What is planned giving, what are planned giving programs and why does planned giving matter? Learn all about planned giving and get tips on how to create an effective community-centered planned giving program.
A GUIDE TO PLANNED GIVING
If you’re involved in the nonprofit sector, you’ve probably heard the term “Planned Giving” quite often. But do you know what planned giving means?
We’ve been asked by many about what planned giving actually is. Here is your complete guide to planned giving in detail to help you understand the process and to challenge traditional ideas of when and how planned giving comes into play at your organization.
WHAT IS PLANNED GIVING?
Planned giving is a process where a donor creates a financial or estate plan in which they choose to legally donate something valuable to an organization in the future. Planned gifts are arranged in the present time and allocated at a future date. This process is more formal than making a regular gift, hence it is more complicated and has many tax and legal considerations, for this reason it needs to be created and supervised by a lawyer. It often comes as part of general estate planning.
Planned gifts could be stocks, property or cash and they can be arranged in two forms:
Planned through a will, which means the beneficiary won’t get the donation until the donor’s passing.
Provided through a charity with assets allowing donors a certain amount of income throughout their lives, like long-term major gift.
WHAT IS A PLANNED GIFT PROGRAM?
A planned gift program or a legacy program is a thoughtful plan based on a strong strategy used by a nonprofit to cultivate and steward long-term relationships with donors. Planned Gift Donors can also ask to have a planned gift program created, which would help them in the complicated process of creating a formal planned gift.
WHAT ARE THE TYPES OF PLANNED GIFTS?
Deferred Planned Gifts (The beneficiary receives them only after the donor passes):
Bequest:
The donor allocates a portion of their wealth to a nonprofit legally in their will, usually allocated in the form of:
Cash (like $1,000 upon passing)
A percentage of the donor’s estate
The remaining value of the estate once all bequests are paid
Retirement Plans & Life Insurance:
A nonprofit can benefit from a donor’s life insurance policies or unused retirement assets if the donor chooses this option. This form is a great way for donors who have paid large amounts on policies and retirement accounts that won't be used. This is also beneficial to donors who have a large estate, because they can help their heirs avoid income and estate taxes.
Planned Gifts That Pay Income
Charitable Gift Annuities:
With charitable gift annuities, a donor agrees on providing a gift to a nonprofit in exchange of an income for a specified period of time. This way, the donor gets a tax deduction and the nonprofit uses the gift to invest and grow. The nonprofit earns the leftover money when the donor passes away or the annuity terms are up.
Charitable Remainder Annuity Trusts:
This form can give a donor an income for up to 20 years of their life. With a charitable remainder annuity trust, a donor receives a fixed income based on the assets used to fund the trust. This way, the donor can stay away from capital gains or estate taxes, while the nonprofit invests the funds. The amount that remains after the agreement is null goes to the nonprofit.
Charitable Remainder Unitrusts:
A charitable remainder unity trust depends on the market value of the trust’s assets, hence the donor is paid a fixed percentage of the fair market value of the assets. The trust is revalued every year and the payment to the donor is adjusted. Donors usually choose this option to protect their income against inflation. This type also serves up to 20 years or for life, and the balance that remains after the termination of the trust goes to the nonprofit.
Pooled Income Funds:
A type of charitable trust created by nonprofits that pools together contributions from many donors to invest. The nonprofit pays the donors an income based on their share of the fund and the performance of the investments. However, the nonprofit sees the money only after the donor passes away. This way the donor benefits from income tax deduction and avoids capital gains on assets they contribute.
Planned Gifts that Gate Keep a Donor’s Assets
Charitable Lead Trusts:
The opposite of charitable remainder trust, where nonprofits get a fixed income for a specific period of time or during the donor’s lifetime, however, once the term ends the assets go back to the donor and do not remain with the nonprofit. In fact, this option is advantageous for nonprofits, as it allows them to diversify their funding channels and make sure they receive a specific amount of money each year.
Retained Life Estates:
A donor can transfer a deed or a title to a nonprofit while retaining the right to use the property. In contrast to charitable lead trusts, in a retained life estate agreement, the asset goes to the nonprofit after the term is up.
WHAT ARE THE BENEFITS OF PLANNED GIVING?
A planned giving program has many benefits to both donors who are concerned about the taxes that can limit the size of their legacy, and to nonprofits that are doing their best to attract major donations. In 2021, they accounted for $46.01 Billion in gifts alone..
Benefits to Donors:
Donors can benefit from the huge advantage of tax breaks.
Donors can have the flexibility of adding requirements to their donations and have more power over how their gift is used.
Donors can get a chance to support a cause they believe in, drive change and make a positive impact by leaving significant amounts to their favorite charities and causes.
Benefits to Nonprofits:
Nonprofits can ensure the growth of the organization by securing major donations.
Nonprofits can strengthen and maintain relationships with major donors.
Nonprofits can benefit from the huge Return On Investment (ROI) a planned gift provides, since the cost of securing a legacy gift is much less than the amount received.
TIPS ON CREATING A COMMUNITY-CENTERED PLANNED GIVING PROGRAM
As community-centric fundraising is explored in practice, many organizations are finding success by focusing on a few new inclusive guidelines within the traditional planned giving process. Here are some best practices we are implementing with our partners.
Engaging all donors, across age and stage of giving. Millennials are making wills as young as their late twenties. Engage them. Present the program to every donor.
Let go of language that emphasizes that only major gifts matter to Planned Giving programs. Creating a ‘legacy society’ or “planned giving club” might feel exclusive unless otherwise explained in materials.
Encourage donors to explore other organizations in your discussions with them. Invite them to understand what other key organizations you collaborate with could benefit from their planned gift.
Need help getting started with your Planned Giving strategy? Wright Collective has worked with many organizations and donors to reach their Planned Giving goals. We can help you reach more donors, raise more money and build long-lasting donor relationships. Contact us to get started today.
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