Planned Doesn't Always Mean Deferred
One of the biggest stumbling blocks planned giving officers
have with their supervisors and other development staff is the long-term
nature of a "planned gift". By definition, a planned gift is often
tied to a donor's estate or financial plan and implies a long wait. As a result, many nonprofit
organizations don't solicit for charitable trusts and bequests because
of design complexity and the length of time needed before the deferred
gift "matures". For fundraisers used to working one on one with a
donor's annual gifts in support of charitable programs, most remain wary
about jumping into a complex and hard to understand planned giving effort.
Besides needing to understand business succession, income and estate tax
concepts, a more sophisticated gift forces planned giving officers to deal
with the donor and all of the for-profit advisors who have to sign off
on their client's convoluted plan.
Not All Planned Gifts are Deferred,
Some Provide Current Support to Charities
Johnson Plan
72/72 - 8% AFR |
All Deferred
Traditional
CRAT |
Partial Immediate
Gift - Deferred Gift
CRAT w/Balance |
| Establish CRT With ... |
$500,000 |
$400,000 |
| Percent Initial Annual Payout |
5% |
6.25% |
| Annual Distribution (fixed payment) |
$25,000 |
$25,000 |
| CRT Income Tax Deduction |
$288,360 |
$188,360 |
| Outright Tax Deductible Gift Now |
- |
$100,000 |
To counter the impression that a planned gift only helps
a charity at the end of a long wait, look at the case study of George and
Ruby Johnson. It is illustrative of the flexibility in a well-designed
gift, as it helps both the donor and the nonprofit organization.
George has accumulated some stock and real estate in his portfolio and
uses the dividends from $500,000 worth of stock in his electronics company
to pay the $25,000 annual fees for his vacation home. However, since
his son has taken over the reins of the business, the dividends from his
stock have been reduced as revenue has been reinvested in upgrading the
company's technology. Seeking a reliable source of funding for his
golfing excursions, George approached the planned giving officer at his
alma mater about "one of those CRT things" they had previously discussed.
George proposed a simple 5% CRAT funded with his stock that would generate
the cash flow needed, but the planned giving officer offered a different
plan. While the traditional 5% CRAT was prized, it wasn't as appealing
to the college's foundation, already in the middle of a large capital campaign,
as a current gift. The experienced development officer knew that
George just needed something that generated $25,000 a year, so he suggested
the plan be modified to pay 6.25% from a $400,000 CRAT. That produced
a $25,000 annual distribution and the remaining $100,000 could then be
used to fund an immediate capital campaign gift. The $288,360 charitable
income tax deductions generated by both approaches are equal; the difference
is that the foundation receives a portion of the planned gift now, rather
than waiting for the CRAT to mature when George and Ruby pass away.
A new development officer needs to recognize planning opportunities, e.g.,
when the donor sells appreciated assets, has a need to diversify; or receives
an inheritance, significant retirement assets or stock options. Knowing
when a tool is useful makes it more likely it be used when really needed,
and the proper tool that solves a donor's problem is less likely to be
derailed by the donor's financial and tax advisors. Cultivate this
ability to help the donors, and more tax efficient gifts will follow.
Gift and Estate
Planning Services
Springfield, IL 62703-5314
217.529.1958 -- 217.529.1959 fax
VWHenry@aol.com
gift-estate.com
© 2000 -- Vaughn W. Henry
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