Planned Giving Commentary

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!



Never, Never Cut Corners

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I am working on a case where a nonprofit accepted around $1 million – transferred from an overseas account – around 20 years ago.  In the letter of instruction to the bank, it stated that it was a gift.  In subsequent letters to the charity, one of which was notarized, the donor again stressed that the funds are a completed gift to this charity.

What went wrong?

The donor immediately offered to invest the funds on behalf of the charity.  Their mistake – they let him set up a brokerage account in the charity’s name and gave him carte blanche authority to trade in the account.  20 years later, charity has never touched the funds, $1 million turned into $6 million.  And, he also reconnected with family (who he had been apparently looking to cut out of any potential inheritance). Now, he wants his grandchild to receive most of the money – his offer to the charity: “keep the original gift amount and write a check to my grandchild for the rest.”

Oh, this is a mess.  The donor, now in his late 80s, still thinks the money is his.  And,  you know what? He has a point.  Yes, legally the funds have not been his since he put them in their account. But, he never took an income tax deduction and they never severed the cord.

Their actions lended credence to his “mistaken” belief that he somehow had some interest in those funds and a court or the attorney general will certainly not appreciate their willful ignorance of basic nonprofit law regarding controlling investments – a clear “no-no” under any circumstances.  To boot, charities have no business encouraging donors to impoverish themselves in their favor a charity – it reeks of undue-influence or collusion in tax or other fraud.

The morale of the story: don’t cut corners, don’t cut side deals. Call competent counsel. Your charity may live to regret it.  Both sides in this story will be lucky to come away without an FBI investigation of what’s really going on.



Planned Giving in 2017?

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I refuse to jump to any conclusions regarding this year in planned giving (or any year!).

Will Congress/President somehow waterdown or eliminate the charitable deduction?

Possibly but it’s possible that the charitable deduction will be more valuable to your donors than ever before if they limit other deductions but not the charitable one.  (Treasury Secretary Mnuchin already said there will be no tampering with the charitable deduction contrary to Trump’s campaign “tax plan”)

Will there be anything new and exciting for fundraisers to bring to donors?

This doesn’t look like a great year for creative charitable legislation. Let’s see if they really “fix” Obamacare or the tax code.

But, there are a few things I can guarantee will happen: the oldest baby-boomers start turning age 71 this year, the age when required minimum distributions (RMDs) from IRAs and other qualified retirement accounts start.  There are a lot more boomers than their predecessors, with a lot more IRA funds – IRA charitable rollovers and beneficiary designations should be high on every fundraiser’s wish list.

Bottom line: Planned Giving is turning a corner, Boomers are finally and officially Planned Giving Prospects. Maybe it’s time you and/or your organization realized that it is “now or never” for the Boomers? Train up the staff, invest in the Planned Giving program.

Oh, and check out our 3-part Planned Giving Boot Camp for Major Gift Officers! Next sessions start March 15, 2017 – click here to see how affordable it is to train up to 15 staff members in planned giving!