Set your sights on planned giving

If yours is like many nonprofits, you’re seeing a downturn in smaller donations — $100, $500 and $1,000 — that echoes the downturn in the economy. This trend has smart charities focusing their efforts to bring in major gifts from their wealthiest donors. That’s because these donors have long planned to leave part of their estate to a favorite organization, and most will follow through on their intentions.

Make arrangements

Here’s an overview of three of the most popular planned giving arrangements for major gifts:

1. Direct gifts and bequests. These donations go directly from a donor (or a donor’s estate, in the case of a bequest) to your organization. Lifetime gifts of cash, property or other assets are usually fully deductible for income tax purposes. This is the case if the donor itemizes and his or her donations don’t exceed the applicable adjusted gross income (AGI) limits. Excess charitable deductions can be carried forward up to five years. Generally, the bigger the donation, the bigger the tax benefit. Direct bequests, typically made via a will, are generally 100% deductible for estate tax purposes.

2. Charitable gift annuities. These vehicles can be a good fit for people who want to donate substantial assets during their lifetimes and are concerned about keeping a consistent income flow for themselves while minimizing taxes. With this agreement between you and the donor, your nonprofit receives money, securities or real estate, and in return agrees to pay the donor a fixed income for life. That amount is based on the contributor’s age at the time of the gift and the rate of return your organization expects to earn and agrees to pay to the donor.

Also, the contributor can defer any capital gains on appreciated property given to you, recognizing gains only as he or she receives annual payments. Meanwhile, a portion of each payment is defined as a tax-free return on principal. Plus, the donor can claim an income tax deduction equal to the present value of the charitable interest the year the annuity is set up.

3. Charitable trusts. With a charitable lead trust (CLT), the contributor donates assets to a trust, which pays income to the charity for a number of years. Then the property reverts to the donor or a beneficiary. The donor receives a gift or estate tax deduction (depending on whether the trust is funded during life or at death) equal to the present value of the charitable interest when the CLT is set up. Depending on the CLT’s structure, the donor also may receive an income tax deduction.

With a charitable remainder trust (CRT) the donor (or another noncharitable beneficiary) receives income from the donated assets for a specified period, or for life, and the remainder goes to the charity. As with a charitable annuity, the donor can defer capital gains on certain long-term appreciated property given to the CRT, recognizing gains only as he or she receives annual payments. The donor receives a gift or estate tax deduction equal to the present value of the charitable interest when the CRT is set up and, if it’s set up during life, also will receive an income tax deduction.

Other familiar structures for planned giving include donor advised funds (DAFs), supporting organizations and private foundations. Your financial advisor can provide information on these options.

Inform your staff, board

Designated members of your staff — and all of your board members — should be able to discuss the characteristics of the most common planned giving vehicles with prospective donors. Consider purchasing planned giving software to help in this endeavor. PG Calc and Crescendo Interactive, for example, offer products that do everything from creating elaborate marketing presentations and illustrating gift scenarios to crunching numbers and generating contracts.

Although amounts may be somewhat smaller than they were before the recession began, donations in the form of planned giving represent economic stability. Whatever shape they may take, these vehicles are well worth pursuing. •