What you do need is to be familiar with the advantages and disadvantages of each. Some are your talking points as you work with your donors. And some are the reasons you may not want to get involved with these types of gifts until you are a bit better prepared.
Not many charities deal with cash as a regular part of their business. The most frequent occasion to receive cash is a special event or ticket sales activity. Those are generally modest amounts and handled as part of the event.
Therefore, you aren’t going to have many large gifts of cash. But it is important to understand that cash is the simplest form of gift. So let’s just put it on the list in order to be complete.
- Value is easily determined.
- Immediately available for use by your organization.
- None. But if you handle significant sums of cash, you may need to be prepared to protect your organization and its employees who handle the cash.
This may be a major category for big gifts. You know that the stock market has its ups and downs, so a clue to your potential for these gifts has much to do with the current state of the market.
Let’s just assume the market is way up. People will be more likely to think about making big gifts because they have great tax advantages to donate stock that has appreciated. You’ll see the advantages listed, and although there are lots of details about certain types of stocks, you can get help from the professional stock brokers on these topics. It will make it very much easier to accept these types of stock and bond gifts if you have an account at the brokerages in your area. Some charities open accounts at many brokerages. The idea is to make it easy for your donors to make the transfer by having an account at their brokerage house. It shouldn’t cost anything to set up these accounts, and it may serve as a bit of publicity for your organization.
- Donor takes market value for charitable tax deduction.
- Donor minimizes capital gains taxes on appreciated securities.
- Charity organization usually sells securities upon receipt with the proceeds becoming immediately available for use by the organization.
- Determination of value and sale of certain types of securities, especially "closely held" stock, can be very time consuming or difficult causing potential donor relations problems.
Gifts of life insurance can be very beneficial. There are a couple circumstances where you can very effectively solicit gifts of life insurance. The first and easiest is to seek your donors who have an existing paid up policy that they no longer need. For example, the couple who bought life insurance to cover the mortgage in case something happens to the breadwinner the spouse will be able to “pay off the mortgage.” On a house in which someone has lived for a long time, it is very likely that the mortgage is paid off, so that insurance policy is no longer needed. That gift of a paid up policy will be easy to donate.
The second circumstance is for those younger donors who want to make a big gift, but simply do not have the amount in cash at this time. For that donor, the cost of life insurance for a younger donor may be very affordable, and something that they are willing to do and able to afford. The policy needs to be given to you and your organization needs to be the owner and beneficiary of the policy. The donor agrees to make the annual premium payment by making a gift to you in that amount and take a charitable deduction for that amount as an unrestricted gift to you. Your organization uses that gift to pay the premium.
As you might see, there can be a challenge to your organization if the donor stops making the contribution to you to cover the costs. Without going into the details, just realize that you do have total control over whether or not to make the payments yourself or stop them and consider other alternatives.
- Maximization of smaller gifts upon maturity.
- Donor may receive immediate charitable tax deduction based upon the lesser of the cost or cash value of the policy.
- Annual premium payments by donor are also deductible.
- Funds not immediately available to your organization for spending purposes.
- Your organization may be faced with discussing various arrangements with the donor to cover annual premium costs.
- Your organization may face challenging decision if donor does not continue premium payments.
- Listing of policies may not appear on organization's balance sheet.
Now here are some serious considerations! Again, all this list provides is the basic overview of the types of gifts. No details of necessary steps, special knowledge or costs are involved in this list. BUT, having said that, gifts or real estate and some types of personal property gifts are well worth the work to accept them.
Most charities that are interested in these more sophisticated gifts seek professional advice and support to work on them. That’s the best idea, and once those relationships are established they will serve you well over a long time. But be aware that the real estate sales person is not necessarily the expert on the handling of real estate as a charitable gift. And in some cases, they may actually be working against a donation as it may mean they don’t get a commission.
- Donor avoids capital gains on appreciation of assets.
- Donor receives immediate charitable tax deduction at market value.
- Determination of value of some types of personal property or real estate is difficult.
- Ability of organization to sell property in a timely manner may be costly.
- Possible environmental problems with real estate.
- Liability of "operating" real estate.
Charitable trusts are great gifts for your organization AND for your donors. But they are legal instruments and should be prepared by the appropriate professionals. The list of advantages and disadvantages below is really more of marketing considerations than the details of these gifts. Suffice it to say, the charitable trust is often called “the gift that keeps on giving” because if can provide income to the donor during his lifetime and ultimately the principal to your organization upon the death of the last income beneficiary. So become familiar with the advantages to the donor and the challenges to your organization. Over time your organization may become more expert at handling these gifts and seek them. Or, you may partner with a local community foundation and they will help you with these opportunities.
- Donor receives immediate charitable tax deduction.
- Donor receives life-time income from the trust.
- Donor avoids estate taxes upon this portion of the estate at death.
- Funds not immediately available to your organization for grant purposes.
- Organization must work with donor to identify trustee (small and young organizations generally do not act as trustee themselves). State laws vary regarding the legality of your organization serving as a trustee.
- While these assets benefit the organization as remainderman, they do not appear as gifts on the balance sheet until death of the donor.
Like the remainder trust, these gifts need to be handled by professionals. Your job is to understand the marketing features of these gifts so you can be on the lookout for those among your donors who could benefit from a lead trust gift. There won’t be many, as this is a very sophisticated type of estate planning gift. But if you have prospects and donors who fit the category, the gift can work magic for both your organization and the donor.
- Donor gives your organization assets for a designated period during which time the income can be used by your organization.
- Assets eventually return to the donor's estate, possibly avoiding estate taxes.
- Donor pays no income or capital gains taxes on assets while under your organization control.
- Gift will not become permanently yours – you only get the earnings on the gift for a period of time.
- Like other trusts, the management of this one needs careful consideration.
Gifts by bequest are gifts from a will. They are among the simplest type to secure for several reasons. First, they don’t require the donor to use any of his assets during his lifetime. Many people are quite willing to leave something by will, because they will “no longer need to use the asset.” In addition, just the discussion with your donor about including your organization in their will helps you assure that they do have a will. More than half the people who die have no will!
Second, you don’t need any special expertise to talk about including your organization in a will. Your case rests on the work you have been doing with those donors that inspires them to want to help you as much as they can. And asking for a gift by will feels easy to do, so they should be very willing to consider it.
- The ability of the donor to make a larger gift.
- Does not challenge the donor to part with assets during lifetime.
- Enables your organization to work with donor during his lifetime on provision for bequest.
- May contain overly-restrictive provisions.
- Funds not immediately available to your organization for spending purposes.
- Is easily subject to change without the organization's knowledge.
- Is generally not irrevocably done, thus raising recognition and public relations questions.
For more nonprofit funding tips, as well as endowment development, nonprofit administration and management, subscribe to Endowment Development Institute's Newsletter here.