Planned Giving Glossary of Terms

by Robert Miss, MAC & Gae Hoffman Savino, CFRE
Partners, Resource Development Counsel, www.rdcfunds.org

AGI Limit
Cash contributions are deductible up to 50% of a person’s adjusted gross income in their annual IRS tax return. However, cash contributions exceeding this rule can be carried forward 5 years.

American Council on Gift Annuities
A national group of charity representatives who review and recommend return rates to donors of gift annuities. www.acga.org

ACGA Assumptions
These assumptions are factored into the ACGA’s recommended gift annuity rates: life expectancy (higher return for older person); administrative costs, often a third party; investment return, review every three years; charity should realize 50 percent of the principal.

Annual Fund versus Planned Giving
Look for ways to create a partnership between annual fund and planned giving officers. For example, a gift annuity increases a donor’s income, so that a portion of the quarterly payout could be allocated to the annual fund.

Assets
Planned giving is concerned with a donor’s assets rather than income, e.g., appreciated stocks.

Bequest
An easy to understand, simple transfer of dollars in a decedents will to a nonprofit.

Would be best practice to celebrate the life of the deceased donor, not the gift itself. Also, best to develop a relationship with a small annual donor if he or she fits the profile of a planned giving prospect, e.g., 5% of a small estate will yield a worthwhile bequest.

Bequest Requirements
A bequest to a charity must spell out the legal name of the organization and the principal business address. A tax identification number is not necessary but helpful in confirming the proper identification of the charity.

Charitable Gift Annuity
An irrevocable life income gift contract through which the donor receives an annual income and the charity receives the principal at the donor’s or his/her beneficiary’s death. The charity must have the administrative capacity or use a third party to manage the sub-accounting of the annuity, as well as have a permit from the State of New York.

Charitable Gift Annuity Benefits to Donor
The donor benefits with a tax deduction on the initial gift, an annual income (some of which is principal therefore tax free), the full amount of gift is removed from the estate, and the gift creates a good feeling.

Charitable Lead Trust
The charity receives an income for the term of the trust and the remainder reverts back to the donor or heirs at the termination of the trust.

• Charitable Lead Annuity Trust (CLAT):
• Charitable Lead Unitrust (CLUT):

Charitable Remainder Trust
Donor puts dollars into a trust which gives income to the donor for life or for up to 20 years.. The nonprofit receives the remainder at the death of donor or term of the trust. Since the donor designs the trust, more than one charity may be the beneficiary. Managed by a trustee, which may be the charity but this is not advisable. A rule of thumb today for a level of giving for a CRT, due to cost of fees, is $250,000 minimum contribution

• Charitable Remainder Annuity Trust (CRAT): an irrevocable trust agreement with agreed fixed payments to the donor or heir for the life of the trust, based on a contribution of cash, stocks, or other assets. The donor chooses the percentage of income, a 5% minimum, 50% maximum to be a qualified CRAT, according to IRS rules. • Charitable Remainder Unitrust (CRUT): an irrevocable trust agreement for a fixed rate of return to the donor, based on the annually determined fair market value of the trust; therefore the actual yield fluctuates year-to-year. Additions to the trust by the donor are permitted, providing a tax deduction as well as increased income. • Net Income Charitable Remainder Unitrust (NICRUT): “From a nicer donor.” The donor of this CRUT will take the lesser of payouts if the trust does not achieve the agreement payout rate in a given year. This allows the contribution of real estate. If there’s no income via the real estate, the lesser amount is zero dollars. • Net Income Charitable Remainder Unitrust (NIMCRUT): In this variation a donor may contribute non-income producing property which will be the lesser of the trust rate or zero, but may make up the payout in a succeeding year.

Charitable Trusts
There are two main kinds of charitable trusts---the charitable remainder trust where the donor receives an income for the term of the trust and the charity receives the remainder at the end of the term of the trust; and the charitable lead trust where the charity receives an income first for the term of the trust and the remainder reverts back to the donor or heirs. Within these two categories there are annuities (fixed rate) and unitrusts (fluctuating rate).

Charities
“Organizations which save lives and/or change lives.” Panas

Continuum of Giving
There are following steps in a continuum of giving: (1) Annual Gift (on the timetable of the donor, beginning of the relationship with a belief in the mission); (2) Special Gift (on timetable of the organization, relationship where aspects of the organization excites the donor); (3) Ultimate Gift (largest gift via a deferred or testamentary agreement or instrument). (David Dunlap, Cornell University)

Culture of Philanthropy
Young persons in their first jobs should be encouraged to invest in an IRA or life insurance with a charity designated as a beneficiary. This would encourage a philanthropic spirit early in their careers.

Deferred Gift
A gift designed to be transferred to the charity in the future. “All planned gifts are not deferred gifts, but all deferred gifts are planned gifts.” Isaacson

Deferred Gift Annuity
A life income gift annuity which delays payments to the donor to begin at a future date. These are attractive to the donor as a retirement supplement and advantageous to institutional nonprofits such as colleges with the ability to honor contracts over an extended period of time.

Donor-Advised Fund
A pooled fund in which a donor may advise but not dictate the distribution of gifts.

Donor Motivation
People give because it makes them feel good. People will move up to the next level of giving if they learn and know more about an organization.

Endowment
For planned giving, a gift to an endowment potentially does the most good over a long period of time. Endowment can be part of a building campaign to provide a fund for maintenance.

Executor of an Estate
Responsible for the valuation of an estate and the execution of the will of a decedent.

Finance Office Relationship
Planned giving officers depend on a cooperative relationship with the chief financial officer of an organization to provide proper stewardship, accounting practices, and recordkeeping for planned gifts, the development office and donors themselves. The CFO must handle a number of tasks on behalf of the planned giving program, such as keeping a paper trail of transactions, following FASB rules on gifting, and understanding the need for recognition of donors. It is important for the planned giving officer to involve the CFO in donor relations such as events to gain a mutual understanding and respect for the total process of planned giving.

The Isaacson cheese cake solution: interpersonal courtesy and thoughtfulness will go a long way in this business relationship, e.g., a cheese cake for a special occasion. The Rob Miss solution: Left over bottle of Jack Daniels after an event (maybe only in Brooklyn).

Gift Acceptance Policy
A gift acceptance policy is an internal document which provides guidance to a nonprofit’s board, staff, volunteers and supporters to facilitate the gift giving process. The provisions of a gift acceptance policy should apply to all gifts received by an organization, to assure legal and proper handling and allocation of a gift. Among the questions a policy should address are: proper recognition of donor, where a gift is allocated, minimum ages and amounts for planned gifts, how various forms of gifts will be handled such as stock, real property, gifts in kind, whether the nonprofit will or will not act as trustee, who makes decisions regarding gifts, policy on disclaiming a gift. The gift acceptant policy should be as specific as possible.

Gift Appraisal
A gift of personally property valued at $2,500 or more must have a qualified appraisal. However, the charity for personal or real property is not responsible for the appraisal and needs to only issue a gift receipt.

Gift Options
There are two basic types of gift options in planned giving, those an organization accepts and those an organization offers. Gift plan offerings require an infrastructure. However gifts that are accepted require little or no infrastructure so that even grassroots organizations can participate.

Offered Gift Options (Infrastructure)
• Charitable Gift Annuity
• Pooled Income Fund

Accepted Gift Options
“Of course, we have a planned giving program.”
• Bequests
• Beneficiary of Retirement Plan
• Beneficiary of Life Insurance
• Charitable Remainder Trust
• Charitable Lead Trust
• Real Estate Gifts
• Life Estate
• Stock Gifts (requires stock brokerage account)

Ideal Planned Giving Prospect
The ideal planned giving donor prospect is an elderly single woman with no children.

Income Payments
In the case of a planned gift paying out income to a donor or beneficiary, the finance office has the responsibility to make the pay out, but the development director has the oversight responsibility.

Intestacy
If a longtime donor to a charity dies without a will, the organization is not considered, but the estate will be disbursed to relatives with any residuum going to the state. This is a good reason to persuade donors to have a will as well as provide a bequest to the charity.

KETRA
Katrina Emergency Tax Relief Act, passed by US Congress in 2005, offered tax incentive to Katrina Hurricane-related causes as well as all other charities. The law allowed a deduction of cash gifts up to 100% of a donor’s adjusted gross income for gifts given between August 28 and December 31, 2005.

Legacy Society
Starts with the question, “Wouldn’t you like to honor……?

Life Insurance Policy
With a relatively low investment in a life insurance policy making the charity a beneficiary, a donor to give a significant contribution to a charity. There are three variations: charity is beneficiary in a paid up policy; policy where premiums are paid by beneficiary or combination of beneficiary and policy owner; an new policy which names charity as the owner.

Pension or Retirement Plans
At death a pension plan can be taxed up to 85%, making these plans are a viable source of planned giving.

Personal Will
An individual’s written statement, an original document, publicly indicating how his or her personal property should be distributed at death. This can be amended only by an attached codicil (letter) written by the individual.

Planned Giving
A way to make a gift to a charity, tax exempt non-profit organization

Pooled Income Fund
A trust funded by a group of donors who receive income based on the earnings of the fund and the amount of their donation. The principal returns to the charity at the death of the donor. There is a tax deduction for the original donation avoiding capital gains, but the income is subject to tax liability. Low income rates in recent years have made pooled income funds unpopular.

Probate Court
The ultimate authority on the settling of an estate whether via a will or intestate.

“Rainy Friday” Phenomenon
Conventional wisdom and observation finds that rainy Fridays are good for exploring planned giving with a potential donor.

Residuary Estate
After the specific bequests are fulfilled in settling an estate, the residue or residual estate is settled, often by percentages.

Restricted Bequest
Bequest to a charity for a specific purpose or program. Should the specific purpose become no longer viable, a stipulation in the bequest that the charity’s board can direct funds in a similar fashion is advisable. This requires the agreement of the donor to broaden his or her thinking.

Retained Life Estate
This is a contract between the charity and the donor who deeds his primary home or vacation home to the institution but lives in and maintains the property for his or her lifetime. At death or vacancy, the home becomes the property of the charity. For the charity this is an irrevocable gift versus a gift of such a property in a will. For the donor this is a provides a significant tax write off at the present value with no capital gains as well as removing the property from the estate.

Revocable Planned Gift
Wills are revocable, so it’s important to keep the relationship with the donor alive and growing.

Social Capital Concept
Actively choose as a donor who gets one’s philanthropic dollars while also taking tax benefits.

Specific Bequest
Specific directives in the will of the deceased are distributed first. Note: Should a specific asset left in a will have been sold, such as stock, during the lifetime of the decedent, the gift is no longer available or retrievable.

Stock, Acceptance as Gift
A nonprofit must have a brokerage account to accept gifts of stock. There are three ways to acceptance:
• Stock certificates signed(or stock power form with signature guaranteed by bank officer with medallion stamp)
• Stock transfer agent via a stock transfer form. A gift notification
• letter from the donor is helpful but stock often arrives without notification.
• Electronic transfer via a broker, which provides depository trust company with transfer instructions.

Transfer of Mutual Funds
Mutual funds require that the nonprofit open an account with a mutual fund company. The gift amount, unlike stock which takes the daily average, is based on the closing price (NAV) at the end of the day.

Tax on Non-Related Entity
A contribution of collectibles, personal property, not related in any way to the work or mission of the receiving charity will be valued only on its cost basis.

[Our thanks to Davida Isaacson, Myerberg Shain & Associates for guidance in preparing this glossary.]

The Exploding Senior Market: Where Need and Opportunity Meet

by Robert Miss & Gae Savino, Partners, Resource Development Counsel

The Westchester Public/Private Partnership for Aging Services (WPPPAS), a nonprofit advocate on senior issues by businesses and providers, and the Westchester County Department of Senior Programs and Services (WDSPS) have teamed up to make sure the Westchester point of view on issues of aging is heard loud and clear at the next White House Conference on Aging in 2005, or in 2006 depending on the national elections outcome.

This local initiative, the Pre-White House Conference on Aging 2004-2005 Mini-Series, will consist of 14 caucuses, each climaxed by a public hearing on issues like health and wellness, diversity, long term care, financial planning, and employment.

Legislation Affecting Business

When WDSPS Commissioner Mae Carpenter was asked what this could possibly mean for business, her reply, “Every
White House Conference on Aging since the Eisenhower administration has had an impact on legislation and policies which
have affected the way companies do business. How they must
deal with older workers, retirees, workers who carry a job and care for an older person. The business point of view about aging issues needs to be heard. This is their opportunity.”

Dr. John Migliaccio of White Plains, President of the American Institute of Financial Gerontology, underscores the Commissioner’s
advice to business, “Participation in setting the agenda for the upcoming White House Conference on Aging will require relatively little time and money which could save millions later. Although these White House Conferences on Aging occur only once every decade, they have led to significant legislation, such as the Age Discrimination in Employment Act, the Employee Retirement Income Security Act, elimination of the mandatory retirement age, and more recently the 1992 Family Leave Act.”

Elderboom: Challenges & Opportunities

Speaking on June 30th to Westchester company representatives at an invitation-only breakfast on the “Exploding Senior Market,” Dr. Migliaccio said, “One reason businesses need to be heard on aging issues is self protective when you look at prior legislation. On the business horizon there are aging issues such as health care benefits and economic security for workers and retirees. These are enormous challenges that will mushroom like an atomic cloud. But we must also look outward from our businesses to the marketplace. The senior market, now being called the “elderboom,” is also mushrooming; an opportunity exists in this country and our county like never before.”

Here Come the Boomers

Westchester County has a particular reason to pay attention to the exploding senior market because one out of five citizens is 60 or over, and about 100,000 baby boomers will hit 60 in 2006, according to a recent study by the WPPPAS and WDSPS, “The Millennium Aging Project.”

The boomer generation will have very different characteristics from those seniors who are now pushing towards frail elderly status, according to a just-released study sponsored by MetLife, “Reinventing Aging: Baby Boomers and Civic Engagement.” Several studies have projected that aging boomers will be more active, more demanding of a quality lifestyle, will be working as long as possible, not generally active as volunteers but opting for part time work either for a business or nonprofit.

Dr. Migliaccio, author of “77 Truths about Marketing to the 50+ Consumer,” emphasizes, “By participation in the White House Conference proceedings here in Westchester we will learn more about the rapidly changing senior market, what products and services they need and want and how business can adapt and innovate.”

Every Point of View Needed

Mae Carpenter: “The goal of the Pre-White House Conference on Aging Mini-Series is to have every point-of-view represented, from the widow living alone in a big house who needs help to the CEO of a large company who has to look out for his workers and the bottom line.”

Participation Encouraged with Benefits

According to WDSPS, company representatives are encouraged to become partners and sponsors by participating in one of the 14 caucuses in 2004, or later on a panel in a public discussion in 2005. Companies can also offer in-kind support such as their facilities as venues for caucuses and meetings, or underwrite printing costs.

Sponsoring companies will be listed in all materials, events, press releases and articles. For prominent acknowledgement, companies can also sponsor information on Mini-Series activities in Generations, a bi-monthly newspaper published by the WDSPS and WPPPAS. Generations reaches approximately 125,000 seniors in Westchester, with plans for expansion to circulate the paper to persons 50+ in the county.

How to get information and involved: Call 914-714-2295, or e-mail via www.rdcfunds.org 
 

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