The concept of planned giving is anything but new. In fact, my guess is that it has been going on for a few centuries. Recently, however, there seems to be a buzz in the non-profit, fundraising community around planned giving. "What is it?" "How does it work?" Most importantly, "how do we get some of it?"
The latter question if, of course, the most involved and complex. Frankly, part of the answer depends on your organization and existing donor base. Maybe you have a base of donors who are ideal candidates for planned giving (think high net worth). While this is the most important question, it's not going to get answered here, nor could it really. On this blog, we'll continue to explore successes and failures in helping non-profits develop planned gifts, but there certainly is not one all encompassing answer.
So, we'll move on to the simpler question, "what is planned giving?"
For all the buzz, and the fancy name, all planned giving refers to is any charitable gift that involves some level of planning before it is completed. How is that different from normal giving? Well think about how you give money to charity.
If you are like most people, it goes something like this, "ten bucks at church every week, twenty bucks at my neighbor's kid's bake sale, and a little extra to my Alma Mater at the end of the year." Of course, you may plan for the $10 weekly tithe in your budget, but that does not make it a planned gift.
A planned gift is one that is deferred and structured in a way that will distribute assets to the charity in a specific manner. Under current tax law, there are tremendous benefits to the donor of a planned gift. Planned gifts may be structured to provide the donor a current income tax deduction, as well as the ability to exclude the gifted funds from their estate for estate tax calculation. The donor may receive income from, or maintain control of the money until death or some other designated time period.
Planned giving is typically more complicated than standard charitable giving. This is because the tax laws have intricate rules that must be followed. In most cases, your attorney, CPA and financial planner are all involved. The most common types of planned giving include:
- Bequest - This is the most common type of planned gift, and perhaps the largest potential gift for the charity. A bequest is simply a gift that is left to a charity upon death, such as in a will or trust. This may also be done by naming a charity as a beneficiary on an IRA or life insurance policy. Care must be taken in the case of beneficiary designations, as there are various related rules and consequences.
- Charitable Remainder Trust - This type of trust allows the donor to receive an income from the gifted funds. The donor may also receive a current income tax deduction, avoid capital gains on the gifted property, and remove the funds from their taxable estate. Of course, an attorney is necessary to write the trust.
- Charitable Lead Trust - This is the reverse of the Charitable Remainder Trust. With a CLT, the income goes to the charity, and the principal reverts to the donor or heirs of their choosing. The donor generally receives an income tax deduction, and often uses this as a tool to pass assets to heirs.
- Retained Life Estate - In a RLE, the donor makes an irrevocable contribution of a residence or farm, yet retains the right to use and enjoyment of the property until death. Upon death, the property transfers to the charity. The tax laws and complex, but the donor receives an income tax deduction, lifetime use of the property, and removal of the assets from their taxable estate.
This is not a complete list of planned giving tools and methods. In order to determine the most appropriate planned giving oppotunity for you, a discussion with a professional versed in planned giving techniques is necessary. Of course, this discussion should always be focused on your goals and intentions. Tax benefits, and other details that we financial professionals enjoy are always the last consideration. But still a big one.
Often, when a donor wishes to leave a personal residence to a charity rather than heirs, they do so in their will, i.e. a bequest. However, as we have seen in the brief description above, a Retained Life Estate will provide them better overall tax benefits (by receiving current income tax deductions) and the same use of the property during the life of the donors. In addition, they may enjoy the recognition that may be bestowed upon them during their life, when the non-profit organization shows appreciation for such a generous gift.
As you can see by the simple example of the difference between willing a personal residence and creating a Retained Life Estate, the planned giving rules may be complex, but if you have charitable intent, the benefit to learning what options are best suited for you are well worth your time.
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