Planned Giving Commentary

Time to worry about tax law changes yet?

blog pickProbably not.  It doesn’t seem that the President and Congress are about to do anything together.

Ok, but what if all of the Republicans actually get in line (or a few Democrats defect…like that’s going to happen!!)?

Any problems with the most recent tax proposal for non-profits?

Here is a quick overview of potential issues that might impact nonprofits:

  • Standard deduction would be increased to $12,000 for individual filers and $24,000 for married couples – I can tell you right now that this does not hurt charities whatsoever – maybe even helps.  All it means is that middle and lower middle class America have less incentive to itemize but that sector is not likely to reduce charitable giving over a few tax benefits or not.
  • Personal exemptions and many itemized deductions would be eliminated – the income tax deduction won’t be touched directly so you actually might find upper middle class and higher Americans looking for more deductions (i.e. charitable deduction or maybe new fangled schemes for deductions).  Probably a plus for nonprofits.
  • Estate tax, which now only applies to estates of more than $5.5 million per decedent (or $11 million per couple) would be entirely repealed – oh boy, it’s not happening.  I’ll believe it when I see it.  George Bush Jr. had the power and did “repeal” the estate tax but was it really a repeal?  Go ahead and mess around with the estate tax again – all good news for consultants and attorneys. Probably not an impact on nonprofits but we will have to wait and see what they really are doing.

There is other stuff in it – the rest of which doesn’t yet rise to be addressed in this blog – here is a link if you want to read more:

If you have ever seen my presentations, you would know that I subscribe to the 2% rule.  Americans in general give away 2% of their disposable income/wealth each year, roughly equal to 2% of the economy/GDP (see Giving USA for more on those numbers).  Since these percentages are very consistent, year in, year out, regardless of tax law changes, you have to believe that if anything  happens, it is not likely to impact charitable giving (unless it increases or decreases Americans’ disposable wealth or the overall economy). Even the so-called estate tax repeal doesn’t frighten me, and will probably be replaced with something confusing that I’ll be speaking and writing about it for years.


Eye opening facts for your nonprofit board


In Image result for eye opener cartoona presentation to a nonprofit board a few weeks ago, I went through my typical “case for planned giving” presentation which includes slides that address the on-coming Baby Boomer Boom for Planned Giving and the potential for the field in the next 10 years.

But,  you know what got this board’s attention?

They saw that charities, across the board in the U.S., average approximately 7.7% of nonprofit revenue from planned giving (since 1969).

And, when looking at planned giving revenue versus individual giving (a better apples to apples comparison), planned giving averages over 10% nationally of these two revenue streams AND in higher education the percentage is as high as 15%-20% of individual and planned giving revenue combined. These were the facts this board picked up and started to engage.

In other words, don’t forget that your board may have business owners and others keen on bottom line revenue.  Bottom line: planned giving should at least be reaching national statistics and even higher if you have a developed program.  Time to invest.

Big Endowment – Positive or Not?

Top 10 Endowments Higher EducationOf course a big endowment is good and important.  BUT, it might not be so positive from your donors’ perspective.  Yesterday’s interesting meeting with a very special planned giving donor for a client really open my eyes again on this issue.

Stability, fiscal soundness, efficiency, consistency of leadership (in addition to mission, of course).  These were all factors this donor weighed (usually from the position as a board member – realize that your board members are possibly testing your organization for potential greater giving or not) in deciding which charities will make the cut into his estate plans (big gifts from glimmer in his eye!).

Endowment? Helps a long way towards his approach but be careful warned this donor. Too large of an endowment could send the wrong signal – is your charity in the business of saving lives or feeding hungry people today, or feeding salaries of the executives in the future?

What is the ideal level of endowment? Obviously depends on the organization, the immediacy of their mission and other organizational factors, but the general gauge that emerged from our conversation yesterday was 10 times the budget.  Your budget is $10 million – aim for a $100 million endowment.

Of course, this doesn’t mean you will keep everyone happy all of the time. I had a donor once contact me at a client looking for the 990 tax return to see how much we were paying our top people (he was looking at charities for a bequest). I knew this client well, and how little they paid, I thought we were in awesome shape. I sent it immediately and followed-up shortly after.  I get the man on the phone and he declares that this charity is not getting his bequest!  I was slightly dumbfounded – this was the most lean, efficient charity you could have imagined (less than 10% expenses to program ratio, very few employees, low salary for the executive director by any standard).

What was the problem? He saw the endowment figure – somewhere around $60 million.  Well below our 10 times revenue goal.  But, for this donor, it made no sense for him if the organization was sitting on that amount of money, what do they need his gift for?

Truth be told for that client – they held back a lot of money (primarily bequests) from disbursement to its prime mission (an overseas institution) over many years (an internal agreement between the two entities).  They just hoped no one noticed or asked about it.

So, the last lesson is about disclosure and proper messages. Don’t just hope no one notices that your organization has a huge war chest!  Be transparent! Explain why the endowment is so crucial. Explain how it works (i.e. reserves in case of emergency, annual income stream so staff can focus on mission, donor wishes, etc…).  And, sometimes distribute or use the funds – for your mission and related missions (if allowed, of course).



To Ask or Not? (for documentation)…

donr-is-kingOne of the most basic questions for any fledgling planned giving program is whether you should ask legacy donors for documentation of their commitments.  Not so simple.

Most of these commitments are revocable bequests in wills or account beneficiary designations.  Why do we (the nonprofits) want the documentation especially if they doesn’t bind our supporters to follow through with their commitments?  Easy – we want to make sure the commitment is more than just a promise to act, that our donor has acted already!  That’s part of our job in planned giving – to do as much as we can to see gifts to fruition, which includes documentation and stewardship.

Sounds easy enough. But, I just sat today with a “model” planned giving donor – someone who has shared his legacy plans with several nonprofits – and he gave me more reservations on this question.  In a moment of total honesty, he said it “irked” him that some of the charities he was leaving significant gifts to aggressively asked for copies of the relevant portions of the instrument he used for the gift. From his perspective, the charities should take his word for it.

And, you know what, I agree with him!  My approach on this issue has always been to get the commitment to the idea upfront verbally or in a non-binding letter of intent and see if you can get documentation in later years (not demand but see if the donor is ok with the request).  People’s estate plans are private matters and the fact that someone is willing to share that a bequest is coming to your charity is plenty. Don’t push your luck.

If  you ask for documentation, make it optional – “just for our files” – and leave it at that if your supporter demurs.

And guess what – those charities are still waiting for documentation from this donor. The offending charities are lucky they weren’t dropped!