Defining Planned Giving
Table of Contents
Planned Giving Basics
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 your organization will receive once a planned gift has come to fruition. 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 either be encumbered or unencumbered. You will receive encumbered real property when a third party has some sort of claim to the property (mortgages or other payment plans, for example).
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 — in other words, it’s what the donor initially paid. 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
The Difference Between Planned Gifts and Memorial Funds
As we’ve spent this section discussing, planned gifts are arranged by the donor and set up in advance, often in coordination with the creation of a will.
While a family might donate the money in a memorial fund to their loved one’s favorite charity, memorial funds come from friends and family whereas planned gifts come from a premeditated decision by the donor.
Although donations from memorial funds are certainly welcome and can have a big impact, organizations can’t put plans and programs in place to acquire them the same way they can with planned gifts.
Memorial funds are almost always created after someone has passed away.
A memorial fund might be seeded by a one-time fundraiser or it could be a continual fund that is donated to regularly. In many cases, memorial funds are set up to help the family of the person who has passed away cover the costs of a funeral or daily expenses.
In some cases though, the fund is established to make a charitable donation in honor of the person who has passed away, in which case the memorial fund would share some similar traits with a planned gift.
Starting Planned Gift Programs
Are you ready to seek planned gifts?
Steps to Launch a Planned Giving Program
1. Familiarize yourself and your team with planned giving details.
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.
2. Locate your prospects.
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
Loyalty is the first defining trait you should zero in on, so remember to focus on prospects who have given to your nonprofit many times over many years.
To get a quick refresher in prospect screening, check out our comprehensive resource on the subject.
3. Generate marketing materials.
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.
4. Send out communications.
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.
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. 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!
5. Keep things going with acknowledgements.
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 that you properly acknowledge them based on their history with your organization and insight from the donor’s family members.
Identifying planned giving prospects
Planned Giving Ethics
Improving Planned Gift Programs
Appointing a Planned Gift Officer
Strategies for Marketing Planned Gifts
Planned Giving Best Practices
Starting a Planned Gift Program:
Developing a Planned Gift Program:
Communicating a Planned Gift Program:
Prospect Research: The Ultimate Guide
One of the most important tools nonprofits have at their disposal when soliciting planned gifts is prospect research.
Need a refresher?
Brush up on everything there is to know about this valuable strategy with our newly-updated Prospect Research Ultimate Guide!
Major Gifts and Major Gift Officers: The Basics
Along with planned gifts, major gifts are the largest donations an organization will receive.
As such, it’s crucial to have a thorough understanding of how they work.
Learn more about major gifts and how you can successfully solicit them!
Donor Stewardship: Create Lifelong Donors in 10 Steps
A big part of securing planned gifts is making sure that you are effectively stewarding your existing donors.
Need a little help?
Check out some sure-fire donor stewardship tips from our partner Q-Giv!