10 Strategies for Post COVID-19 fundraising in complex and major gifts
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The document outlines 10 strategies for nonprofit fundraising in the post-COVID-19 environment for complex and major gifts. It recommends beginning with showing concern for donors' well-being. It suggests focusing initial fundraising efforts on donors with donor-advised funds, as they are more likely to donate assets already set aside for charity. Special one-time requests may work well but should identify a crisis for beneficiaries rather than the organization. Planned gifts can help address donor uncertainty. Charitable gift annuities and retained life estates in homes or farmland provide tax benefits and lifetime income. Charitable lead and income tax planning trusts allow donors tax deductions. "Charitable swaps" of appreciated assets for cash donations provide tax benefits even in
10 Strategies for Post COVID-19 fundraising in complex and major gifts
- 1. 10 Strategies for Post- COVID-19 Fundraising in Complex and Major Gifts RUSSELL JAMES, J.D., PH.D., CFP®
- 2. Crisis is the time to show support 2 1. • A social/friendship/family relationship encourages sharing • A transactional/market/exchange relationship does not • When you might be in trouble, a good friend is one who reaches out to help • Ideally, the first contact with donors in a time such as this should begin with concern
- 3. 3 During a fire, heroism is limited to rescuing people from the fire or helping to put it out. But after the fire has ended, heroism will be about the choice to rebuild. Some nonprofits will never recover from this hit. Some will rebuild stronger. The difference will depend on donor heroism. When the time is right, give your donors the chance to be heroes. Crisis creates opportunities for donor heroism
- 4. 4 “The family is doing well. We’ve just had a lot of enforced family togetherness. I’ve still been busy for work, mostly talking to people about how to give smarter with all this market volatility and the new tax benefits. So, it hasn’t slowed down.” “Permission marketing” conversations “The family is doing well. We’ve just had a lot of enforced family togetherness. I’ve still been busy for work, mostly working with the leadership trying to plan how to rebuild after taking the hit from the season being cancelled. So, it hasn’t slowed down.”
- 5. The first giving conversations should be with DAF- holders 5 2. • Requests made to donors with donor-advised funds (DAFs) will be successful earlier than requests made to others • During times of downturn and uncertainty, people are more likely to hold tightly to their wealth which drives down charitable giving • But, distributing funds already in a DAF doesn’t affect a person’s financial security • During the last major economic downturn, many private foundations temporarily increased their distributions to help soften the blow for their grantees
- 6. One-time special requests work well, but be careful with a crisis 6 3. • In fundraising experiments, people are more willing to donate in response to a special, one- time need than for ongoing needs • However, it is important in such appeals to identify the crisis as a crisis for beneficiaries or for the cause, but not an organizational crisis
- 7. Use planned gifts as your “Plan B” 7 4. • People may hold on to their wealth during this crisis • Planned giving opportunities can help “lean into” this uncertainty • Most planned gifts take place after we no longer need the money • It is revocable • It can be a percentage of the estate, thus can vary with ups and downs • Percentage gifts are better for charities • Irrevocable planned gifts can also help with financial uncertainty • If a donor needs to back away from a commitment or feels that a gift today is too daunting, consider a planned gift as a “plan B”
- 8. “I certainly understand your concerns. I know others like you who have decided instead to make a gift that gives them lifetime income. With interest rates being so low and the market being so volatile, many people like the fixed payments coming from a charitable gift annuity. Would you like to learn more about this?”
- 9. “I certainly understand your concerns, I know others in your same situation who have decided to move their commitment into an estate gift instead. This provides flexibility with no upfront cost. There are even ways to do it that provides tax benefits. Would you be interested in learning more about these options?” GIFT IN WILL BENEFICIARY DESIGNATION ON AN IRA/401K RETAINED LIFE ESTATE
- 10. A charitable gift annuity as a two-stage gift 10 5. • Stable institutions offering CGAs may be an attractive gift option • During the last dramatic drop in the market, some large, stable organizations reported receiving exceptionally large CGAs • Two-stage alternative to current giving “I certainly understand your concerns. Another donor was in your same situation and she decided to protect against this volatility by making the gift in two stages. First, she made a gift that gave her annual payments for life. If things go downhill, she has income. But, if everything turns around and she ends up not needing the extra money, then she could donate those future payments as a second gift.”
- 11. Retained life estate gift in homes and farmland 11 6. • A donor can get an immediate tax deduction (depending on the 7520 rate) for donating the inheritance rights to a personal residence or farmland to charity. This is done by signing a deed that transfers the remainder interest to the charity and retains the “life estate” for the donor. • This might be an attractive idea for some
- 12. Charitable deduction for remainder interest deed in $1,000,000 of farmland by age 59 donor 1.0% (Jan 13) $804,790 11.6% (May 89) $156,840
- 13. An “estate-tax planning” charitable lead trust 13 7. • Although few and far between, some estates are large enough to be subject to estate taxation • These donors can take advantage of a non- grantor charitable lead annuity trust • This is a tax-efficient way to gift assets to heirs • The donor transfers assets to the CLAT and the CLAT pays an annual fixed amount to charity for a set number of years • Any amount remaining at the end goes to select heirs
- 14. An “income- tax planning” charitable lead trust 14 8. • The grantor CLAT allows a donor to take an immediate tax deduction for many future years’ worth of donations • The donor transfers an asset to the CLAT large enough to pay for the future donations, and then gets back whatever is left over at the end
- 15. Donor Nonprofit $100K old stock (low basis) immediately buy identical stock (100% basis) No need to change your portfolio! The Charitable Swap No “wash sale” rule because this is gain property, not loss property $100K cash
- 16. Donor $100K old stock (low basis) immediately buy identical stock (100% basis) The Charitable Swap with a DAF $100K cash Donor Advised Fund
- 17. A “charitable swap” still works - even in a down market 17 9. • A donor gives appreciated stock instead of cash • The cash that would have been donated is instead used to immediately purchase identical replacement stock • The stock portfolio doesn’t change at all • But the capital gain is wiped out of the portfolio because the old (gain) stock is replaced with identical new stock purchased at the current market value • This can be done even in a down market if the donor still has stock worth more now than when purchased
- 18. Tax deduction + Avoid capital gains tax Tax deduction only Appreciated asset gifts are objectively cheaper
- 19. Donor Nonprofit $100k Cash Donor Nonprofit $37,000 + Avoid capital gains ($90,000 x 23.8%) $21,420 Income tax deduction ($100,000 x 37%) $37,000 $100k Stock Costs $41,580 Costs $63,000 Asset gifts are cheaper for itemizers
- 20. Donor Nonprofit $100k Cash Donor Nonprofit $37,000 + Avoid capital gains ($90,000 x 23.8%) $21,420 Income tax deduction ($100,000 x 37%) $37,000 $100k Stock Asset gifts are cheaper for non-itemizers Costs $100,000 Costs $78,598
- 21. Donor Nonprofit Donor Nonprofit + Avoid capital gains ($90,000 x 23.8%) $21,420fed ($90,000 x 11%) –($90,000 x 4.36%) $5,980state Income tax deduct. ($100,000 x 39.6%) $39,600fed ($100,000 x 11%) –($100,000 x 4.36%) $6,644state Income tax deduct. ($100,000 x 37%) $37,000fed ($100,000 x 11%) – ($100,000 x 4.36%) $11,000 state + Avoid capital gains ($90,000 x 23.8%) $21,420fed ($90,000 x 11%) –($90,000 x 4.36%) $9,900state Asset gifts got EVEN cheaper for those in other states2017 2018 Net cost $20,680 in ‘18 vs. $26,356 in ‘17 $100k Cash $100k Stock Net cost $52,000 in ‘18 vs. $53,756 in ‘17
- 22. Section 2205. Modification of limitations on charitable contributions during 2020 22 10. • This provision increases the limitations on deductions for charitable contributions by individuals who itemize, as well as corporations • For individuals, the 60-percent of adjusted gross income limitation is suspended for 2020 • For corporations, the 10-percent limitation is increased to 25- percent of taxable income • This provision also increases the limitation on deductions for contributions of food inventory from 15 to 25 percent • This is another good talking point for donors • CASH GIFTS FOR CGAs should qualify for 100-percent treatment
- 23. Life stages of a retirement account Earlydistribution(before59½) Regulardistribution (59½to72) Requiredminimumdistribution(72+)
- 24. Qualified Charitable Distribution (QCD) $10,000 $0income IRA $0deduction $100,000 per person maximum Participant 70 ½ or older No private foundations, donor advised funds, charitable trusts, or charitable gift annuities IRAs or IRA rollovers only; no 401(k), 403(b), SEP, SIMPLE, pension or profit sharing plans After giving more than all post 70 ½ deductible IRA contributions
- 25. $10,000 $0income IRA $0deduction $100,000 per person maximum Participant 70 ½ or older No private foundations, donor advised funds, charitable trusts, or charitable gift annuities IRAs or IRA rollovers only; no 401(k), 403(b), SEP, SIMPLE, pension or profit sharing plans After giving more than all post 70 ½ deductible IRA contributions You can give more than your required minimum distribution
- 26. 10 Strategies for Post- COVID-19 Fundraising in Complex and Major Gifts RUSSELL JAMES, J.D., PH.D., CFP®