fall into them, there is usually huge regret. But, if we – the planned giving fundraisers – are dedicated to finding the best solution for our donors and institutions, I am telling you right here that carefully designed commercial products can possibly produce the best option for everyone.
Here is one example just run by me recently:
A 77 year old male (good health) could get a 6.2% CGA. For a $100,000 CGA, that would be a $6,200 per year annuity and a $44,000 income tax deduction. The cost to produce the same lifetime income (with similar tax free portion benefits) with a commercial annuity is approximately $61,200. If the donor contributes the remainder (that would have been part of the CGA contribution), that would be a gift of $38,800. Yes, the donor would be receiving around $5,200 less income tax deduction but the charity would be receiving $38,800 for immediate use – no need for reserves, departments of insurance, or risk.
This is just one example based on real numbers. And, there are a lot possibilities.
It’s just time for us to be more open to these possibilities and to get more familiar with non-charitable vehicles.