In this chapter we have introduced the concept of planned giving which we defined as a gift involving greater thought on the part of a donor, probably involving specialist input from a gift planner or other financial service adviser. We outlined a wide range of planned giving vehicles explaining the operation and benefits of each. The outright bequest is by far the most common form of planned giving undertaken (hence our earlier focus on this topic), but other methods of giving such as Charitable Remainder Unitrusts or Charitable Gift Annuities are becoming increasingly popular.
We also stressed the significance of concepts such as donor stewardship and recognition. These were introduced previously as pivotal in the realm of major gifts and they are equally relevant here. Planned giving is after all, just one way in which a donor can support an organization with a major gift. Finally we examined the way in which planned giving is typically organized stressing the critical role played by the Board in identifying potential prospects and demonstrating leadership by participating in the program themselves.
Definition and Trends
Planned giving is a form of philanthropy given a variety of different names. Also known as deferred giving or charitable gift planning, the phrase ‘planned giving’ describes a form of philanthropy that is generally distinguished by the following characteristics:
- A planned gift is created now for the future benefit of a nonprofit organization.
- A planned gift’s future benefit could occur later in a donor’s life, at a donor’s death or at some point after a donor’s death.
- A planned gift’s future benefit could be a one-time distribution, the regular payment of a specific amount or the regular payment of a variable amount.
- Some planned gift commitments are revocable while others are not. Donors are permitted to change the specific nonprofit organizations that benefit from revocable and some irrevocable planned giving devices.
- The donor may receive tax benefits as a result of his/her gift provision
Additional resources on trends in planned giving can be found on the following sites. We have grouped these by country, beginning with the United States:
In the United States this site serves as a hub for all things planed giving. It exists to offer education, resources, and professional support to charitable gift planners. The page we link to here provides an overview of the work done by charitable gift planners, including a look at the kind of gifts they facilitate.
The Partnership has recently published a detailed report on the future of charitable gift planning. The Future of Charitable Gift Planning: A Report of the Partnership Strategic Directions Taskforce – reviews economic, philanthropic and fundraising trends and considers how the Partnership should respond in order to maintain its relevance in the philanthropic community.
The Partnership Online Library – is a searchable database of articles from The Journal of Gift Planning and proceedings of the National Conference on Planned Giving. Free access to full text PDFs is available to members of the partnership, while guests may pay-per-view. This isn’t cheap but our experience of the materials they publish has always been good.
In the United States we also pay homage to the Sharpe Group. Sharpe is a for-profit agency serving the consultancy needs of charity clients, but the firm offers a first rate and free newsletter, Give & Take which is a great way to keep up to date with developments in the field. It is widely respected and back issues are available for download online.
This is a newsletter available on subscription for planned giving professionals, written by planned giving professionals. It focuses on how to establish and promote a planned giving program, develop donor relationships and deal with technical aspects of planned gifts.
As the name suggests the Canadian Association of Gift Planners is the trade association for planned giving professionals in Canada. Their site offers news information and many practical resources.
There is also a monthly Canadian e-newsletter for the nonprofit sector. The focus is much broader than just planned giving, but it does contain useful information on the topic.
The European Association for Philanthropy and Giving (EAPG) is a membership network that brings together charities, professional advisers and intermediaries involved in planned giving. It adopts a Europe wide perspective on planned giving and philanthropy.
Philanthropy Australia is the national peak body for philanthropy and is a non-profit membership organisation. Its members are trusts and foundations, families and individuals who want to make a difference through their own philanthropy and to encourage others to become philanthropists. It offers information, networking services and representation.
Planned Giving Vehicles
While the definitions of planned giving may vary, the menu of planned giving vehicles is set. The most common planned giving vehicles in the United States are described below:
A simple provision in a will can allocate a gift (bequest) to a designated charity. The most common gifts to nonprofit organizations through wills are cash, securities and real property, including homes and personal property.
Gift amounts in wills are usually stated in one of the following ways:
- A specific amount
- A percentage amount, such as ‘… ten percent (10%) of my estate to Christ United Methodist Church …’
- A remainder amount also called the residue such as ‘After all specific bequests have been paid, I give, bequeath, and devise the remainder of my estate …’
In the United States, a revocable or ‘living trust’ refers to a trust that may be set up or revoked by its creator or Grantor (sometimes referred to as the Settlor). Living trusts are often used because they may allow assets to be passed to heirs without going through the process of probate thereby saving a family substantial cost. These trusts are of interest to fundraisers as they can also contain a charitable component in much the same way as a will. Nonprofits may stand to benefit from gifts of a fixed amount, a percentage of the total or a remainder amount.
To establish a basic living trust, the Grantor signs a document called a Declaration of Trust, which is similar to a Last Will and Testament. In the document, the Grantor typically names himself/herself as trustee, and transfers assets to that trust (i.e., the transfer is actually made from the Grantor to himself, as Trustee). Because the Grantor is named as the trustee, he or she maintains full control over the assets. After the Grantor (or the Grantor and Grantor’s spouse in the case of a joint trust) dies, the person identified as successor trustee in the trust document generally assumes that role. The successor trustee transfers ownership of the assets in the trust to the beneficiaries named in the trust document.
Charitable Gift Annuities
A charitable gift annuity is created through the irrevocable transfer of property (cash, securities or real property) in exchange for a contract to pay the donor or the donor’s designee an annuity for life. The person who contributes an asset for the annuity is called the ‘donor’, and the person who receives payments is called the ‘annuitant’ or ‘beneficiary.’ Usually, the annuitant is also the donor, but this is not always true. The maximum number of annuitants is two, and payments can be made to them jointly or successively.
Gift annuity programs are governed by state law and typically regulated by state insurance departments or commissions. Payments from a charitable gift annuity are fixed from the outset. They will neither increase nor decrease, regardless of whatever happens to interest rates or the stock market. A charity is contractually obligated to make the payments, even if it has to dip into its general funds to do so. These payments are significantly lower than the donor could obtain by purchasing an annuity from a commercial provider, but this is by design so that a significant benefit will also accrue to the nonprofit. In this way the donor can establish an income while simultaneously supporting a favored cause.
The size of the payments from a charitable gift annuity depends on the following factors:
- The gift annuity rate offered by the charity (most charities follow rates recommended by the American Council on Gift Annuities).
- The value of the contribution.
- The number of annuitants.
- The age(s) of the annuitant(s).
Source: American Council on Gift Annuities (2009)
Because the value of the property exceeds the value of the annuity, charitable gift annuities are considered partial gifts to nonprofit organizations. Taxpayers who itemize deductions can therefore claim a charitable deduction for a portion of the original gift. This deduction is equal to the amount of the contribution less the present value of the payments that will be made to the donor and/or other beneficiary during life. The present value of those payments is determined using IRS tables regarding life expectancy and assumed earnings, and taking into consideration the amount contributed and the gift annuity rate.
When the final income beneficiary has passed away, the residuum (i.e. remains of the initial gift plus any interest income) is distributed to the nonprofit to be used according to the contract’s directions. This is usually for general use by the charity but may be restricted by the donor for a particular use, such as a student scholarship or biomedical research.
Most charitable gift annuity contracts are established between the donor and the specific nonprofit receiving the remainder gift amount. It is, however, possible for community foundations permission to issue gift annuity contracts on behalf of qualifying charitable organizations.
More information on the topic of gift annuities can be found at the American Council on Gift Annuities including the most recent recommendation on rates.
Deferred Payment Gift Annuities
A deferred payment gift annuity is the same as the charitable gift annuity, except that the payments to the donor are deferred, typically until retirement age thus facilitating the use of the annuity as a retirement income plan. This arrangement can be of benefit to a donor who does not require additional income at the time of the commitment – they can make the gift now and receive immediate income tax deductions while in a high tax bracket. Because payments are deferred, when they come through the payments will be higher (rates, again, are provided by the American Council on Gift Annuities).
The amount of future payments depends on a donor’s age at the time of the gift and the length of time he or she chooses to defer payments. Because the deferral often results in higher payout rates and a higher income tax deduction when compared with an immediate annuity, deferred payment gift annuities often appeal to younger donors who need the benefit of a current tax deduction but also are interested in providing for future income needs.
Pooled Income Fund
A pooled income fund is a trust that is established and maintained by a public charity. The pooled income fund receives contributions from individual donors that are combined for investment purposes within the fund. Each donor is assigned ‘units of participation’ in the fund that are based on the relationship of their contribution to the overall value of the fund at the time of contribution. The arrangement is irrevocable – donors cannot withdraw their assets from the fund.
Each year, the fund’s entire net investment income is distributed to fund participants according to their units of participation. Income distributions are made to each participant for their lifetime, after which the portion of the fund assets attributable to the participant is severed from the fund and used by the charity for its charitable purposes.
Contributions to pooled income funds qualify for charitable income, gift and estate tax deductions. The donor’s deduction is based on the discounted present value of the remainder interest. Donors can also avoid recognition of capital gain on the transfer of appreciated property to a pooled income fund (Planned Gift Design Center, 2009).
The Fidelity Charitable Gift Fund is the largest in the United States.
The Ripple Effect offers a helpful comparison of different lifetime income vehicles. It is available from charitablegift.org.
Charitable Remainder Trust (CRT)
A CRT is an irrevocable trust that pays a specified annual amount to one or more people for a fixed period of years (often the life of the individual or individuals). At the end of the term of the trust, the remaining trust assets are distributed to a charity or charities. CRTs can be funded with cash but often are created with such appreciated, illiquid assets as real property and securities (Henze and Swank, 2008).
Planned giving typically is conducted through one of three types of CRTs:
- Charitable Remainder Unitrust
When the trust is established the donor transfers assets to the trust. The use of this asset by the charity is deferred. The unitrust must make annual payments, equal to a fixed percentage (at least 5% and not more than 50%) of the trusts value each year, to one or more beneficiaries. The beneficiaries are usually the donors of the trust, or specified family members, or both. Charitable remainder unitrusts must last for as long as the beneficiaries live or for a set period of time (not more than twenty years).
- Charitable Remainder Annuity Trusts
The charitable remainder annuity trust is the same as a charitable remainder unitrust with the following exceptions:
- An annuity trust may take only one form
- It must make annual payments, regardless of the trust’s earnings in any given year
- It must pay a fixed amount annually that is established at the inception of the trust and never varies
- Additional contributions cannot be accepted
- Charitable Lead Trusts
A charitable lead trust is, in essence, the opposite of a charitable remainder trust – whereby the annual payments of the trust (the ‘lead’ interest) are received by the charity, and the remainders (the assets) are received by the donor.
The payments of charitable lead trusts may be either unitrust payments or annuity payments. The donor makes an annual trust payment to the charity for a period of time specified by the donor. At the end of that period the assets return to the donor, or to another beneficiary named by the donor. The annual distributions to the charity are immediately tax deductible for the donor. The donor can stipulate the amount that the trust pays to the nonprofit beneficiary – either a fixed percentage of the annual value or a fixed amount.
While searching for materials to post on this site we found what appears to be a beta-site for a selection of planned gift calculators. Each calculator allows an individual to input their personal details and in return view a personal presentation of how a particular planned giving vehicle might help them to bypass capital gain, increase income and receive a charitable gift deduction. The calculator for a Charitable Unitrust can be found here. Please note that we are as yet unable to properly credit the source as no details of the author were available. If anyone is aware of the original of these helpful materials please do let us know.
Retained Life Interest/Life Estate Gifts
A gift of a remainder interest in a personal residence or farm is described generally as a transaction in which an individual irrevocably transfers title (i.e. ownership) to a charitable organization with a retained right to the use of the property for a term that is specified in the gift agreement. At the conclusion of the term, all rights in the property are transferred to the benefitting charitable organization. Gifts of a remainder interest in a personal residence or farm can be measured by the life of one or more individuals, by a fixed term of years or by a combination of the two. They are, however, most frequently established to operate for the life or lives of the residents of the contributed property. Accordingly, they are frequently referred to as “life estate agreements.” (Planned Gift Design Center, 2009).
Additional resources on the topic of planned giving vehicles can be found at the Partnership for Philanthropic Planning in the United States. There is also the personal website of Debra Ashton, the author of a key text on planned vehicles. The site contains a series of helpful links to consultancies working in this field and the facility to purchase her self-published text.
In Australia there is also A Guide to Giving for Australians authored by Venssa Meachen for Philanthropy Australia. It offers a guide to planned giving in that country.
The bulk of the literature and support available to planned giving fundraisers concentrates on the technical aspects of that area of fundraising. Many texts point out that the ‘human dynamic’ is often missing – it seems that comparatively little is known about why donors choose to give in this way, with most studies of donor behavior focusing on annual giving. (White 1995, Ashton 1991)
However, it is generally recognized that donors may be attracted to planned giving because:
- There is a tax incentive. Planned giving vehicles are structured to be advantageous to the donor in terms of leveraging maximum tax deductions
- It offers them a mechanism to express significant affinity the nonprofit, perhaps because they or a family member have benefited from the work undertaken.
- A donor may be able to make a larger gift eventually than would be possible for them if they were to give an immediate and outright gift
- It offers recognition/social standing – a large gift can be used to create a permanent memorial to the donor or someone chosen by the donor
- Gifts can be made where income is retained, providing secure income for themselves and/or beneficiaries
- Nonprofits may be seen as providing free financial/estate planning/investment advice, and may manage assets at little or no cost to the donor
Many of the texts we list in our recommended reading offer insight in respect of how to talk to donors about planned giving. Web resources on this topic are limited, but we recommend the following:
Materials produced by Blackbaud are typically of a very high quality and the recent paper by Lawrence Henze ‘Making Planned Giving Work’ is no exception.
Many of the papers we listed in our section on major gifts from the research team at Boston College will be equally relevant to the planned giving domain. The thinking underlying their materials is first rate and the quality of their analysis is second to none. In relation to planned giving, Dr John J. Havens conducted a major study of planned givers in 2003. The study involved a telephone survey of 1010 respondents who were asked whether they (or their spouses) had used one of ten vehicles for planned giving and if not, whether they would consider using each one. Since a selection of demographic variables were also gathered Dr Havens was able to profile individuals using or likely to use each alternative. The full report can be found here.
Soliciting Planned Gifts
Planned giving opportunities are marketed to existing donors and to other prospects primarily through face to face contact. Several standard stages will be followed in the solicitation of a planned gift. First prospective donors will be identified and researched, especially in terms of their financial situation and philanthropic interests. The research may be part desk-based but it may also involve face to face interviews which would both be fact-finding and also begin the cultivation process. Prospects are then evaluated and ranked, in terms of net worth, likelihood to make a planned gift, closeness to the nonprofit and its mission etc. A prolonged and intimate one-on-one cultivation process is then undertaken, sometimes by the fundraiser, but often by a senior volunteer or Board member of the nonprofit.
The cultivation process is different from that for other forms of giving because it may have to include an element of education about the mechanisms available to make the gift. Again, this is likely to happen in a face to face charitable gift planning interview, where the planned giving fundraiser may be joined by the donor’s financial adviser.
When the time is judged to be right, the solicitation is made, usually by a fundraiser or Board member (or both), and often in the presence of the financial adviser. If a gift is made the last stage is a process of thanks and recognition, which is likely to be high level and perpetual, as a planned giving donor has made a significant investment in their chosen organization.
Planned giving fundraisers also promote their work to the financial/legal professional advisor community. This is undertaken through direct mail, advertising, via the setting up of committees and volunteer networks, and through the provision of seminars and events.
Those actively involved in the solicitation of planned giving, or about to become so will find the model documents available at the Partnership for Philanthropic Planning offer considerable value. Their Model Documents include policies, procedures and other documents that can readily be adapted for use.
Planned Gift Donor Stewardship
Sprinkel-Grace (1997) regards stewardship as the most important practice in the development process. It is important to practice good stewardship of all the organization’s relationships with supporters, but particularly important in the context of planned giving. Donors offering planned gifts are making substantive psychological and financial commitments to the organization and nonprofits therefore have a duty to behave in a manner that is respectful of this and considerate of their individual needs. The starting point for fundraisers in soliciting planned gifts and managing a donor relationship is thus:
‘an explicit interest and concern for the donor’s ability to fulfill their own moral or ethical needs in relation to the cause and within the broader context of their own financial and social well being’.
Sargeant et al (2002, p 23)
Donors should be encouraged to make only those gifts that reflect their own best interests, both financially and in terms of the kinds of work that best suit their own passions and concerns. This is not only respectful it is also in the longer term interests of the organization. Allowing the donor to follow their interests increases the feelings of self-worth and achievement that can follow from making a gift, thereby greatly increasing their satisfaction with the experience. This in turn can lead to individuals acting as ambassadors for the organization, actively encouraging others to give and giving again themselves when the time is right.
Managing The Planned Giving Function
The establishment of a planned giving department requires the support and involvement of the Board because planned giving is by definition a long term project, which requires investment and full institutional support and endorsement before any ‘spendable’ income is attained. It is likely to take at least three years on average before any income is forthcoming and it may take substantially longer for the organization to break even (Greenfield 1996). Board members need to understand the timescales involved in establishing a new planned giving program and manage their expectations of it accordingly.
Board involvement and support is also required in practical terms because, just as with major gift solicitation, planned giving works through face to face solicitation by donor peers. Board members are therefore required to:
- suggest likely contacts who might be approached for planned gifts.
- undergo sufficient training to enable them to handle introductory solicitation of the prospects.
- make visits to, or meet with prospects to talk face to face about planed giving opportunities.
- some organizations might also expect that Board members will lead the planned giving program by themselves making a ‘leadership gift’, or by underwriting the costs of the program personally.
Once again the Partnership for Philanthropic Planning offer a helpful resource. Through their website it is possible to access Are You Ready for Planned Giving? – A Guide to Evaluating Organizational Readiness for Nonprofit Executives and Volunteer Trustees.
Planned Giving Software
A range of different software is available to assist the charitable gift planner. The following list is by no means exhaustive:
- Crescendo – Planned Giving Software by Comdel, Inc.
- PG Calc – Planned Giving Software by PG Calc Incorporated. Planned Giving marketing and planned gift management and reporting software.
- Philanthro Tec – Planned Gift Software – The Charitable Scenario – Charitable Planning Questionnaire (6 page data collection form for planned giving)
- BIPS – Bequest Income Processing Software by Bipster, database software which automates processing of both realized bequests and bequest expectancies. Manages record keeping, reporting and aids the communications process.
- Ashton D (1991) Complete Guide To PLanned Giving: Everything You Need To KNow To Compete Successfully for Major Gifts, JAB Publishing Company.
- Barrett R.D. (2002) Planned Giving Essentials: A Step by Step Guide to Success (2nd Edition) Aspen Publishers, Washington DC.
- Dove K.E., Spears A.M. and Herbert T.W. (2002) Conducting A Successful Major Gifts and Planned Giving Program: A Comprehensive Guide and Resource, Jossey Bass, San Francisco.
- Jordan R.R. and Quynn K.L. (2009) Planned Giving: A Guide to Fundraising and Philanthropy, Wiley, New York.
- Sharpe R.F. (1998) Planned Giving Simplified: The Gift, The Giver, and the Gift Planner(AFP/Wiley Fund Development Series, New York, NY.
- National Committee on Planned Giving (2001) Planned Giving in the United States 2000: A Survey of Donors, National Committee on Planned Giving, Indianapolis. IN.
- Sargeant A., Jay, E. and Lee, S. (2002) Planned Giving in the United States: How Does It Work, What Income Does It Generate and Could it be Effective in the U.K? Henley Management College, Reading.
- Sargeant A. and Shang J. (2008) Identification, Death and Bequest Giving, A Report to AFP and Legacy Leaders
- Vail J. (2009) ‘Showing appreciation for planned gifts’. Philanthropy Journal.
Only great souls know the grandeur there is in charity.Jacques Bossuet