The Big Short(age of Donors)

It’s coming. The Big Short-age of Donors.Image result for the big short

Follow this blog, take my courses, hear my pitches. You will get the message.  This county is rapidly aging and so is your nonprofit donor base.

The Baby Boomers – the largest and wealthiest generation in U.S. history which has fueled insane growth in the nonprofit sector of over the last 20+ years – is moving into Planned Giving territory (that is the nice way to put getting old and/or dying).

This is truly bad news for most nonprofits (regardless of the fact that the overwhelming approach to dealing with one of the most obvious courses of action – Planned Giving – is to essentially to ignore it).

I finally watched the Big Short and I really related to the characters in the movie, in a stressful kind of way.  They all knew they were right (about the housing bubble). They all knew they made the right investment. Yet, they were almost all sunk financially because the system refused to admit there was a problem and it was taking too long for their profits to materialize.

So, here I am. Completely invested in planned giving for over 20 years. It is the right move – the nonprofit sector WILL experience a demographic nightmare that WILL be very painful – Planned Giving is an obvious need throughout the nonprofit world.  And, all I have seen is a once awesome job path completely disappear. Charities reducing investment in this area to barely anything.  Consultants not booming either. Is anyone besides the bigger, more successful programs investing properly in Planned Giving or even doing anything?

In other words, nonprofit decision makers – most likely CEOs and heads of development who are under pressure to keep their jobs today by raising today dollars – have decided that the short-term goal takes complete precedence over investing in long term planned gifts (which, when received are typically multiples of your largest donors’ lifetime giving – regardless of whether it’s known leadership donor or a $50 annual fund donor).

Here is another way to look at it.  In the subconscious or even right there in the conscious brain it is clear that it’s time for planned giving.  But, what good will huge future windfalls (via planned gifts) do you (the person under pressure now)?  Go for the $5,000 major gift now and don’t think about the $200,000 bequest (the average size for university bequest donors in FY16) or other planned gift options. Who cares if the right business decision is to actually talk to your donors about legacy giving? Your job is to keep your job today, and not make it easier for your replacement who’ll take credit for that planned gift the second you are gone!

I know this sounds like sour grapes but there is truly something akin to the Big Short going  on here.  Nonprofits – you are in trouble.  Your biggest and best donor classes are entering their 70s.  It doesn’t get better from here.  Younger potential donors might not have the same commitment or financial potential.  You might not even attract younger donors.  The least your organization can do is intelligently make the case to your aging donors that it is also time to think about a legacy gift. That’s all.

But it does take training, staffing, and actual budgets to get it done.  So, ask yourself this question: Am I going to do what is right for this organization in the long term or what’s right for me personally in the short term?

 

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: https://www.forbes.com/sites/janetnovack/2017/09/29/trump-plan-delivers-massive-tax-cuts-to-the-1-and-sharp-kick-to-upper-middle-class/#2f10cd861099

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.

 

IRA Rollover Giving from SEP or Simple IRA?

SEP IRAs and Simple IRAs are retirement accounts which small businesses create (typically for the owner of the business) – similar to 401k plans but much simpler.

This question has come to me twice in the past few weeks so it must be of interest.  Can an old enough donor make an IRA Charitable Rollover gift from his/her SEP or Simple IRA?  A client also just asked me this question where the donor said he had two SEPs (not sure why he needed two).  Here is the answer I gave:

The answer is yes, with an important caveat!

Bottom line – the SEP IRA (Simplified Employee Pension) or SIMPLE IRA could be eligible for the Charitable IRA Rollover IF the donor is 70.5 (always worth mentioning) AND the donor has not made any employer contributions to the SEP or SIMPLE IRA in this fiscal year (based on his business’ taxable year – which could be different than the calendar year). In other words, it can’t “active” to work for the IRA Charitable Roller.

To your question, your donor has two SEPs! Is one “active” and one “inactive”? I believe if one of the accounts is inactive (i.e. is not receiving any employer contributions this fiscal year), that the inactive account would be eligible to make a Charitable IRA Rollover gift from!!

Below is a blurb from the IRA website:

Q-36. Is the exclusion for qualified charitable distributions available for distributions from any type of IRA?

A-36. Generally, the exclusion for qualified charitable distributions is available for distributions from any type of IRA (including a Roth IRA described in § 408A and a deemed IRA described in § 408(q)) that is neither an ongoing SEP IRA described in § 408(k) nor an ongoing SIMPLE IRA described in § 408(p). For this purpose, a SEP IRA or a SIMPLE IRA is treated as ongoing if it is maintained under an employer arrangement under which an employer contribution is made for the plan year ending with or within the IRA owner’s taxable year in which the charitable contributions would be made.