Very Interesting Bequest Giving Data!!!

Very Interesting Bequest Giving Data!!!

In the blogosphere, if you don’t have anything new…well then you don’t have anything to say!!

Well here is something new (and interesting) – research from a group called Connected to Give – clicking  here or the picture will take you to their website. They did an extensive study of bequest/planned giving habits in the Jewish community. But, their data is not only relevant to this community so I took some of their findings for some upcoming presentations. This one shows you 4 different “groups” – each with the percentage having estate plans and what percentage of the entire group actually leave planned gifts (presumably bequests).

Do the ratios in your head. The age 40+ Jewish $100,000+ earners group project approx. one out of every three (with estate plans) to make a charitable bequest!! The general population sees only one out of every eight (with estate plans) leaving charitable bequests.

And, look at the percentage who even have estate plans.

Quick Planned Giving lesson on Commercial Annuities

Quick Planned Giving lesson on Commercial Annuities

It would be impossible to explain commercial annuities in a blog post, let alone a book. As far as I can tell, they refer to a wide-range of insurance-like “products” where quite often unsuspecting individuals place bets hoping that they can outplay the house (i.e. live longer than expected). Any casino or insurance company (if you think about it they are really very similar), regardless of all of the smiles and welcome goodies, are out to win. And they have teams of actuaries making sure that the odds are in their favor.

So why do fundraisers need to know anything about these things except to just stay away from them?

Here is synopsis of a client/donor call I had last week. Donor has an “annuity” and wants to give it to a charity. Great news. What’s the question?

Firstly, what kind of “annuity” are we talking about?  Ok, it’s some sort of commercial annuity, I actually don’t need to know anything else.

Well, donors can NOT transfer commercial annuities directly to charities like appreciated stock or real estate. I have looked into this one enough times – it doesn’t work. The reason donors might prefer this is because the actual alternatives are not as exciting. For donors with charitable inspirations for commercial annuities, the donor can either (1) surrender/cash in the annuity (along with potential surrender charges and taxes on investment growth – I told you insurance companies stack the deck in their favor – they rarely lose) or (2) designate the charity as remainder beneficiary to receive funds left in the annuity on your passing.

So what is up the “surrender charge”? That is a fee – particularly in the first 7 or so years of owning an annuity – to scare people from cashing in the annuity. It could be upwards of 20% of the fund.  It usually goes down every year you own your annuity until it disappears.  It is the insurance company’s way of ensuring they make a minimum amount on you.

There could also be a 10% penalty for any “pre-tax” funds withdrawn by anyone 59.5 and younger.

And, any growth over your initial investment would have to be taxed upon your cashing in of the annuity.

For these reasons, my experience has been that it is usually not worth the headache of fees and penalties and taxes for donors to go ahead and cash them in.

The second alternative though is much less painful.  In fact, it is very similar to a beneficiary designation of an IRA or other retirement account and is a good, clean “planned gift.”

Our donor opted actually for cashing in his annuity – it was owned well over the 7-year penalty period, he was over 59.5, and his plans were to fund a project today with the entire proceeds so any taxable income would be offset with the subsequent charitable contribution.  The only issue he and his accountant needed guidance on were the deductibility limits.  The accountant for some reason assumed that it fell under the 30% of AGI ceiling, thinking that the donor would somehow directly transfer the annuity like an appreciated asset.  I informed them that it would fall under the 50% AGI ceiling since it was just a cash gift and all were happy.

The point of this blog post, in addition to nothing exciting to write about this month, is that these little details about different financial products can be important to your donors.  And, their accountants and other advisors may not know what to do when it comes to a charitable gift with various financial products.  This donor had consulted his accountant and his annuity company and neither gave him any clarity as to how to make his charitable intent happen.  Our job – as planned giving professionals and fundraisers – is to fill in the gaps, guide in the right direction and help philanthropic plans come to fruition despite the lack of knowledge out there.  I would have felt good if my guidance led him to decide to only put the charity in as a beneficiary.  But, of course, it feels much better when an actual gift happens!