Putting Planned Giving to Work for You
Published as one in a series of twelve articles in "Grants for Cities and Towns", Quinlan Publications, 1994.
Many charitable organizations lose opportunities for investment gifts because staff and volunteers do not use planned giving vehicles. Gift instruments often become dense paper mazes of complex liabilities and obscure benefits made even more incomprehensible by the language of lawyers, tax accountants and business managers. Wisely advising your donors does not always require expert technical knowledge. A basic understanding of the nature of planned gifts and a little common sense will help clear a path toward investment gifts that benefit your donor and your organization.
What's involved? Simply put, planned gifts are gifts of assets made as part of the donor's long range goals. Donors make such contributions from cash, securities (including closely held stocks), real estate, tangible personal property and life insurance. Such investments often are the culmination of the relationship between donor and institution. Consequently, these gifts substantially improve your organization's finances and warrant special recognition of your donor.
Gifts are often characterized in terms of the time of transfer. An inter vivos gift is made during your donor's life. A variety of trusts including charitable remainder unitrusts, lead trusts, and pooled income funds are frequently made as inter vivos gifts. Testamentary gifts, on the other hand, are executed at your donor's death. Bequests are the most common form of testamentary gifts.
Two basic kinds of gifts. The nature of planned gifts can be described as either present or deferred gifts. Present gifts are made outright and irrevocable: i.e. the institution takes possession of the asset and the right to dispose of it. In deferred giving, however, the right to possess and enjoy the property is deferred to a later date. Thus, deferred gifts are gifts of future interest or future value of the property. Your institution's planned giving program will want to develop marketing strategies for both types.
Benefits of present giving. The simplest and most common type of charitable giving are outright present gifts of cash. The donor transfers money to the institution. Benefits are often as straightforward as the transaction. The institution recognizes the donor's sacrifice with heartfelt gratitude, an appropriate memorial and a ceremony. The donor also receives a tax deduction.
Usually other considerations are not put aside. Perhaps your donor has sold an investment such as stocks to make the $ 100,000 gift. If these shares were held longer than a year, they are considered long-term capital investments. Profits realized from the sale of the stocks are long-term capital gain. Your donor is liable for the capital gains tax.
Outright gifts of assets may carry greater advantages. Your donor can make the gift with stocks. By giving the stocks, the donor has not realized long-term capital gain and does not owe a capital gains tax. As a tax-exempt organization, your institution does not pay capital gains taxes. You can increase benefits to your donor by advising them to give the gift of stocks or property rather than cash.
Benefits of deferred giving. Deferred gifts often bring the greatest advantages to your institution and your donor by reducing taxes from income, capital gains, and estate while producing interest income. A discussion of the variety of vehicles available through deferred giving is not within our scope, yet, you may better advise your donors by knowing a few characteristics of deferred gifts.
As noted earlier, a deferred gift is a gift of the future interest in a property. Your organization defers possession and use of the property to some future date. The period of deferment may be definite as in term certain trusts or indefinite as in a bequest which will mature from your donor's estate.
Deferred gifts may also be revocable or irrevocable. A revocable gift does not carry income benefits but may positively affect estate taxes. Irrevocable gifts have the greatest advantage because these donations often result in lower income taxes, escaped capital gains taxes, and avoided estate taxes.
- What's best for your donor? How do you determine the best direction for your donor's gift planning? Three simple questions may help guide you.
- What is the need and intent of the donor? Without delving into the specifics of your donor's financial strategy, try to determine the human need behind the gift. Is your donor saving for retirement or starting a college fund? Is there a need to leave a legacy to your institution? Has your donor's business suddenly skyrocketed?
- What basic resources are at your donor's reach? Is your donor of the age to have long-held stocks that currently produce low interest? Does your donor own closely held stocks in the family company? Does your donor own a piece of property that is producing little or no benefit?
- What is the need of the institution? Can your organization responsibly manage a trust? Can your organization afford to accept a piece of property in need of repairs or encumbered with property taxes, licenses or other liabilities? What types of gifts are needed right now? Current use funds or endowment?
Answering these questions honestly and accurately, will help guide you as you work with your donors toward your long range goals.
Finally, let lawyers, accountants, and other financial professionals attend to the technical instruments of planned giving. By understanding the nature and intent of the gift, the needs and desires of your donor, and the needs of your institution you are the professional best equipped to assist your donor in determining the most responsible and satisfying contribution.