Planned-Giving Programs & the Small Nonprofit: Getting Started - Full Version
NOTE: This is Full Version of a four-part cover story from the September/October 2002 issue of Advancing Philanthropy.
Planned giving today isn't the domain solely of large nonprofits that can afford to hire financial and legal specialists. Many small nonprofits with one or two fundraising professionals are launching successful programs or expanding their informal efforts; those who aren't sure whether such programs are feasible for them will find many resources from the Association of Fundraising Professionals and others to help with the decision.
The trend toward greater use of planned-giving models is relatively recent. Frank Minton, a planned giving specialist for more than 25 years and president of Planned Giving Services in Seattle, estimates, "About 5,000 nonprofits have gift-annuity programs, about a third of them started within the past 5 years, and half within the past 10 years. Many more nonprofits have long-term giving programs."
"There's been a greater emphasis in the past few years on nonprofits wanting to build endowments, and planned gifts are a way to do that," Minton says, explaining the increase. "And demographics tell us that the population is aging and a concentration of wealth will soon change hands."
This overview suggests the opportunities that a planned-giving program can bring and outlines the planning necessary for launching one.
'The Time Couldn't Be Better'
No data exist for the total amount of all planned gifts in the United States, but Giving USA estimates that bequests brought in $16.3 billion--about 8 percent of total contributions--in 2001. (This represents a decline from 2000 that is attributable to stock market losses.) With the coming transfer of wealth, we can anticipate the increased attractiveness of planned giving vehicles generally to the large cohort of older U.S. donors. "The time couldn't be better to set up a planned giving program," says Richard D. Barrett, coauthor of Planned Giving Essentials. "It's a cost-efficient way to raise funds."
Gift annuities, gifts of life insurance, bequests, charitable remainder trusts, pooled income funds, and many other planned gift options exist. Their rather daunting names make planned giving sound complicated and may deter a fundraising professional from taking the plunge. But Tanya Howe Johnson, executive director of the National Committee on Planned Giving, says knowing the limits of your expertise shouldn't stop you. "Development generalists should learn the basics, but don't get hung up on the complexities of the instruments. Leave that to the appropriate professionals, such as attorneys, accountants, and other gift planning experts," Johnson recommends.
Fortunately for smaller nonprofits, the simplest planned gift to administer is also the most prevalent: a bequest left to a charity in a will to be administered after the donor dies. According to Minton, most U.S. nonprofits find that 70 to 80 percent of their planned-gift dollars come in the form of bequests. Kayla Stevenson, CFRE, chair of the Canadian Association of Gift Planners, reports that bequests represent more than 95 percent of planned gifts in Canada. And, she says, "Planned giving is gradually growing in Canada among small nonprofits."
How to Tell if You're Ready
The experts whom Advancing Philanthropy interviewed agree that the focus of a small nonprofit's planned giving program should be--at least at the beginning and maybe always--bequests. But even a bequest program requires upfront assessment and preparation.
"I look at whether or not to start a planned giving program, however small, from a business perspective," says Kathryn W. Miree, JD, who for 15 years worked in bank trust departments before launching her own planned giving firm. Miree says that a nonprofit must have these characteristics before launching a program:
* Strong donor base. According to Miree, the organization should be at least 10 years old, raise an increasing amount of money every year, and have matured from annual fund contributions to major gifts.
* Strong board commitment. The board and senior management must understand and support a planned giving program.
* Solid infrastructure. The organization needs to invest the time and resources to develop gift acceptance and investment management policies, as well as systems to market and administer planned gifts.
Planned gifts are future contributions and will not meet immediate needs, and the leadership of an organization must recognize that. In fact, says Katelyn Quynn, coauthor of Planned Giving for Small Nonprofits, unrealistic expectations can doom a program before it ever gets off the ground. "A trustee might say 'we need a planned giving program,' but that doesn't mean that donors will flock to it," she says. That can lead to unmet expectations.
Johnson estimates that it may take from 7 to 10 years before a nonprofit begins to receive significant funds from planned gifts. If the organization is unwilling or unable to invest considerable resources before seeing such a return, a planned giving program is not a good strategy.
"It's like planting an apple orchard," says Minton. "You have to invest in the seedlings and nurture the trees until they bear any fruit. The board must make an investment in the future for a planned giving program to be successful."
The Infrastructure Must Be Set
The amount of resources we're talking about varies depending on the complexity of the program. Douglas E. Smith, a senior consultant with John Brown, Limited, identifies three elements that must be in place for even the smallest of planned giving programs to work:
* A real person to answer the phone. "A donor needs to hear a person on the other end of the phone and not a looped tape--even if it's a 'hand-off person' and not a 'solution person.'"
* A person to answer questions. "Someone should be quickly available to answer a donor's technical questions about the mechanics of a planned gift."
* A communication plan. "It's important to send a consistent message to donors about the planned-gift program--newsletters, direct mail, a website."
"You have to think through what you can do relative to your resources," Smith adds. "At a basic level, you might detail some aspect of planned giving in your newsletter, which will cause a donor to come to you with an inquiry. Some infrastructure and capacity is required to follow up on the inquiry."
Fundraisers new to all this can learn the basics of planned giving through books or courses, but they'll need to call on specialists for the details. (The AFP Bookstore offers several resources.) When a donor starts asking about planning alternatives, tax implications, illustrations of how a gift annuity would provide income, and other specifics, it's time to turn to an expert. Instead of having to pay for that kind of expertise on staff full time to handle the occasional inquiry, nonprofits have many options for "on-call" expertise, including consultants, financial institutions, and volunteer experts.
Many fundraisers in small nonprofits have found that planned giving committees are an important asset. "In one small nonprofit I was involved with, I was very strategic about having an expert in estate planning and an attorney on the board," says E. Ramone Segree, CFRE, chair of the AFP Foundation for Philanthropy and a fundraiser with more than two decades of experience. "A planned giving program in a larger shop might not need a committee, but it can help the smaller shop."
Quynn, however, warns against relying on volunteers too heavily. "A smaller nonprofit has few resources, so you may feel that you have to accept the generosity of a trustee or volunteer who says they will do the work for free," she says. "But you get what you pay for. In getting together a planned giving program, you need to identify an experienced outside attorney and make the investment to pay for the expertise needed."
In a growing number of cities, community foundations are providing small nonprofits with some of the expertise and structure they need to get into planning giving. For example, The Philadelphia Foundation, itself a public charity, offers services that "small nonprofits can use as a back office to work with donors and their advisors," says Heather Gee, CFRE, director of development services. The Foundation has set up a pooled-income fund through which small nonprofits can accept gifts. It also manages 500 individual funds, "no two of which are exactly alike," acting as a "professional clearinghouse" that's "like having your own foundation without the headaches," according to the website (www.philafound.org/donors/donors.htm). Foundation staff help donors evaluate nonprofit organizations in a five-county region so grants and memorials will do the most good.
In addition to the mechanics involved in accepting bequests and other planned gifts, establishing a gift-acceptance policy is essential, says Miree. She recommends that the staff, the CEO, and the board's committee responsible for oversight collaborate with a professional advisor on a gift-acceptance policy. The board should approve it and periodically review it. Each organization's policy must suit its own needs, but policies generally spell out
* what types of gifts the nonprofit will accept (cash is easy, but what about a piece of sculpture or closely held securities?),
* under what circumstances a gift can be accepted (should your charity pay off a mortgage in order to receive a piece of real estate?), and
* through what means a gift can be accepted (who has authority to accept a gift on behalf of your organization?).
Marketing and Donor Services
After a nonprofit has ensured that it is set up operationally to respond to donor interest in planned gifts (and remember, that might just mean accepting bequests), a decision must be made about how proactive the organization's marketing of planned giving should be.
A good start, most agree, is to do what Richard D. Barrett refers to as piggybacking with current communications. "Put information about planned giving in the newsletter that goes out to your current donors and on your website," he says. "Figures are scarce about the expected return, but anecdotal evidence says that you'll get a response of 1⁄10 to 2⁄10 of 1 percent. That means maybe 10 expressions of interest from a mailing of 10,000. But those 10 can represent pure gold."
Kayla Stevenson agrees that small nonprofits should "incorporate bequest options into all other fundraising programs. Provide a check box so donors can ask for more information on leaving a bequest to your organization." Websites, of course, can also easily include a way for donors to request more information on planned gifts.
Once a donor has expressed initial interest, Barrett believes that nonprofits can transact most of the give-and-take over the phone. "If donors call or write to express some interest, send them a booklet," he says. "What kind of booklet am I talking about? There are many good ones out there from planned giving consultants that explain the basics of planned giving. You can get them imprinted with your nonprofit's logo and address, so you don't have to create a planned giving booklet or brochure from scratch. You send donors a booklet with a personal cover letter, then follow up with a phone call. Depending on their interest, you might schedule follow-up calls with your planned-giving expert on the line." (AFP publishes the AFP Fundraising Consultants and Resource Directory, available electronically at http://fundraisingconsultantsandresourcedirectory.com.)
Others feel that a personal visit plays a larger role. "You need to at least offer to make a personal visit, and sometimes you'll learn a whole lot more face-to- face with donors than you ever would over the phone," says Douglas E. Smith. "They might approach you about a gift annuity because that's what they've heard about. But the conversation, the body language, might take you in a whole other direction."
Kathryn W. Miree also thinks that a personal visit is key. "There may be 100 prospects," she says. "It might take you two or three years, but meeting face to face with the donors who already love you is the most effective process I've seen."
Whichever marketing approach you take, donors should be publicly recognized to the greatest extent they'll allow. Shari Fox, president of Beech Acres Foundation in Cincinnati, says, "I tell donors that recognizing them will help make planned giving more accessible to other potential contributors so that, in effect, publicly acknowledging their planned gift helps the nonprofit even more."
Most fundraisers involved in planned giving have found that setting up a "legacy society" or some special designation for planned-gift donors strengthens their overall planned giving program. Segree notes that the AFP Foundation for Philanthropy created the Omega Circle about 10 years ago for people who have included the Foundation in their wills. "We do the same thing that we hope others do with their planned-giving programs," he says.
In many cases, prospective donors are already involved with some level of estate planning, usually with their own lawyers or other advisors. At a certain point, particularly for more complicated instruments, the nonprofit's and the donor's advisors will coordinate on the details of a planned gift.
Some donors choose not to tell a nonprofit that it is the recipient of a planned gift, and the nonprofit might not know the size of a prospective gift. "I try to get as much information as I can, such as a copy of that part of the will or trust document," says Miree. "But I don't force it, because then the donor may choose not to say anything at all. People have valid reasons for not sharing the information. They may change the amount, or their financial or personal circumstances might change. Of course, you are curious. But if you try to force them to make an amount binding, you might lose it entirely."
Planned Giving's Spillover Effect
According to NCPG's Johnson, donors look at their readily available funds when considering making a contribution to an annual fund or buying tickets to a special event. But planned-gift decisions come from a donor's examination of all accumulated assets. Does that mean that a planned giving component will detract from their other development efforts?
On the contrary, our experts believe that planned giving alternatives complement a balanced fundraising program and, in fact, can strengthen annual and major gift campaigns. That's only logical: A donor with the vision to support the long-term financial health of your nonprofit will most likely want to help your current operations stay in good shape as well.
Planned gifts don't come easy. They don't come fast. In fact, fundraisers might well be at their next job before a gift they nurtured finally comes through at their former organization. But by starting a planned-giving program now, a small nonprofit begins a process that will build enduring relationships and bring support that will resonate for many decades to come.
--The editors thank Sandra K. Kerr, director, Government Education Services, National Committee on Planned Giving, Indianapolis, IN, and Bruce B. Makous, CFRE, CLU, major and planned gifts officer, American Association of Cancer Researchers, Philadelphia, PA, for their assistance with this article.
Defining Planned-Gift Terms
When is a planned gift deferred? Can a major gift also be a planned gift? Planned giving has its own lexicon. It's not rocket science, says Richard D. Barrett, coauthor of Planned Giving Essentials, but fundraisers need to learn the concepts behind the terminology. Here are a few basics:
Planned giving: A systematic effort to identify and cultivate a person, for the purpose of generating a major gift, that is structured and that integrates sound personal, financial, and estate-planning concepts with the prospect's plan for lifetime or testamentary giving. A planned gift has tax implications and is often transmitted through a legal instrument, such as a will or trust.
Deferred giving: The process or act of arranging a deferred gift. A deferred gift is a gift that is committed to a charitable organization but is not available for use until some future time, usually upon the death of the donor.
Charitable remainder trust: A trust that provides income to donors and beneficiaries until their death or the termination of the trust term, at which time the remainder of the trust--the corpus--is transferred to one or more nonprofits.
Gift annuity agreement: An agreement in which a donor makes a gift to a charity that stipulates the charity will make annual payments for life to a specified person(s).
Pooled income fund: A trust funded by a number of donors, each retaining an income interest in the trust for life. Each donor is paid a pro rata share of the trust earnings. Each donor's portion of the principal becomes the property of the charity upon the death of the donor.
Sources: AFP Fundraising Dictionary; Planned Giving: Management, Marketing, and Law by Jordan and Quynn; and Planned Giving Essentials: A Step-by-Step Guide to Success by Jordan and Quynn.
Case in Point - Annual Gifts Work, Too
Cindy Amos, development officer for the nonprofit TROA (The Retired Officers of America, for active-duty and retired members of the military services) Scholarship Fund, knows that some marketing experts would recommend that TROA send out marketing materials to prospective donors two or three times annually.
But Amos' board has passed a directive that members receive only one direct-mail piece with a fundraising appeal yearly.
"We have an advantage in that we are not a start-up and are well-known with prospective donors," Amos says. "So, for us, once a year works." The Scholarship Fund provides interest-free loans and grants to military children for school.
Instead of making direct fundraising appeals, Amos focuses on "keeping the program out in front of the donors." And it's working. In the 18 months that she has been with TROA six donors have contributed gift annuities and about three dozen are interested in seeing an example of how a gift annuity might work for them.
Case in Point - Making the Commitment to Planned Gifts
Here are two examples of development professionals who already wear multiple fundraising hats, yet they are both taking the time to build up their nonprofits' planned giving programs for the future:
* Beech Acres, a child-focused family services nonprofit in Cincinnati, received its first planned gift in the early 1860s, when it was the German Protestant Orphanage. "From the start, the board of our predecessor organization said that any bequest would go to an endowment," says Shari Fox, president of the Beech Acres Foundation, which raises funds for Beech Acres. "So they encouraged planned giving from the earliest years."
* UCJS, the Union of Councils for Jews in the former Soviet Union has had a planned-giving program for just a little over a year. "When I came, I analyzed everything in the department and realized we needed a planned giving component to perpetuate a stream of income for the organization," says Linda Gordon Kuzmack, director of development. UCJS is a small advocacy nonprofit that aids threatened minorities in Russia by monitoring and reporting on antisemitic propaganda, ethnic hate crimes, and violations of human rights.
"We are evaluating how we can make our planned giving more systematic," says Fox. That includes updating gift policies and making sure Beech Acres has a good system to identify, categorize, and cultivate the best prospects. Fox's advice to others: "Your best prospects are your most loyal donors, not necessarily the largest." She also recommends that nonprofits publicly recognize donors to the extent the donors will permit.
"There wasn't much response, but I didn't expect there to be," Kuzmack says of UCSJ's first-ever piece of direct mail about planned giving, sent out earlier in 2002. "I planted a seed." As part of her strategy, she waited to approach major gift donors until after she had made a full presentation about planned giving to members of the board, several of whom are now following up with her for their personal planning. "Now I will be able to tell the major givers about the personal commitment of members of the board," she says. "That will make a big difference."
Resources for Learning More
Here are just a few of the many resources available for researching planned-giving programs that are most promising for your own nonprofit's circumstances:
Resources from AFP
- AFP Audioconference Audiotape (KRM Code: FRE5996-0). "There Are More Planned Gifts Than Ever--How Can You Get Your Share?" Available for purchase from KRM Information Services, Inc., 800-775-7654.
- AFP Resource Center. Contains a large variety of material on planned giving, and staff can answer specific questions or perform a bibliographic search to develop a list of potential resources.
- AFP International Conference on Fundraising. The 2003 Conference in Toronto will feature an entire track on planned giving, including sessions that cover estate planning, managing an integrated planned giving program, annuities, bequests, and legacy marketing.
- AFP Marketplace. Numerous volumes about planned giving are available online from AFP.
Books and Periodicals
An asterisk indicates books available at AFP Marketplace.
- * Planned Giving Essentials: A Step by Step Guide to Success by Richard D. Barrett and Molly E. Ware (2nd edition, 2001, Aspen). This book provides the basic information that the general fundraiser would need to get started.
- Planned Giving for Canadians by Frank Minton and Lorna Somers (2nd edition, 2000, Somersmith).
- Planned Giving for Small Nonprofits by Ronald R. Jordan and Katelyn L. Quynn (2002, Wiley). The authors have also written a much larger book, Planned Giving: Management, Marketing, and Law (2nd edition, 2000, Wiley). Quynn says she and Jordan wrote this book focusing on small nonprofits because those were the questions they got when they made presentations and talked to fundraisers around the country.
- Planned Giving: Making It Happen by Edward Pearce and Sheree Rodney Kushner (Strategic Ink Communication).
- Planned Giving Today, monthly newsletter with U.S. and Canadian versions (www.pgtoday.com).
Websites of Planned-Giving Organizations