Stelter’s Executive Vice President Jeremy Stelter and Senior Gift Planning Consultant Lynn Gaumer, J.D., are “back” from the American Council on Gift Annuities (ACGA) Conference to share their insights.
As we adjust to the new normal, we are finding new ways to share and connect with our colleagues. Last week, many fundraisers from across the country gathered in the comfort of their own homes and logged in to the first virtual ACGA Conference.
The COVID-19 pandemic was top of mind and a common thread in many presentations. Speakers looked to past pandemics and economic downturns for guidance on what charitable giving will look like this year, addressed current concerns and looked to the future. Here are a few key takeaways from the conference:
Lessons Learned From the Past
There is no script for today. However, history does have a way of repeating itself and there are lessons we can glean from the past.
In his session, philanthropic consultant Robert Sharpe Jr. did a deep dive into past pandemics and recessions: the Panic of 1907, the “Spanish flu” pandemic of 1918, the Great Depression, 9/11 and the Great Recession of 2008-09. Evidence shows us that during these times, Americans continued their philanthropy. As a result, charitable giving is now seen as a component of patriotism.
Here’s what the past can teach us today:
- Giving trends indicate that when large sums are lost by the wealthy, major gifts are more likely to be shifted to estates. These donors have an increased interest in gifts that are revocable and provide some flexibility like bequests and beneficiary designations.
- Donors in a recession do not necessarily reduce giving—but they do tend to prioritize their giving. Fundraisers during these times found success with stewardship. Some ways to stay connected to your donors include knowing their philanthropic goals, staying present, showing impact and making your thank-you effective.
- The organizations that best weather economic storms plant seeds years in advance. Remind your supporters of the impact past donors have had, on the mission and the organization, by making a planned gift.
- Donors step up. Widespread funding efforts were launched to help provide for social needs during these times (e.g., the United War Work Campaign of 1918 and the March of Dimes launch following the Great Depression).
Historically, philanthropy has been central to the American experience and an integral component of our democracy. Americans feel a need to help others and take pride in their philanthropy.
Donors will continue to support the charities they care about. In turn, those charities must be there for their donors. Always stay in touch—and remember to be flexible. Pivot as needed.
Unleashing the Power of Your Gift Annuity Program
Frank Minton, Ph.D., President of Frank Minton Consulting, provided 10 ways to take your gift annuity program to the next level—even with the many changes in laws, demographics and the economic environment. He recapped how recent legislation, including the Tax Cuts and Jobs Act and SECURE Act, along with low gift annuity rates and a low interest rate environment impact gift annuities.
The Tax Cuts and Jobs Act, for example, nearly doubled the standard deduction and increased the estate tax exemption. Only about 10% of taxpayers now itemize their deductions. Your marketing material should focus on the tax-free portion of the payment and not necessarily the charitable deduction.
Marketing Idea: Show donors who were looking for an estate tax deduction through a bequest how they can benefit through a lifetime gift in exchange for a gift annuity. They will qualify for an income tax deduction and increase their income.
The SECURE Act eliminated the stretch IRA provision for most non-spousal beneficiaries. Donors may not want their non-spousal beneficiaries to receive their entire IRA proceeds within 10 years.
Marketing Idea: A testamentary charitable remainder trust (CRT) or a testamentary charitable gift annuity (CGA) may be a solution. The IRA owner can name a CRT or a CGA as a beneficiary. The IRA proceeds will then be used to fund a testamentary CRT or CGA and provide payments to the beneficiary or annuitant for life.
Demographics Are Changing. Expand your annuitant and donor bases. There are approximately 28 million people older than 70 in the United States. There are approximately 74 million people between the ages of 50 and 70.
Marketing Idea: Think about expanding your annuitant and donor pools without increasing risk to your organization. Donors can set up a gift annuity for a parent, for example, to help cover health care costs. Younger donors can set up deferred and flexible gift annuities.
ACGA Rates Remain Unchanged…for Now
With the recent downtown in the markets and economy, many of us in the nonprofit sector were wondering whether the ACGA’s current suggested maximum gift annuity rates would be adjusted. David Ely, Chairman of the ACGA Rates Committee, discussed the committee’s difficult objectives of balancing attractive payments for the annuity with the gift to charity. The committee regularly monitors certain interest rates and markets that underlie the investment return assumptions used to create the rate schedules. Ely stated that there would not be a rate adjustment at this time but to look for further communication on May 7. Stelter will continue to keep you informed of any developments.
Review your current CGA scenarios and marketing material and make adjustments. As of May 2020, the IRS discount rate is at a historic low 0.8%. With this low interest rate environment, the charitable deduction is lower, but the tax-free portion of the fixed annuity payment is higher. With so many individuals taking the standard deduction, highlight the tax-free portion of their payments instead of the charitable deduction in your scenarios.
You may wish to reach out to current annuitants and reassure them that they will continue to receive their payments during these unprecedented times. You may also want to include a “soft ask” if they would like to establish another CGA—perhaps using stock to minimize risk in their investment portfolio in favor of secure income.
Interested in hearing more about this year’s ACGA Conference and the new ACGA/CGP CGA Survey?
Lynn Gaumer will be back Thursday, April 29, to share what you need to know about CGA program best practices.