Planned Giving
on a Shoestring Budget
L. Paul Hood, Jr., J.D., LL.M.
The University of Toledo Foundation
Quote of the Day
People who cannot recognize a
palpable absurdity are very
much in the way of civilization.
Agnes Rupellier
Conversation Starters
•Q: “Paul, what do you
do for a living?”
•A: “I help people make
a difference.”
Conversation Starters
•Q: “What do you mean by
‘make a difference?’”
•A: “I help people create
their personal legacy.”
Conversation Starters
• Q: “How do you do that?”
• A: “By helping people leave legacies to
UT in their estate plans and by working
with their lawyers and financial
advisors on the most taxwise way to
structure their legacies.”
Tips and Tidbits
• Note what isn’t there in my description of what I
do. My title. Or an in-depth description of what I
do until after they ask. People’s eyes glaze over
when you do that too early.
• I purposely give short (fewer than ten words)
answers that invite further questions and peek
interest. And I never say that I am in planned
giving. I purposely use the word legacy. It is donorcentric and in the form of an “elevator speech.”
Elevator Speeches
• What’s an “elevator speech?”
• An elevator speech is in the form of a
persuasive pre-rehearsed brief sound byte
that you use to spark interest in what your
organization does or to create interest in a
project, idea, or product – or in yourself. It
often starts in the form of a question.
Elevator Speeches
• A good elevator speech should last no
longer than a short elevator ride of 20
to 30 seconds, hence the name.
• If your elevator speech can’t be said in
the form of a sound byte for the press
(no longer than one minute-and
usually half of that), then it is too long.
Elevator Speeches
You should have eight to ten
good elevator speeches for
planned giving ready at all
times for whenever they are
needed.
Elevator Speeches
Some examples of “elevator speeches” for planned giving:
• “Did you know that it can be more advantageous to gift stock
rather than cash?” (Gifts of appreciated stock to a public
charity)
• “Did you know that there’s a way to make a meaningful gift that
can be changed in the future and won’t ever cost you a cent?”
(Bequests)
• Did you know that there’s a way to get income for life in an
amount that may exceed your current return and make a gift?
(Charitable remainder trusts and charitable gift annuities).
More Tips and Tidbits
I usually identify myself as
a “recovering tax lawyer”
for purposes of both levity
and credibility.
More Tips and Tidbits
• I help people understand that you don’t
need a lot of wealth to make a difference
and leave a personal legacy.
• Every gift makes a difference in the life of
someone at the organization.
• All you need is affinity and desire to do
good.
Tips and Tidbits
You make much more headway with
a donor when you focus in on what
attracts them to the organization,
what excites them and what they are
passionate about-their legacy.
Tips and Tidbits
People often are motivated to do their
estate planning by a desire to leave a
legacy, thereby achieving a form of
immortality, which is what all people
want, according to the research.
What is Planned or Legacy Giving?
•Before we can talk about planned
or legacy giving, let’s step back
and define it.
•What is planned or legacy giving?
What is Planned or Legacy Giving?
• Planned gifts are those gifts that are deferred until some point
in the future like bequests or charitable remainder trusts,
where the charitable organization’s interest is to be enjoyed in
the future.
• They also can involve a split-interest gift where the entire
amount of the gift is not made to the charitable organization
but part of the gift is either retained or given to other
individuals, such as charitable gift annuities or charitable
remainder trusts), but they also include gifts of life insurance
policies, gifts of interests in retirement plans/IRAs and
donations of real estate with a retained life estate.
Tips and Tidbits
• Don’t talk to people about planned
giving vehicles without talking about
what interests them-you might lose
them, and you might get confused.
• Find out their needs, and then you
can discuss ways to satisfy their
needs and desires.
Tips and Tidbits
• If the donor can’t make a major gift
now, gently probe to ascertain what
might be holding them back.
• Usually, it is because they believe that
they can’t afford it now, especially if
they have the interest. These people
are legacy gift candidates.
Hidden Treasure
The research and my over 25 years of experience as
an estate planning lawyer and estate planning
consultant tells us that for every bequest about
which we are told in advance, somewhere between
two and three times that number will come in
totally unexpected as bequests mature at the
donor’s death.
Hidden Treasure
Nevertheless, if properly cultivated, more donors
will make their plans known prior to death, and
fewer donors will change their dispositive plans
as current research indicates that more people
are changing their estate plans within the last
five years of their life, particularly charitable
legacies.
More Tips and Tidbits
• A planned or legacy gift usually is a capstone gift for a
donor.
• It usually is the largest gift that the donor will or can
make, but it often is not the last gift that a donor will
make.
• It requires much more cultivation and a longer
consideration period than other gifts. You cannot
push a planned giving prospect, or you will lose them.
We operate at the donor’s speed.
More Tips and Tidbits
• Who makes planned or legacy gifts?
• This may surprise you, but it usually is a donor
who flies under the radar screen of fundraisers
because they don’t give much during lifetime, but
they have exhibited continuous loyalty to the
mission of the organization by contributing almost
every year. The amount given annually is
irrelevant.
More Tips and Tidbits
Moral: pay attention to your most
loyal donors, as these are your
best planned giving prospects. We
purposely target loyal donors with
our marketing efforts.
More Tips and Tidbits
• Why waste time on planned giving? Isn’t it better to
get a current gift now than waiting for something
that may never happen?
• Planned giving accounts for a sizable percentage of
donations. The research is clear that donors who
make a planned gift actually increase their current
giving. Why? Because they are invested long-term in
your organization!
Impact of ATRA on Charitable Giving
What does the 2013 tax
law mean for planned
giving?
Impact of ATRA on Charitable Giving
• Income tax charitable contribution deductions are
worth more with the higher tax rates on the upper
income class, which suggests an increase in
charitable giving as it has in the past because the
actual cost of the gift to the donor goes down
because of the income tax charitable contribution
deduction.
Impact of ATRA on Charitable Giving
• Fewer estates (less than .002%) will have to worry
about federal transfer tax under the higher applicable
exclusion amount, but state death taxes (in the 20
states, including the District of Columbia, that still
have death taxes) still apply and generally at much
lower thresholds than the federal applicable exclusion
amount and top death tax rates that range from 4.5%
(PA) to 19% (WA)-only one state (CN) still has a gift
tax.
Bequests: The Research
Who are the best candidates for bequests?
• The research tells us that persons
between ages 40 and 60 (not older)
• Who have a bachelor’s degree
• Annual incomes of $50,000 and up
• Who are motivated by a desire to “do
good.”
Bequests: The Research
What are some of the best indicators for bequests?
• Single and childless.
• Between ages 40 and 60 (in my experience,
persons over ages 75 and over rarely made
significant changes in their estate plans, but this
may be changing according to recent research).
• Regularly attends religious services.
Bequests-Challenges
Far and away, the most common planned gift is a
testamentary bequest from a will or trust-challenges:
• It requires waiting for the donor to die.
• Usage of wills and trusts is declining in favor of nonprobate transfers.
• Heirs can feel jilted and either contest or drag their
heels on administration, or even try to divert the
assets some other way, even illegally.
Bequests-Challenges
Far and away, the most common planned gift is a
testamentary bequest from a will or trust-challenges (cont.):
• These must be tracked and properly and regularly
stewarded once the donor’s intentions are made known
because the donor can change his or her mind and
particularly after the donor’s death to make sure that the
organization receives the bequest because some heirs
resent having to share the estate with a charitable
organization and sometimes resist turning the bequest
over.
Bequests-Challenges
• For every bequest that the organization knows about,
there are two to three that come in an unexpected
gifts as many donors are unwilling to share the
information, so unless you have copies of the will or
trust, you really can’t count the bequest as part of a
campaign without documentation because all you
may get out of a donor is an oral statement such as
“you’re in my will” without specifying amount, etc.
Bequests
• This is where smaller organizations should start
planned giving efforts because it is such an easy ask
(doesn’t impact their current lifestyle, can be changed
in the future, etc.) and can apply to all age groups; a
suggestion of a bequest or a planned gift to the
organization must be on every buckslip (receipt) for a
gift and probably on the organization’s promotional
materials and correspondence (letterhead and e-mail
signature blocks)-it must be inculcated into the
organizational culture.
Life Insurance
Probably the second most common planned gift is the gift of a life
insurance policy (some policies that the organization receives death
benefits from are never owned by the organization-it is only the
beneficiary)-challenges:
• The overwhelming number of life insurance policy gifts require an
ongoing premium payment obligation, which donors usually continue
to bear, at least for awhile, but you can’t count on that-sometimes hard
decisions concerning the policies must be made.
• For donors who actually donate the entire policy during lifetime to a
charitable organization, they are entitled to an income tax charitable
contribution deduction essentially equal to the fair market value of the
donated policy.
Life Insurance
• Life insurance policies require consistent and active investment
management-you can’t just receive a policy and forget about it-there
are tough decisions such as whether the policy should be retained or
whether it should be cashed in or sold in a life settlement, with
concomitant donor relations and stewardship issues, so it requires
someone’s attention at the organization.
• Like the bequest, you usually have to wait until the insured dies-note:
the overwhelming number of life insurance policies aren’t designed to
last until the insured actually dies, and most lapse prior to the insured’s
demise, which underscores the need for active policy management,
which should be, at a minimum, ordering a free in-force illustration on
the policy from the insurance company annually to see how it is
performing.
Retirement Plans/IRAs
The next most common planned gift is a gift of a beneficiary interest in a qualified
plan or IRA: (the beauty of these planned gifts is that there is little management that is
involved)-challenges:
• Another beauty of these gifts is that a charitable organization is a favored
beneficiary under the tax law because a charitable organization is tax-exempt, while
the participant or the participant’s family must pay income tax on distributions from
the plan/IRA, which significantly reduces the net benefit to the family.
• These gifts are most commonly received at the donor’s death, which means the
organization has to wait, because, with one limited exception that hasn’t yet been
renewed for 2014, the lifetime rollover by persons who are age 70.5 and older
directly to the organization from an IRA (not a qualified plan), which was permitted
for transfers up to $100,000 annually, a participant usually has to take the money
out of the plan/IRA, first pay income tax on the distribution and then make a
donation.
Retirement Plans/IRAs
• Most of these gifts come from persons who are forced to
start receiving benefits from the plan or IRA-essentially
those who are age 70.5 and older-the problem there is the
risk that the donor will survive for so long that the plan/IRA
is significantly depleted due to forced distributions during
the donor’s lifetime because of the method that the IRS
forces plan/IRA benefits out and into the taxable income of
the participant/beneficiary.
• Most of these gifts come in unexpectedly, so they can’t be
budgeted or planned for or stewarded very well unless you
know about them in advance.
Charitable Gift Annuities
• This is strongly not recommended for small
organizations because a charitable gift annuity is a
contractual promise that is backed by all of the assets
of the organization that is given in exchange for a
donation, to make lifetime payments to up to two
people, who are called “annuitants”; this is really for
larger organizations that have the assets to cover the
liability for the payments.
• Annuity payments can started immediately or be
deferred into the future.
© L. Paul Hood, Jr. 2014
Charitable Gift Annuities
• Annuities are “bets to live.” In other words, the
annuitant does better the longer that the annuitant
survives and continues to receive annual annuity
payments, which means the organization fares worse.
You can have “under water” charitable gift annuities.
• Contrast this with life insurance, which is a “bet to
die”-the sooner the insured dies, the lower the total
amount of premiums that will be paid and the better
off the life insurance policy beneficiaries are.
© L. Paul Hood, Jr. 2014
Charitable Gift Annuities
• Annuitants usually enjoy a mix of tax-exempt return of basis
(essentially the donation, amortized over the estimated
remaining life expectancy of the annuitant(s)) and ordinary
income, which is taxed at ordinary income tax rates.
• Unlike charitable remainder trusts, one can establish a
charitable gift annuity with less money; for example, our
minimum is $10,000, with $25,000 being the minimum amount
most donated, and many are much larger than that.
© L. Paul Hood, Jr. 2014
Charitable Gift Annuities
• We generally require that the annuitant be age 65 before the
annuity payments commence, but, for example, a 49 year old
can establish a deferred charitable gift annuity where the
annuity payments commence at age 65, i.e., retirement age.
• Donors receive an income tax charitable contribution
deduction equal to the present value of the organization’s
future interest, which is purely a function of the age(s) of the
annuitant(s) when the annuity is purchased.
© L. Paul Hood, Jr. 2014
Charitable Remainder Trusts
After gifts of charitable gift annuities, charitable remainder trusts (more to
follow on charitable remainder trusts in upcoming slides) are the next most
common planned gift-challenges:
• There is a risk that the payout to the private beneficiary is set so high
(has to be a minimum of 5% and must result in at least a 10% remainder
of the trust donation surviving the entire trust term in order to be
qualified, computed at the beginning of the trust) in relation to trust
investment experience that there is little or nothing left at the end of
the charitable remainder trust term.
• Many of these are unknown and, therefore, can’t be stewarded.
• In periods of low IRS applicable federal rates, it is very difficult for a
person who is younger than age 70 to establish a lifetime charitable
remainder annuity trust.
Charitable Remainder Trusts
Charitable remainder trusts-challenges (cont.):
• Most donors retain the power to change charitable beneficiaries, so when you
know about the existence of a charitable remainder trust, it is essential to
properly continue to steward the donor.
• Usually requires a minimum of $100,000 to make the effort and expense
worthwhile, with $250,000 being usually the beginning amount of a charitable
remainder trust.
• Can be funded with cash or property.
• Someone must serve as trustee; I don’t recommend the organization serve in
that capacity because it’s not its core business; donors often serve as the initial
trustee.
© L. Paul Hood, Jr. 2014
Charitable Remainder Trusts
•
•
Special type of tax-exempt irrevocable trust for tax purposes –
unlike a charitable gift annuity, which is a simple two page
agreement, this type of gift requires significant expertise from a
lawyer to draft one because of IRS governing instrument
requirements.
Donors can either retain or give their loved ones a payout of a
minimum of 5% of the value of the trust property each year, either
for life or for up to 20 years, with at least one charitable
organization as the irrevocable remainder beneficiary.
© L. Paul Hood, Jr. 2014
Charitable Remainder Trusts
•
•
The income tax charitable contribution deduction is a function of the
estimated present value of the charitable organization’s future interest,
which in turn is a function of the term of the trust, which can be for a
set number of years that can’t exceed 20 years or for the lifetimes of
the private beneficiaries (which is then a function of the remaining life
expectancies of the private beneficiaries).
There are two basic varieties of Charitable Remainder Trusts: the
Charitable Remainder Unitrust and the Charitable Remainder Annuity
Trust.
© L. Paul Hood, Jr. 2014
Charitable Remainder Trusts
•
•
•
A Charitable Remainder Unitrust provides for a payment of at least 5% (but not
to exceed 50%) of the value of the assets in the trust, determined annually.
Since the value of the trust assets is determined annually, the payout from a
Charitable Remainder Unitrust can go up or down.
For example, if you contributed $100,000 to a 5% Charitable Remainder Unitrust,
your payouts would be the following over a three year period:
Year
Value of the Trust
Payout
1
$100,000
$5,000
2
$110,000
$5,500
3
$90,000
$4,500
© L. Paul Hood, Jr. 2014
Charitable Remainder Trusts
A Charitable Remainder Unitrust can be further divided into the following types:
• A straight Charitable Remainder Unitrust that merely pays out the fixed percentage of
the value of the trust, determined annually (SCRUT).
• One that pays out the lesser of trust net income or the specified percentage of the
annual value of the trust property, determined annually.
• One of these could have no makeup provision for distribution of the difference
between straight payout percentage and the actual amount distributed in years where
trust income exceeds the percentage payout (NICRUT).
• Or the trust could have a makeup provision (NIMCRUT).
• A “flip” unitrust that begins as a NIMCRUT and converts on the occurrence of some
event, e.g., a sale of an asset in the trust, effective on January 1 of the succeeding
year, to a straight Charitable Remainder Unitrust (SCRUT).
© L. Paul Hood, Jr. 2014
Charitable Remainder Trusts
•
•
•
A Charitable Remainder Annuity Trust provides for a payout of at
least 5% (but not to exceed 50%) of the initial value of the trust
assets.
Therefore, unlike the Charitable Remainder Unitrust, payouts from a
Charitable Remainder Annuity Trust are fixed and don't change
unless and until the trust runs out of assets.
Unlike a charitable remainder unitrust, a charitable remainder
annuity trust can run out of assets if the initial donation plus the
investment experience is insufficient to withstand the annual payouts
to the private beneficiaries during the trust term.
© L. Paul Hood, Jr. 2014
Charitable Remainder Trusts
Charitable remainder trusts are becoming far more popular
after ATRA. Reasons include:
• Income tax charitable contribution deduction is worth
more.
• 3.8% Medicare tax can be avoided or deferred.
• Tax on an outright sale of a business has increased, versus
doing a split CRT/sale.
• It is possible in a split CRT/sale to increase net family
wealth.
© L. Paul Hood, Jr. 2014
Charitable Remainder Trusts
Benefits of charitable remainder trusts:
• Can diversify an investment
concentration.
• Gift to charity.
• Income tax charitable contribution
deduction is worth more.
© L. Paul Hood, Jr. 2014
Charitable Remainder Trusts
Benefits of charitable remainder trusts
(cont.):
• Defer capital gains tax and recognize
that gain ratably over the trust term.
• Tax-advantaged growth.
• Possible payout during years of lower
taxable income.
© L. Paul Hood, Jr. 2014
Shoestring Budget Ideas
•
•
•
•
Review all of your organization’s letterhead and electronic
communications-ensure that each one carries one simple planned giving
message (e.g., have you considered remembering the organization in
your estate plan?)-cost $0.
Right below all e-mail signature blocks and include an planned giving
elevator pitch-cost $0.
Consider printing new business cards that have the mission and an
elevator pitch on them-cost less than $100.
Send a personalized letter a couple of times a year to your top 100-200
consistent donors that you are in the planned giving business and at least
make an ask for bequests-cost-$49-98 per mailing.
© L. Paul Hood, Jr. 2014
Comments? Questions?
Questions? Comments or thoughts? Please share them with
me now, via the telephone (419.530.5303) or e-mail
(paul.hood@utoledo.edu or
paul@paul@paulhoodservices.com).
If you would like to receive my weekly Foundation tax and
estate planning update, simply send an e-mail to me at
paul.hood@utoledo.edu .
Thanks for your invitation and attendance!
© L. Paul Hood, Jr. 2014