what is planned giving?

17 PLANNED GIVING TERMS YOUR TEAM SHOULD KNOW

Recently, I was talking with someone who’s been in planned giving for nearly 20 years. She definitely talks the talk and walks the walk, able to expertly adjust her approach and vocabulary to meet any situation—donor appreciation luncheons to industry Q&A panels.

She was describing a meeting with a potential donor in which a team member, new to development, asked my colleague, “What’s a charitable gift annuity?” Talk about disruption of flow.

My colleague’s point wasn’t to disparage or judge. It was meant to stress the importance of learning planned giving language, so professionals at any level can confidently and accurately share knowledge with all invested parties.

It’s our job to know the words that tell the stories so as not to confuse or disrupt donor conversations.

With that in mind, we get back to the fundamentals today, with thanks to Stelter’s Senior Technical Consultant Lynn M. Gaumer, J.D., for lending her insight—and words—about planned giving terms every development professional should know.

Let’s start with the big picture.

What is PLANNED GIVING?

This is very much an industry term, so your donors may not recognize it. In fact in Stelter’s 2009 Donor Insights Report only 37% of people were familiar with the term.  Planned gifts (aka legacy gifts, deferred gifts and estate gifts) are essentially major gifts that donors plan for, that are made either during or after their lifetimes, and that provide financial support to nonprofits of their choosing.

For some donors this is considered the “ultimate gift” as it’s much more emotional than writing a check. Some gift vehicles provide immediate support, such as gifts of cash or marketable securities, where donors can witness the impact of their giving. Others provide future support like a gift in a will or trust or beneficiary designation, while others provide lifelong income to the donor and a future gift.

COMMON ESTATE PLANNING TERMS

Beneficiary
The person or organization designated to receive benefits or funds under a will or trust or other asset, such as a life insurance policy or retirement plan. In Stelter’s 2012 Donor Insights study it was highlighted that while this is an easy gift to execute many donors still don’t think about it.

Lynn’s Tip: Make sure you encourage your donors to notify you if your organization has been named a beneficiary in their will or through a beneficiary designation. Otherwise, those good intentions may be lost. Many people and nonprofits aren’t aware that a policy exists or that they have been named to receive the gift.

Bequest
A gift left in a will or living trust is the most popular way to leave a legacy. The most common types of charitable bequests are:

  • Specific—a gift of a specific item to a specific beneficiary. If you no longer own the item (e.g., golf clubs) after your lifetime, the bequest fails and the beneficiary cannot claim other property or the cash value.
  • Residuary—a gift of all the “rest, residue and remainder” of your estate after all other debts, taxes and bequests have been paid. Most attorneys agree this is the preferred bequest method to ensure beneficiaries receive the proportions you intend.
  • Unrestricted—this is a gift to be used for general purposes, without conditions attached; especially useful for charities because it allows them to use for their most urgent purposes.
  • Honorary/Memorial—a gift made in honor of or in memory of someone.

Marketing Tip: Be straightforward and use plain English. Dr. Russell James, J.D., Ph.D., CFP® and professor at Texas Tech University recommends using terms that encourage interest in planned gifts. The term “bequest” does not always resonate with donors. You may want to refer to a charitable bequest as “a gift” in a will or trust.

Codicil
A legal instrument made to modify an earlier will.

Executor (or Personal Representative)
The person named in a will or appointed by the court to manage the estate. This person will collect the property, pay any debt and distribute your property or assets according to the will.

Trust
A written legal instrument created by a grantor/trustor for the benefit of himself or herself (during life) or others (during life or at death). Investments used to fund trusts typically include cash, marketable securities and real property.

DID YOU KNOW? A trust can last up to a specified date or until a particular event occurs—the date a child reaches a particular age, for instance, or when the amount in the trust is too small to administer.

Trustee
A trustee is an individual or institution entrusted with the duty of managing property placed in the trust.

Will
A legally executed document that directs how and to whom a person’s property is to be distributed after death.

DID YOU KNOW? Sixty-eight percent of Americans over the age of 18 don’t have will.* Will planning, however, is a smart choice for everyone, regardless of age or assets.

LIFE INCOME GIFTS

These gifts are future gifts to an organization that provide donors or others income for a period of time.

Charitable gift annuity
Donors make a gift of cash, securities or other property to the nonprofit of their choice, which then agrees to pay them a set amount for life. The payout rate is determined by the donor’s age and the age of any other person who is named to receive the payments at the time of the gift. Note: Your organization may be able to offer charitable gift annuities only in certain states. Some organizations may not offer them at all. 

Charitable remainder trust
Charitable remainder trusts pay to one or more individuals each year for a term of years (not to exceed 20) or for life, with the balance of the trust property going to charity thereafter. They work in the same way as a charitable gift annuity but are more flexible, as you can name one or more life income and charitable organizations as beneficiaries.

OTHER WAYS TO GIVE

Donor advised fund
An investment account set up by the donor but managed by a nonprofit, community foundation or the charitable arm of a financial institution. Donors contribute to the account, which grows tax-free, and can recommend how much (and how often) to distribute money from that fund to a particular organization or other nonprofits. Donors cannot direct the gifts. DAFdirect.org has a free widget that you might find helpful!

Lynn’s Tip: Donor advised funds have been surging in popularity and the trend is likely to continue given the new tax laws. Donors may wish to make larger contributions to a single fund (and exceed the standard deduction) in one year, then take the standard deduction the following year. This will allow donors to make distributions when they are ready.

Endowment
An endowment is critical for the future success of any nonprofit as it restricts the principal of a gift, requiring the nonprofit to hold those funds permanently and use only the annual investment income or a small percentage of the total fund each year.

IRA charitable rollover
A gift specifically reserved for donors who are 70½ and older as those donors are required to take minimum distributions and may or may not need the income. The IRA charitable rollover allows an individual to make a gift directly to a qualified charitable organization of any amount up to $100,000 per year. These gifts are excluded from gross income and count toward a donor’s required minimum distribution. This gift is beneficial regardless of whether the donor itemizes his or her taxes.

Lynn’s Tip: This is a great gift for 2018 given the higher standard deduction under the new tax laws.

Retirement plan assets
Retirement plan assets are the largest and most valuable assets many people own. These include 401(k), 403(b) and IRAs.  They remain taxable when distributed to a beneficiary and are tax-free when given to a nonprofit organization.

Lynn’s Tip: Encourage your donors to make a gift to your organization from their retirement plan assets and leave less heavily taxed assets such as life insurance, securities and real estate to their loved ones.

 ADDITIONAL FINANCIAL TERMS TO KNOW

Appreciated property
Property such as real estate or stock that has increased in value.

Charitable Midterm Federal Rate or CMFR
Also known as the Applicable Federal Rate or AFR, IRS discount rate or Section 7520 rate. It is the interest rate that is used to determine the charitable deduction for many types of planned gifts, such as charitable remainder trusts and gift annuities.

Cost basis
The original value of an asset, such as stock, before its appreciation or depreciation.

Wheew! That’s a lot to take in. Did you get through it? Did you learn anything new? We’d like to help make you and your planned giving team’s jobs a bit easier with our useful comparison chart. Download it and see what you think.

DOWNLOAD-BUTTON

 

*2017 NMI Healthy Aging Database®Study

 

3 thoughts on “17 PLANNED GIVING TERMS YOUR TEAM SHOULD KNOW

  1. Nathan and Lynn, thank you for putting together this post and the chart that I’m sure many fundraisers will find useful. I want to share two thoughts:

    First, I found your colleague’s story about the team member’s question about CGAs to be disturbing, but for a different reason than you outlined. I’m concerned that if the team member couldn’t figure out what a Charitable Gift Annuity is from the context of the conversation, the prospective donor might not have known either. While it’s important for fundraisers to know planned-giving terms, we should be very careful about using technical terms with donors. As you point out elsewhere in the post, we need to keep our language simple and understandable.

    That brings me to my second thought: What does “planned giving” mean?

    I have a very simple, highly accurate definition for planned giving: Planned Giving involves any gift that requires planning. Now, I just want to add that “Planned Giving” is a term that should almost never be used with prospects and donors. While a nice catch-all phrase for inside the development office, it is essentially meaningless to prospects and donors. Instead of talking with donors about “Planned Giving,” it’s far better to talk about specific gift opportunities.

    Liked by 1 person

    1. Michael

      Always great to read your comments and I 100% agree…very concerning that somehow the simplest understanding was somehow lost in translation. Too many times ‘technicians’ can overcomplicate the conversation and that unfortunately can come at the cost of confusing the donor.

      Also, spot on in regard to the ‘jargon’ we use in our industry. My wife is a professor in the School of Pharmacy here at Drake University and when I first started attending faculty events with her and would be asked ‘what I do’…I start off even simpler “We help nonprofits raise money”…if they’re still curious I then share a similar definition that you mentioned. So many times we can get caught up in our vernacular that we forget who the audience is that we’re talking to. This was highlighted back in our 2009 Donor Insight Survey on Donors on the Move, http://www.stelter.com/white_papers, where we found that only 37% of Americans were familiar with the phrase “planned giving”, however, during that 11 minute phone survey 86% were aware of the actual vehicles/tools that fall under our “planned giving” jargon.

      Like

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