The increasing importance of planned giving in charitable fundraising

The logistics of charitable giving are expected to shift dramatically over the next several years as baby boomers in North America age and consider how to ensure their charitable intentions are followed after their passing.

Planned giving is quickly becoming one of the most important fundraising vehicles for charities and nonprofit organizations. It allows donors to leave a legacy while often providing considerable tax advantages.

Planned giving is defined as any major financial gift made as part of a donor’s overall financial or estate plan. This is most commonly accomplished through a one-time gift and is usually granted upon the donor’s death. There are several types of planned gifts, with the most common being charitable bequests, charitable remainder trusts and charitable gift annuities.

A charitable bequest is an official statement in a will or trust that denominates a gift to a specific nonprofit or charity. The gifts are allocated following the death of the donor. Charitable bequests do not always take the form of a cash gift; they can be specific assets such as retirement accounts, life insurance policies or real property. Charitable bequests can provide tax advantages to the donor’s estate.

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A charitable remainder trust is an irrevocable trust between a donor and a charity or charities. It allows the donor to transfer highly appreciated assets to an irrevocable trust while paying no capital gains tax on the appreciated assets. The donor enjoys an immediate charitable income tax deduction and continues to receive income during their lifetime. Because the assets are now owned by the trust, they will not be included in the donor’s taxable estate upon the donor’s passing. The assets are simply distributed to the charity or charities selected by the donor.

Planned giving is … one of the most important fundraising vehicles for charities.

A charitable gift annuity is similar to a charitable remainder trust but simplified. This is an agreement between a donor and a charity or nonprofit in which the donor gives a substantial sum to the organization, and the organization then pays the donor a set annual amount from that total sum until the donor’s death. At that point, the organization will keep the remaining amount from that total sum that was gifted. Charitable gift annuities can provide tax advantages to the donors during their lifetime.

Development and fundraising are part of the challenge. Care must be taken to ensure the charity receives the correct gift amount, gifts are paid to the correct charities or nonprofits, any adverse claims are handled, tax issues are identified and managed, payments are not delayed or misdirected, and all data regarding the donor and potential legacy donors is collected and organized for future development opportunities. So, what happens when the planned giving development is effective, and organizations receive an influx of planned gifts? A few of the many potential complications might include: A dispute over two wills or other estate-planning instruments, where one designates the charity and one does not; a family member serving as executor or trustee who is unsure of how to proceed or makes a mistake with distribution; and uncertainty over how trust or will language should be interpreted.

Unlike most gifts given by the living, each bequest requires greater care and diligence, starting with contact and dialogue with the donor’s trustee, administrator or executor, collection and analysis of applicable documents, and active monitoring and involvement in the estate administration process until the donor’s wish is honored and the correct gifts are distributed to the right charities.

Scott Kilpatrick is a founding partner of Chisholm Chisholm & Kilpatrick Ltd. and a lead attorney with its Bequest Management Practice.