Planned Giving Basics
What is planned giving?
Planned giving is the process of donating planned gifts. A planned gift is a contribution that is arranged in the present and allocated at a future date. Commonly donated through a will or trust, planned gifts are most often granted once the donor has passed away.
Why Planned Gifts Matter
Common Planned Giving Terms
1. Bequest Intention
- Definition: The bequest intention is the donor’s notice of their intention to make a planned gift. It is not a legally binding commitment but a courtesy so that the nonprofit can expect the future donation.
- Quick Tip: Honor your donors who’ve made a bequest intention as you would your major donors, but keep the expenses to a minimum due to the contribution’s non-binding nature.
2. Bequest Expectancy
- Definition: It’s the approximate value of future planned gifts based upon your nonprofit’s previous planned giving data. Bequest expectancy helps nonprofits visualize future revenue.
- Quick Tip: Nonprofits will approach bequest expectancy differently. Many take an average from a multi-year period (e.g., 5 years). Just make sure to eliminate any outliers before calculating.
3. Planned Gift Notification
- Definition: This is the official notification that you’ll receive once a planned gift has come to fruition. While it means the donation is official, it might take some time to determine the exact gift amount.
- Quick Tip: Since a planned gift notification may not produce a clear figure at first (e.g., the donor pledged a percentage of their estate), you can use data on the donor to gauge an amount.
1. Non-probate transfer vehicles
- Definition: These “Transfer on Death Deeds” allow planned donors to bypass the probate process (i.e. the process by which a will is proved in court) and give directly to your nonprofit.
- Quick tip: Non-probate transfer vehicles can be used for real estate, savings and checking accounts, money market, and other investment funds (such as retirement or life insurance).
2. Non-cash asset
- Definition: A gift that is not cash. These gifts often take the form of securities, life insurance policies, retirement accounts, or real property.
- Quick tip: Non-cash assets are the opposite of cash assets, or gifts that are cash. Different non-cash assets may require different processes for receiving them or different value assessments for determining their worth.
3. Real property
- Definition: Real property consists of land, additional property on that land (such as buildings or machinery), and the property rights associated with that land.
- Quick tip: Real property can be encumbered or unencumbered. You’ll receive encumbered real property when a third party has a claim to the property (i.e. mortgages).
1. Charitable Bequest
- Definition: The charitable bequest is the official statement in a will, a trust, or an estate plan that designates a gift to a specific charity.
- Quick tip: Gift amounts are stated in three main ways in charitable bequests. A specific amount is the exact amount of money that a donor will give. A percentage amount is a percentage of what the donor will give (such as a percentage of their estate). A remainder amount is the leftover funds that you’ll receive once the donor has paid their other bequests.
2. Charitable Gift Annuity
- Definition: Charitable gift annuity occurs when a donor makes an agreement with a nonprofit. The donor gives a large amount of money to the nonprofit. The nonprofit then pays the donor an annual set income from that sum until the pay period ends (usually with the donor’s death). The nonprofit retains the leftover funds.
- Quick tip: Charitable gift annuities can take various forms, and states will have different laws regarding each type of charitable gift annuity. Familiarize yourself with the laws in your state.
3. Charitable Remainder Trust
- Definition: A charitable remainder trust is a trust gifted to a charity that pays an annual amount to the trustee(s). Once the trust is complete, the charity receives the remaining funds. A charitable remainder annuity trust pays an amount each year, while a charitable remainder unitrust pays a percentage of the remaining trust fund.
- Quick tip: In a charitable lead trust, the charity receives an annual amount from the trust fund, and the beneficiaries receive the remainder of the funds when the trust term ends.
1. Present value
- Definition: Present value is the current value of a future gift. Before the gift is received, the donor will pledge a certain amount or percentage, which will differ from the value of the gift when it is actually received. The future value of a gift will be worth less than the present value because the value of a gift decreases over time, due to factors such as inflation.
- Quick tip: Currency fluctuations, inflation, and other factors affect value, so having a financial advisor on your team will help you anticipate these value changes.
2. Fair market value
- Definition: Fair market value is an estimate of how much an asset or a piece of property is worth, based on the price that a knowledgeable buyer and seller would agree upon in a free market.
- Quick tip: To assess fair market value, you’ll need a knowledgeable team member with expertise regarding your non-cash assets. For example, someone who knows the real estate market and who can determine the quality of a building would be well-equipped to find the fair market value on real property.
3. Cost basis
- Definition: Cost basis is an asset or property’s price at the time of the original purchase. When a donor purchases an item or property, the original amount that they paid is the cost basis. When you receive the item as a donation, the value that has accrued since the original purchase may be subject to taxation.
- Quick tip: The value of an asset will be appreciated or depreciated at the time of giving. Appreciated value occurs when the original cost is less than the current value. Depreciated value occurs when the original cost is greater.
Benefits of Planned Gifts
Starting a Planned Giving Program
Are you ready to seek planned gifts?
Steps to Launch a Planned Giving Program
Before you can initiate your planned giving program, you’ll need to gain a firm grasp on planned gifts and what they entail.
Once you’ve thoroughly researched planned giving, consider:
- How it will fit into your nonprofit’s infrastructure.
- What resources will be allocated to your planned giving program.
- If you’ll be hiring an expert or training a current staff member.
- The types of planned gifts your program will actively seek.
Now that you’ve established your planned giving program, you need to identify your future contributors.
Performing a prospect screening will help you pinpoint your top candidates by taking into account factors such as:
- Philanthropic interests
Remember to focus on prospects who have given to your nonprofit many times over many years.
Loyalty is the first defining trait you should zero in on.
To get a quick refresher in prospect screening, check out our comprehensive resource on the subject.
For your planned gifts program to work, people need to know about it.
Spreading awareness about your program will allow future gift donors to come to you.
There are several marketing strategies that you can try, but some well established and effective strategies include:
- Branding your program as a legacy program.
- Creating materials for a variety of channels (direct mail, email, etc.).
- Drafting reminders to encourage donors to announce bequest intentions.
They say you can lead a horse to water but you can’t make him drink. Well, he definitely won’t drink if he’s never even near the water.
So increase your chances of success, and bring planned giving to your donors.
Examples of potential planned gift program communications include:
- Web pages
- Direct mail
And those are only a few examples of the communications that you can and should be using to spread the word about your new program.
Creating awareness is your most important task.
Since you’ve identified your most likely planned gifts prospects, you’ll need to send deliberate, personalized communications to these generous donors.
Testimonials from other planned givers are very personal and effective communications to persuade other donors.
Finally, don’t forget to be sure to have a direct contact that donors can reach out to!
Planned gifts have a much longer delay than major gifts, so you’ll want to keep your planned gift donors properly stewarded and engaged during the time period between their announcement of their gift and the point that you receive the gift.
Acknowledge how grateful you are for their donation and thank them in numerous ways, treating them as you would a major donor.
In the case where a donor doesn’t alert you to their planned gift, be sure to make a public announcement of your gratitude to show your appreciation and to thank your generous donor’s family members.
Identifying Planned Giving Prospects
Planned Giving Ethics
Ethics may not be the first thing you think of when it comes to nonprofit work. Shouldn’t your good work be self explanatory?
With planned giving, some ethical questions surface. But keep in mind that ethical dilemmas are rare and of little concern to most planned giving programs. Just keep these notes in mind so that you’re prepared in the unlikely event that you need them.