Helping Your Donor Find the Right Charitable Gift Plan

We know that people give to charities for many different reasons. The donor must feel that he is getting some kind of benefit from the act of giving. It may be enough for some donors to know that they are doing "good." Other donors may need to know that when they make a charitable gift they will be also accomplishing a financial goal for themselves or their families.

Sometimes we do a poor job of listening to our donors while explaining the benefits of charitable giving to them. There is nothing wrong with telling the donor that their donation may provide tax or financial benefits, especially if that gift is a planned gift. In fact, we are remiss if we do not provide the donor with a complete explanation of how his gift not only helps the charity but may affect the donor's finances.

A large part of our jobs as gift planners revolves around educating the generous people who give to our charities, and planned gifts especially can be challenging to explain. But when donors learn that planned gifts can sometimes serve as a solution to their financial goals, they often wonder why no one has ever given them this information before! Life income gifts can certainly fall into this category.

The secret to helping our donor sometimes is as simple as listening to what our donor tells us. What is the donor trying to accomplish? What is stopping the donor from making that gift to your charity? If we are truly developing relationships with our donors, we should be able to answer these questions. Sometimes charitable gift plans can help the donor accomplish his/her goal while helping your charity. Here are two common scenarios we see:

Your donor wants to give a substantial gift to your charity but needs the income from his income-producing assets.
If your donor meets this description, a life income gift may provide the answer. Charitable remainder trusts and charitable gift annuities are two gift options your donor may find attractive.

• If the assets held by the donor are stocks that are producing low dividend yields, the solution may be in using those securities to fund a charitable remainder trust. The stocks can be sold and replaced with higher-yielding assets, often providing the donor with a higher income that he received from the stock's dividends and leaving a generous charitable gift after the donor's death. The donor can receive a significant charitable deduction when establishing a charitable trust.
• Another solution if your charity offers charitable gift annuities is to fund the annuity with the stocks, providing the donor a guaranteed life income each year, which in most cases will be significantly higher than the dividend income from the stocks. The donor receives a charitable tax deduction for the value of the gift portion of the annuity. Part of the annuity payment is tax-free, and any capital gains are paid out and taxed over a number of years rather than immediately. Again, whatever remains at the donor's death provides a gift to the charity and the donor's estate may get a deduction for the remainder.

Your donor does not need additional income, has reasonably large assets in his estate, but will not give up control of those assets although he has expressed interest in making a difference at your charity.
It is not uncommon to have donors who will not commit to a major charitable gift because they just cannot give up the control that they like to have over their assets. They worked hard for those assets, and they want to make sure their gifts are handled appropriately. There are several gift arrangements that will allow the donor to retain some control over assets.

• A charitable gift fund or donor-advised fund may be the answer for this donor. There are a number of commercial gift funds available in the marketplace and many community foundations offer donor advised as well. The donor transfers assets into a gift fund, receiving significant tax benefits when the money is transferred. Although the transfer is "irrevocable" in the sense that the assets must remain in this charitable account, the donor retains discretion over how much is given out each year to charities.
• If the donor has sizeable assets, he may want to consider establishing a supporting foundation for your charity or several charities. While there are legal hurdles when establishing a private foundation, this has become a popular alternative for donors with significant wealth. The donor may receive tax benefits and can decide how to distribute the funds each year.

If the donor wants to continue to support your organization, he can do so by deciding each year how much he will give from his fund or foundation. These arrangements allows the charity to continue to build the relationship with the donor, which will hopefully result in continued gifts and perhaps an estate gift as well. It allows the donor to maintain the control he needs. It also provides tax advantages when the account is established.

• A simple charitable bequest through a will or revocable trust may be the answer for some donors. While no immediate tax advantages are available to the donor, the donor continues to have control over his assets because a will or revocable trust can be changed easily.

These are just a couple of the scenarios we encounter as we work with our donors and try to find solutions to their needs. We will look at other solutions in upcoming articles.