The 5 Myths for Starting a Gift Planning Program

Many nonprofit organizations – both large and small – are often hesitant to begin or expand their charitable gift planning operations.  In working with a number of these organizations, many of their concerns are unfounded.  So I decided to rebuke some of the more common concerns that many nonprofit leaders have when considering their own planned giving programs.  Enjoy, and let me know what you think!

MYTH #1:  I first need to become a technical expert in legal and tax issues

Contrary to conventional planned giving wisdom, people don’t give to charity based on taxes.  While taxes can drive how a gift is structured, the timing of a gift, or the eventual amount of a gift, there is nothing in the tax code that directs individuals to donate to your organization!  Unfortunately, the image of a planned giving program is one of sophisticated trusts, complicated tax laws, and legal issues.  In reality, it’s about attracting gifts of accumulated wealth to support your organization’s mission.  Since most planned gifts are made through simple beneficiary arrangements in wills or trusts, you don’t have to be an expert estate planner to become effective. 

MYTH #2:  I have to concentrate all my energies on raising current resources.

There is never a good time to save for retirement, either!  In a tight economy the need for current dollars is greater than in the past.  However, donors rarely want to hear your every day problems.  They are attracted to your plans, your vision, and what your organization will be like twenty years from now.  More important, they want to be assured that their gift today is helping to build an organization that is financially sustainable over the long term.  More than ever before this means creating the structures and policies around an endowment fund, and then strategically communicating with your donors about how their current giving supports the work of the present, and their future or estate giving through your endowment can support your work in the future.

MYTH #3:  My organization isn’t ready to start a planned giving program

It is irrelevant whether your organization is ready or not.  The only thing that matters is whether your donors are ready.  And the answer to that is a resounding “Yes”!  The population continues to age, and wealth continues to accumulate.  In the next 50 years, estimates show that 40% to 50% of all charitable gifts will come from individuals’ bequests.  If you don’t think your organization is ready, well, you might want to get ready.

MYTH #4:  If people want to remember my organization through their estate plan, they’ll just  do it on their own.

That’s technically correct, although I suspect that hoping for planned gifts likely will not be as an effective strategy as actually doing something about it.  That is why building relationships with financial professionals in your area is vitally important.  Accountants, estate planning attorneys, financial advisors, bankers, life insurance professionals, and your local community foundation work with individuals every day to help design and implement their estate planning strategies.  Building a network of these key people to understand how your organization can help their clients accomplish their philanthropic goals is one of the most strategic moves you can make to start your planned giving efforts.

MYTH #5:  We don’t have any money to invest in long range plans.

Sometimes the simplest strategies can be the best.  Ineffective planned giving strategies operate separately from existing marketing and fund development activities.  Rather than starting something new, consider marketing your endowment fund and other planned giving strategies through existing avenues.  This way, you’re not adding additional costs to your marketing budget through fancy brochures and newsletters.  You’re simply incorporating new techniques for your donors to consider as they give to your organization.

It’s Not About the Money . . .

When I was 26 years old and new to the field of fund development and (in particular) planned giving, I attended a conference where various moderators hosted round-table discussions on a variety of topics.  I chose the table focused on charitable trusts, as I was extremely curious yet knew very little about how these tools worked. 

A Planned Giving Director from a local college led the discussion.  He spoke about how he recently had a conversation with one of his donors who inquired, “How much do you need to stick in one of those charitable remainder trusts to get it to work?”

He replied, “About $100,000.  Less than that amount and it would likely make sense to use a charitable gift annuity.”  He went on to explain to us that the donor did, indeed, create a CRT with a corpus of $100k.  “I should have told her it took $200,000!” continued the Planned Giving Officer, of which the people around the table chuckled and nodded their heads.

His response bothered me, as you can well see since I’m writing about it a decade later.  With a little research at the time, I learned that the Planned Giving Officer was technically correct in his response concerning CRT’s and CGA’s.  Yet something seemed to be missing.

It took a few years, and many discussions with donors, and I discovered what was wrong.  The gift officer answered a question that the donor really didn’t ask.  So, instead of responding with the technically accurate response of “$100,000”, what if he responded with a much more strategic, much more donor-focused response:

“That depends.  What is it that you would like to accomplish with this?”

If he had responded that way, I suspect the ultimate size of CRT would have been significantly larger than $100,000.  Even significantly larger than the $200,000 level he mentioned in jest.  With this more strategic response, the donor would have been motivated by the end result of the gift, rather than the mechanics of the gift process.  I also suspect that this same donor would have realized her desire to give more right now, rather than waiting until the CRT matured at the time of her death.  Or both.

This experience ingrained in me the belief that transformational gifts are never based upon the monetary size of the gift.  They are based upon the impact the gift will have.  In other words, it’s not about the money, it’s about what the money will do!

As a fund development or gift planning professional, evaluate your own strategies.  Are you overly focused on dollar value?  Do you spend significant time in meetings talking about giving levels and donor societies?  Are you focused on selling various charitable products?  If so, you might be too focused on the need of your organization to receive, and less focused on the needs of your donors to give.

Rather, focus your thoughts and your donor conversations on the end result of their potential gifts.  Let the needs of your donor to impact your organization become the motivating factor in their decision making process.  Most important, allow the impact of the gift to drive the gift value, not the other way around.

The Growth of Private Foundations

A significant trend has been occurring within the philanthropic community.

When considering the source of charitable gifts within the United States, approximately $300 Billion (US) is given away each year. Of this total, about 12% is given from private foundations. This percentage has been steadily growing, particularly showing a steep increase in the last 5-10 years. Why is this so?

A superficial analysis of the data would suggest that private foundations are becoming more generous. Unlikely, since they prudently and rarely distribute no more than their required 5% each year.

Perhaps because of wise investments, their corpuses have grown, thus creating more charitable distribution. Again, not so. While some foundations have experienced growth through exceptional investments, operating in a level market cannot alone explain this dramatic increase.

The real reason for growth in foundation giving then becomes clear. And it’s quite simple. More private foundations are being created.

Now, for the strategic question: WHY?

Of course we’re all aware of the traditional reasons individuals establish private foundations, such as:
• Establishing a legacy
• Ensuring charitable giving following one’s death
• Retaining control of future charitable gifts
• Increased social standing
• Issues relative to taxes

When considering these traditional reasons, it is interesting that each and every one of these priorities can be accomplished equally well through an outright bequest to charity. In fact, gifts to a public charity are generally viewed as a much better tax-avoidance tool than gifts to a private foundation.

So there must be some other reason. I’d like to offer an additional thought which is seldom discussed:

Individuals generally do not trust public charities with their gifts of accumulated wealth. There. I said it.

In fact, I would contend that this mistrust is so deep, that wealthy individuals would rather create testamentary private foundations not currently in operation, than to give that same gift to a well-run charity.

Why is that? Well, charitable organizations are not created to manage wealth or to save and invest money. Whereas, a private foundation accomplishes exactly that.

In addition, donors are acutely aware of all the horror stories where a generous bequest ultimately hurts the charitable organization it was intended to help. For example, rather than using one-time sizable bequests for endowment growth, organizations might artificially expand their programs. Moreover, internal arguments over the money can create conflict, strife, and disharmony which needlessly distract the organization from fulfilling its mission. (Sounds a bit like what happens with sizable inheritance gifts to children and grandchildren, doesn’t it?) So donors create a private foundation to ensure this won’t happen.

Further, other smaller-level donors might learn about a generous bequest and conclude that the organization they support no longer needs their money. Now they’re rich! And now other philanthropic dollars can be diverted to different priorities. Whereas outright bequests might be inhibitors to leverage additional gifts, private foundations usually lead the way in inspiring others to give.

What can not-for-profit organizations and their leaders do to help with this? Let me offer a few suggestions. First, I would encourage charitable organizations to encourage their donors to create private foundations. Huh? You read that right. For too long, we’ve been in competition with our donors’ intentions. Rather than trying to talk them into doing something that WE want them to do. Let’s help them accomplish what THEY want to. If you do this, I can almost certainly guarantee that your donor will become more generous to your organization – both now and through their estate.

Second, continue to educate your donors and the financial services industry. Sometimes, individuals establish a private foundation simply because they are not fully aware of the various structures and systems available within public charities. To some degree, the financial services industry assumes that every donor with the financial means to create a private foundation is interested in doing so. Maybe. But maybe not.

Finally, continue to market your charity as a “safe place” for your donors to invest. Demonstrate the ability for your organization to use donor resources – particularly estate gifts – prudently. Become transparent with the various protocols and procedures to ensure that gifts are used exactly as their donor desires. Educate your Board about the importance of this issue to your donors. Consider establishing a supporting organization or a sister “foundation” to aid your donors in accomplishing their goals.

I anticipate the trend of numerical private foundation growth to continue. Rather than lamenting it. Rather than fighting it. Let’s embrace it, and have it become a pillar to the overall transformation of the philanthropic marketplace.

The Metamorphosis of Giving

In a conversation with Ray Lyne (one of my mentors in this career) a few weeks  back, we discussed an interesting topic – the progression and development of an individual during his/her lifetime as a giver.  On working with many individuals, we concluded that there appear to be 4 different metamorphic stages that individuals seem to move through as their patterns and motivations of giving change over time.

TRANSACTION-CENTRIC GIVING: Likely the most common fund raising method promoted to gain revenue.  Strategies involve the nonprofit promoting all the benefits the donor would receive through their “gift.”  Examples would be sponsorship opportunities that double as marketing for a special event.  Maybe it’s front row seats at the University football games.  Or, receiving a DVD copy of a TV show with your gift to public television.  The most common example of Transaction-Centered Giving might be buying Girl Scout cookies.  Arguably, cookies might taste better and be cheaper if I went to the grocery store, but the premium price I pay for thin mints is justified by “it’s for a good cause.”  From an organizational perspective, these activities are high in energy and time commitment, while offering a relatively low return on investment.  From the donors’ perspective, rarely is any connection established with the organization. 

EGO-CENTRIC GIVING:   Another well-known and often used fund raising strategy, particularly for major gifts.  Sometimes, individuals with financial capacity want to be publicly recognized for their generosity.  This might involve simple things like making sure their name is listed in your annual report.  At a higher level, it might involve naming a building or a new wing of a hospital after them. 

 Again, many organizations do an excellent job of promoting this sort of giving.  They spend hours and hours in meetings discussing Gift Levels and Donor Societies and the like.  Then, they use these traditional fund raising tools to enter into gift discussions with their donors.  Often, it is a successful strategy.  Ultimately, it can backfire as the organization, in effect, is establishing artificial limits on their donors.  This strategy also is absolutely ineffective for donors who have progressed beyond ego-centric giving and now find themselves in . . .

PHILANTHRO-CENTRIC GIVING:  Here, it is not about the donor.  It is about helping other people.  The donor generally doesn’t care about personal recognition, as they value their gift based on the impact the gift will have.  They often receive great emotional return based on the measured results of their gifts, rather than on the public recognition that might follow their generosity. 

Most organizations, from my experience, struggle with promoting this sort of giving.  It is difficult to perform, and many fund raising professionals fundamentally misunderstand donor motivations.  (Perhaps because they are not at a Philanthro-centric stage themselves.)These organizations, and these gift officers, are busy selling and marketing gift levels and gift products, while neglecting to recognize the true agenda of the individual donor.  By outward appearances, Philanthro-centric donors might seek piles of data, a variety of rational reasons to give, and a whole bunch of fact-oids.  What they truly seek, I would contend, is the emotional satisfaction that their gift is truly making a difference in the lives of others.   That’s a deeply rooted Right Brain communication strategy way before a superficial Left Brain approach.

When organizations and individual gift officers are successful with this approach, the results can be remarkable.  With this type of donor, the specific monetary amount of the gift is not determined by the organization, which usually has a limit to it.  The true desire of the donor is focused on what their gift will accomplish.  That gift, indeed, is limited only to what that donor is singularly capable of giving.  From experience, regardless of wealth, people of capacity only seem to give this sort of gift 3-5 times over their lifetime.

WORSHIP-CENTRIC GIVING:  Particularly for Christian individuals, many donors eventually reach a stage in their giving where it’s not about them and it’s not about others.  It’s about their role as a steward of God’s resources.  We’ll talk about this type of giving at another time.  

If you are an individual donor, consider where your motivations might fall along this spectrum.  If you are a leader in a nonprofit, consider how you and your organization communicate with your donors.  Are you busy selling products and gift levels to your donors?  Or are you focused on creating and nurturing your donors to become more effective in their giving?

Six Degrees of Separation from the Easter Bunny

A guest post from friend and leadership guru Shawn Miller.  Read more of his strategic thoughts at Performance Institute.

 

Everyone has heard of “Six Degrees of Separation” which suggests that we are all connected to everyone else in the world through just six people and that thusly anyone can simply meet anyone they would like to meet.  Not true says Dr. Ivan Misner in The 29% Solution:

This legend stems originally from “small world” experiments by Stanley Milgram in the 1960’s (author of many interesting theories on human behavior by the way, check him out…).  The experiments involved a group of people sending letters to some specific person that they did not know in another part of the U.S.  They were to use a chain of connections who might know someone who might know the intended recipient thus linking them to that person.

The letters that eventually found their way to the intended recipient, did in fact average six connections (‘degrees’).  The critical missing information is that only 64 were received of 207 initiated or just a 29% success rate.  71% failed to find the intended recipient at all!  And as it turns out, this was the most successful and thusly most famous experiment of a series, some with as little as 5% success rates.

We’re simply just NOT all connected to EVERYONE on the planet with only “six degrees of separation.”

Dr. Misner believes that unfortunately this urban myth creates complacency and false expectations for networkers who are lulled into an impression that great connections are simply bound to happen sooner or later, no matter what they do.   The other clear indication of Milgram’s study is that some people are better connected than others.  This means that connecting is a skill and skills can be acquired and developed.  With effort, people can develop their networking skills, increase their connections, and become part of the 29% of people who are in fact separated from the rest of the world by just six degrees.

Great thoughts, Shawn!  My summary: sitting behind a large walnut desk, waiting for your phone to ring or that magic email to arrive in your inbox, isn’t a real strategic move!  You can reach Shawn at shawn@shawnmiller.com