Ten
Rebuttable Presumptions
About Planned Giving
by Tom Cullinan
Reprinted from the January 2002 issue of Planned
Giving Today. Copyright © 2002. All rights reserved.
It’s safe to assume that
readers of Planned Giving Today
will not question the value of having a planned giving component in a
charity’s comprehensive financial development program.
Yet, talk to enough board
members and nonprofit managers and a bit of doubt creeps into the
conversation.
A well-crafted planned giving
operation is a powerful engine that produces significant, incremental
gifts ... especially over time. Despite that, we see poorly defined,
under-funded and weakly managed planned giving efforts often enough to
give credence to the opinions of the doubters.
There are organizations that
are actually abandoning planned giving right now. Typically, they lack
trained staff, vision and capacity. They may also buy into one or more of
the following myths in planned giving.
No. 1 ─
Planned
gifts are regularly made in lieu of major current gifts.
When an organization decides to launch planned giving, it may hear
concerns voiced by the annual fund director, program chairs or trustees.
They may fear that the introduction of a deferred gifts component
(perceived to be an alternative) will cause a proportion of their donors
to choose to delay their important gifts. The issue is real, but easily
handled in the proper context.
In a campaign, and in our
day-to-day development operations, there is a tendency at some
organizations to deliver a list of charitable priorities to our
prospective givers. A fair number of them are compelled to support these
special needs, while others decline. A campaign’s timeline is
disconnected from the individual’s primary concerns about living too
long, dying too young, illness or economic emergency.
The better planned giving
programs incorporate an individual’s priorities with the gift. The
reasons for making an important gift are internal to the donor, made in
the context of one’s estate plans rather than responding to an external
rationale from the charity. Using this approach, we obtain larger gifts
based on our donors’ fundamental need to give. Giving proper attention
to donor needs yields both current and
deferred gifts, neither at the expense of the other.
No. 2 ─
Tax
avoidance is a primary motivation for making a planned gift.
If that were the case, since 98 percent of U.S. estates are not
taxable, gifts by will would be uncommon. Testamentary gifts would not
have tripled (on an inflation-adjusted basis) over the past 20 years.
Testamentary gifts would not have increased 42 percent more than corporate
gifts in the 1990s.
Recall the survey conducted by
Prince and Associates (a firm that provides research and consulting on
major gift fund-raising) in the mid 1990s. Using the Seven Faces of
Philanthropy book (authored by Prince and File in 1994) the research
found that the Investor personality (gives with an eye on tax and
financial benefits) represents only 15.7 percent of the major gift donors
surveyed. Note that these were people who had made a $25,000 or larger
gift in the prior three years and had $1 million in liquid net worth.
If you believe the maxim on
tax avoidance, then you also have to believe the possible phase-out of the
estate tax will propel deduction-seekers to make larger current gifts.
Plus, the reduction in income tax rates would cause donors to prepay
future year(s)’ gifts this year to maximize the value of the charitable
deduction tax savings that are set to decline by 5to 10 percent. Are these
things happening in your shop?
Further, advisors often use
the income tax charitable deduction as an upper limit on giving.
Fortunately, our most generous donors regularly ignore that advice.
No. 3 ─ Planned
gifts can be made at nearly no cost to the donor.
Donors enjoy cost-effective giving. One of the reasons that this continues
to be the golden age for planned giving is that we get to work with so
many Depression-era prospects. These are people who have often lived
frugally and who trust in our ability to do the same.
They feel good when they learn
they can give $1,000 of Union Pacific Railroad stock they’ve held for 20
years at a cost of only $609 and also avoid $160 in capital gains taxes
(not including state tax benefits). They respond to the practicality of
lowering their cost of giving by using stock instead of cash. After all,
many of these are the same people who bought larger houses and obtained
mortgages (maybe even refinanced them) in order to claim the mortgage
interest deduction.
To assert that any gift is not
essentially a sacrificial act, however, demeans the charitable motivation
and is off-putting to the committed donor.
No. 4 ─
Marketing
gifts by will takes too long for us to see any benefit.
The definition of “benefit” is the key here. What happens when
someone includes your charity in their will is that they have placed your
organization among family in a most personal way.
The NCPG research released in
2001 found that while 69 percent of donors change their will, only 25
percent have changed a gift in the will and half did that to increase the
amount. That survey also found that while 42 percent of donors have an
estate plan and one in six have a gift by will, 57 percent would consider
an estate plan and one in four would consider a gift by will. Further,
gifts by will are eight times more likely than a CRT. We like those odds.
Once someone has made a
testamentary provision for charity, that is an ideal time to get closer to
that donor and, if circumstances allow, look for opportunities to make a
deferred gift more current, or perhaps shift part of a revocable gift into
the irrevocable category when it makes sense.
No. 5 ─
We
need money now and planned giving doesn’t help us with that.
It is important not to impose institutional definitions on our donors.
How many of your donors label themselves major gift prospects, principal
donors, planned givers, deferred givers, revocable-gift donors? How many
call themselves targets, or want their gifts to be “closed”? When a
planned gift development effort is defined in the context of meeting the
needs of prospects and donors, it has the potential to be donor-focused.
An increasingly common phenomenon over the past 10 years finds donors
layering their giving. At the base is their regular support, often
increased when presented with a compelling reason or cause, along with
balancing of current and deferred gifts.
Knowing that our most
consistent donors and volunteers likely have a cultivatable, built-in need
to give, we’re inclined to meet with them to help explore their options.
Not all will give in all ways, but most of us know the joy of guiding an
informed decision on how and when to give with the assistance of counsel
and a knowledgeable gift planner.
No. 6 ─ Planned
gift development is too complex to be practical.
There is no doubt that planned giving is the most challenging area of
development. Yet this field continues to expand, both in number of
practitioners and in development budget allocations. Typically, 1,000
register each year for our seminars at the College of William & Mary
National Planned Giving Institute, and several hundred complete our
comprehensive training course annually. There are roughly 11,000 members
of the National Committee on Planned Giving in 110 councils around the
country.
Credible charities and
competent staff take on such challenges with preparation, education,
purpose and motivation. Anymore, donors demand that charities provide
skilled people in this area.
I like to think of the bank
that offers checking, savings, loans and credit cards but not trust
services. That bank is making a business decision to miss opportunities
for some services, and may be sacrificing core business by turning patrons
over to a full-service bank. And so it may be with some charitable
organizations.
No. 7 ─
A
lawyer makes the best planned giving officer.
The skill set for a capable attorney is not the same as that for a
planned giving officer. At the risk of oversimplification, lawyers live in
a world of paper, setting out clear definitions and controlling outcomes.
Planned giving officers live in a world of relationships, functioning with
ambiguity and suggesting outcomes.
Attorneys, while often hired
to be persuasive, are not typically found initiating sales. Let’s be
honest: Development contains strong elements of sales and marketing.
Education and experience with the law may provide lawyers with a knowledge
advantage, but the non-lawyer can easily close the gap with training and
self-study.
No. 8 ─
There
must be a short cut ... there is always a short cut.
There is, but it is not worth taking. Picture doing an estate plan but
overlooking long-term health care insurance ... or managing an investment
portfolio yet leaving out large capitalization stocks (or international
stock, or bonds or money market mutual funds) ... or consulting a lawyer
but not an investment professional.
People who rely on short cuts
have a fundamental lack of appreciation for the gift-planning process. We
must approach any complex process with full care and consideration, and if
we don’t, then we have invalidated it. But this is our prospect’s
process, so if we take the short cut we undermine that prospect’s
confidence and the very trust we seek to engender.
In a related matter, you do
well to protect yourself from misusing institutional resources in an
ends-justify-the-means approach. This means not circumventing policy,
abbreviating practices or making exceptions that appear to lighten your
workload.
No. 9 ─
Serving
as trustee cannot be that difficult.
How hard can this be? After all, the first trust came about in 1563
and we have about 450 years of precedent and practice on our side.
Remember that while all gifts
to charity are gifts in trust, serving as trustee of a charitable trust is
different. The good reasons to do so include the accommodation of
important gifts, maintaining closer relationships with donors, providing
opportunities for good stewardship and securing smaller trusts that
commercial trustees find unprofitable.
But along with that are key
statutory duties. One is loyalty, not to compete with or profit at the
expense of a beneficiary. Another is impartiality, obtaining a reasonable
return while protecting value. The trustee must delegate tasks when it is
prudent to do so, exercising care, skill and caution, and must seek and
accept advice when it is necessary and appropriate. Another duty relates
to productivity, obtaining the objective of reasonable total return even
when holding tangible personal property and depreciating assets.
No. 10 ─
We
cannot afford planned giving.
If you accept the assertion that some $6.0 trillion of
intergenerational dollars are being passed on in the next 15 years, what
portion are you willing to forego? Think of the opportunity costs.
Furthermore, the overall cost
of fund-raising among comparable higher education and healthcare
organizations with mature planned giving operations runs about 30 percent
lower while generating consistent and proportionately higher gift revenue.
The anecdotal evidence is similar among many other nonprofit organizations
pursuing charitable missions. An organization choosing not to incorporate
planned giving will be leaving some amount of charitable gift income on
the table.
While some actually believe
these myths, it falls to us to prove them invalid through our good works,
applied skill and diligence. As for the charities turning away from
planned giving, the economist would say that means more for the rest of us
still involved.
Tom Cullinan is
the former director of the College of
William and Mary’s National Planned Giving Institute, director of gift
planning for the Omaha Community Foundation and a member of the Editorial
Advisory Board of Planned Giving Today. |