CREATING A PLANNED GIVING CAMPAIGN

 Types of Planned Gifts | Making the Commitment | Types of Deferred Gifts | Other Charitable Giving Options |

Charitable contributions are considered crucial in providing funding for non-profit organizations.  Statistics indicate that individuals account for 90% of all charitable contributions.  The question that arises is “How does an organization tap into this crucial funding source?”

Planned giving programs can provide organizations with a solid financial base for long term usage.  This is especially true when most of the funding from current donors only supplement grants or other funding.  Planned giving is particularly attractive to individuals in higher income brackets who are nearing retirement or whose assets don’t include available cash. Donors benefit by obtaining significant reductions in estate, income, and gift tax liability.

The organizational board’s development committee and chief executives create planned programs and take the lead in identifying prospective donors. In order for planned giving requests to be successful, it is imperative that individuals requesting funds be prepared to familiarize the donor with all aspects of the organization and its purpose. 

While a long-term proposition may be a positive option, planned giving campaigns may take years to develop and results are seen over a period of time.  Other available sources may need to be researched in order for the organization to function.

Types of Planned Gifts

Present Gifts

Donors transfer immediate and full ownership of assets to an organization.  The donor in turn takes a current income tax deduction for the full market value of the gift.  This would be the ideal type of gift, but is rarely available to organizations.

Deferred Gift

The donor makes a current gift of a future interest in an asset.  The donor takes a current tax deduction for the discounted present value of the future interest. The benefit of planned giving is that the gift must be placed in an irrevocable trust for the donor to claim a current deduction.  A deferred gift prevents either party from changing or revoking the conditions of the gift.  Deferred gifts are usually solicited over present gifts due to the fact that deferred giving options allow a much larger number of donors to contribute to charitable organizations.

Making the Commitment

The majority of deferred gifts are under the control of the organization.  This requires a major commitment by staff or outside financial consultants.  Funds must be invested regularly and tax filings are an annual requirement.  Organizations managing their own assets will bear fiduciary responsibilities resulting in fees and possible penalties should mismanagement occur.

When dealing with deferred gifts there are several factors which may be problematic for the organization.  First, the availability of the gift; second, dealing with donors and or donors; heirs, and third, time commitment to develop the fundraising approaches associated with deferred giving campaigns.

Types of Deferred Gifts

Bequest

The bequest is the simplest deferred gift.  It does not require the formation of a trust, determination of current actual values, or most of the planning giving strategies.  However, organizations may not always be aware of a bequest until the donor’s death.

Charitable Remainder Trusts

This type of gift pays the beneficiary an income for life or for a specified period of time.  The beneficiary pays income taxes on the receipt of the trust payment, while the trust itself is usually exempt from income tax.  At the end of the trust term, and death of the donor, the trust assets and income pass to the charity. There are several negative aspects associated with charitable remainder trusts.  They are complicated to setup and administer, require ongoing administration, filing of tax returns, investment of assets, and adherence to the trust document.

Annuity Trusts

Donors set up an annuity trust by designating 5% of the trust’s initial fair market value that is to be paid to the donor or other beneficiary.  Payments must be made annually or more frequently.  If the trust’s income is insufficient to make the designated payments, the trust must make up any shortfall from accumulated trust earnings or principle.

 Unitrusts

Similar to annuity trusts, a unitrust must make annual payments equal to at least 5% of the value of the trust’s assets each year.  Shortfalls in distributions can then be made up in later years if the trust income increases. 

Pooled Income Funds

In a pooled income fund, a donor makes a gift of a future interest in an asset, but retains a continuing income interest.  It also combines gifts from numerous donors in a single fund managed by the organization.  The annual distribution for a pooled income fund is determined by the performance of the fund’s investments.  There are several stipulations to contemplate prior to using the pooled income funds.  These include:

1.      Some charitable organizations are prohibited from being the beneficiary of pooled income funds. 

2.      The income interest retained in a pooled income fund gift must be paid over the donor’s or other individual beneficiary’s lifetime.

3.      Donors cannot select a set term of years, and

4.      A pooled income fund cannot invest in tax-exempt instruments to provide nontaxable income to donors. 

Charitable Lead Trusts

Donors can give away income and still retain the right to the assets or pass them on to heirs at a later date.  There are several types of lead trusts to consider and they can be structured as an annuity trust or unitrust, which were mentioned earlier. 

Trust types:

1. The first type of charitable lead trust requires that the trust comply generally with the charitable remainder trust rules. The minimum 5% distribution requirement and the 20–year fixed period requirement do not apply.  A gift tax deduction for the charitable transfer will result if the trust is created during the donor’s lifetime; an estate taxes deduction if it is created at death. 

2. The second type of charitable lead trust is one in which the donor retains some rights over the assets in the trust so that the trust is treated as “grantor trust” for tax purposes.  The donor or his or her spouse retains a reversionary interest over trust principle at some point in time.  The donor receives an income tax deduction when the trust is created for the value of the income interest given to charity.  The lead trusts listed above allow for more planning flexibility.

Other Charitable Giving Options

Charitable gift annuities have the capability of generating a current income tax deduction and ongoing income for the donor.  Organizations can make use of the cash or property immediately.  However, annuities do require administrative responsibilities and may be regulated by state insurance departments.

Bargain Sales

The donor sells an asset to a charity for less than fair market value.  For tax purposes, a bargain sale is treated as a sale and as a charitable gift. 

Insurance

Donors may purchase life insurance in order to provide financial security for children or other beneficiaries who may no longer require that protection, or to provide liquidity for estate planning purposes that they may no longer need.  In the event that the donor no longer needs the policy it can be donated to the charitable organization. 

Gifts of Retirement Plan Assets

In order for donors to reduce tax burden on retirement assets, a charitable organization is named as the beneficiary of the plan or IRA.  This will eliminate both the income and estate taxes.