Death, Taxes, and Planned Giving

When I first started in fundraising I knew only one thing:  I could never, ever be a Planned Giving officer. I was sure that I would never ever be able to figure out the difference between all the planned giving vehicles—and I will never be able to talk with a donor about making a planned gift.

But then, the Planned Giving Director at the University where I was working scoffed at my fears.  “Planned giving,” she told me, “is just a fancy term for the many ways your donors can help your organization with larger gifts than they could give you out of their current income.”  In other words, by strategically thinking about their long-term goals, donors can also help your organization accomplish its long-term goals.

Today, I work with a lot of smaller nonprofits, helping them to build their planned giving programs.

When I first meet with the board, I often start by asking them a potentially fraught question:

“How many of you”, I ask, “have remembered this organization, or any other charity other than your kids, in your will?”

And typically, one, maybe 2 board members will raise their hands.

It’s not because these board members are bad people (or bad board members!). It is that they are not unique.  Bequests, which make up about 90% of all planned gifts, count for about 8% of all charitable gifts in the United States.  And those all come from the very small percentage of people who put a charity in their will.

Most studies report that less than 9% of all people who have wills include a charity.  More shockingly, less than 50% of all adult Americans even have a will or a trust.  (And that may be why so many of those board members haven’t left a charitable legacy—yet).

I then tell them that as they think about asking friends, colleagues, relatives, and complete strangers to consider making a planned gift to benefit this organization’s future, some of you will find it much easier to first talk about the importance of a will, especially for families. And of a will that does what the donor wants it to do. This may not be what the donor’s heirs are hoping for.

When my father died, he had a will.  A will that specifically stated that my sister and I—and our children—had been well-taken care of during his lifetime, and in his death, he was leaving everything to his second wife and her children and grandchildren.
On the other hand, one of my clients shared a story about a wonderful bequest they had received from a long-time donor. When the development director spoke with the donor’s son he told her how comforting his father’s will had been. “I know,” he told her, “that my father’s values will live on because of his bequests.”

Beyond a will or living trust, there are other testamentary vehiclesdonors can consider:

  1. Naming the nonprofit as a beneficiary of your retirement plan.
  2. Naming it as a beneficiary of a life insurance policy
  3. Creating a testamentary charitable remainder or lead trust in your will that would not be funded until your death.

By and large, these gifts will not provide the donor tax benefits during his or her lifetime. They may, however, reduce estate taxes and the trusts can provide for loved ones income-tax free.

Getting tax breaks was, arguably, one of the reasons people made planned gifts.  In 2015, Congress made permanent the IRA Charitable Rolloverprovision that allows individuals who have reached age 70½ to donate up to $100,000 to charitableorganizations directly from their Individual Retirement Account(IRA), without treating the distribution as taxable income. This is important because at 70-1/2, typically one must take required minimum distributions (RMD) from your retirement plans.  For some of your donors—those who are still working, for example, or those who have other income—this can be a problem rather than a blessing.  Reminding them of this provision is something you should be doing at the end of every year.

Current tax breaks are also available for donors who make your nonprofit the owner of a whole or universal life insurance policy.  The donor may receive tax benefits either on premiums they pay or for a portion of the face value of that policy.

Donors can also be provided with tax benefits when they make gifts of real estate, tangible personal property and other appreciated assets.  Assets that have appreciated in value can provide you with both a current-year tax deduction and avoid capital gains taxes.

But sometimes a donor doesn’t want to part with an asset, especially if that asset is his or her residence or vacation home.

In that case, the donor may generate a current income tax deduction by giving a home or farm to your organization while retaining the right to use the property during his or her lifetime.  This Retained Life Estate gift will also remove the property from the donor’s taxable estate.

Older (and sometimes middle-aged)  donors often have a need of current income before they can give away a sizeable portion of their estates. Fortunately, there are many ways they can benefit while benefitting you. Both charitable gift annuities and charitable remainder trusts provide a life income—fixed in the case of annuities and variable for trusts– for one or two people, with the remainder of the trust or annuity passing to JPDS upon the death of the last beneficiary.  In addition to income, the donor may also reap substantial tax benefits.

But today, new—temporary!—tax laws may make all this tax talk moot. Tax benefits are only yours if you itemize.  Used to be, about 40% of Americans—your most likely larger donors—did.  The new tax law will lower that to 5, maybe 10% of all taxpayers.  For the rest of us, giving to charity will mean doing good things for the sake of, well, doing good things.  There are benefits galore, but most have nothing to do with getting a break on your taxes.

Making a planned gift for most of us will be about leaving a legacy. It will be about ensuring that your values persevere.  That the things you believe are important continue.  That this organization that mattered enough for you to support and nurture with current gifts, continues to matter and to make a difference long after you are not around to see it.

Helping people to make planned gifts means helping them to say yes to the future.  How they decide to do that can be the job for their lawyer, CPA and Financial planner.



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