Starting, operating, and maintaining a nonprofit is a noble endeavor. Whether created to address a specific cause or for the public benefit in general, nonprofits are special types of business entities that place the success of their mission above generating profits. While earning money allows them to flourish and possibly expand their operation, another important revenue stream for nonprofits comes through donations.
While every donation is a boon for nonprofits, the size and reliability of planned gifts makes them exceptionally desirable. Often the result of bequeathments from those who've passed on, the amounts derived from legacy giving can help ensure the survival of a nonprofit and bring it one step closer to its goals.
Understanding what planned giving is, how donating planned major gifts can benefit potential donors, and the ways to best prepare a planned giving program can make a huge difference for a nonprofit. Let's examine the important factors on getting major donors to commit to making a lasting impact with their charitable giving.
What Are Planned Gifts?
There are countless ways for a nonprofit organization to raise funds. Donations are often a large source of revenue. While bake sales and car washes can be effective, the security and generosity that often accompany planned gifts are a tremendous asset.
Planned gifts from a nonprofit's donor base can include bequests left in a will or as part of an estate. There are other types of planned gifts as well. These include:
- Deferred gifts: These gifts are often bequests in wills or part of the estate from a donor after they've passed. They can consist of cash, assets, real estate, a percentage of an estate, or the remaining value of an estate after the beneficiaries have received their shares. A donor can name a nonprofit as the beneficiary of a life insurance policy or whatever's left in a 401k or IRA account.
- Planned gifts that pay an income: Sometimes a donor and a nonprofit can plan for a long and mutually beneficial relationship. In this arrangement, the donor makes a donation that the nonprofit invests and gets a source of income in return. Some people use this as a retirement plan. This can take a few different forms:
- Charitable gift annuities usually provide substantial tax deductions for the donor. The nonprofit often gets to keep what gets earned above the income amount.
- Charitable remainder trusts generate a fixed income based on the amount donated. In most instances, this will last for a set amount of time with the nonprofit receiving the donation after the trust expires.
- Charitable remainder unitrusts determine payments to to the donor based on the value of the donated assets. These are reassessed every year to adjust the amount paid out.
- Planned gifts that safeguard a donor's assets often involve retained life estates or charitable lead trusts. Both involve the nonprofit being gifted assets of some type. In a charitable lead trust, they revert to the donor or their beneficiaries after a set time or the donor's demise. Under a retained life estate, the donor continues to use a property after transferring the title to the nonprofit. After either the term or the donor expires, the nonprofit can do what it wishes with the property.
- Donor-advised funds (DAFs) are a sort of philanthropic savings account. Donors can add to the funds to have a ready source for donations and can schedule regular payments to a nonprofit. This sort of financial planning meshes well with the gift acceptance policies of most nonprofits.
There are other methods of planned gifts as well.
Why Planned Gifts Are Great for Your Donors (and Your Nonprofit)
Your donors will often be people who already believe in your nonprofit's mission. Having a reliable source of donations can help your organization excel at what it's trying to do. While donors are already eager to aid in your cause, they might not know the benefits of planned giving.
Helping them understand the advantages available through planned legacy gifts can work for both nonprofits and donors. Be sure they're aware of:
- Tax benefits and deductions: As mentioned above, donations are usually tax-deductible. This can include estate taxes, capital gains taxes, and more. Consulting with a tax law attorney or financial advisors can arm you with important knowledge to share with your potential planned giving donors.
- They can tell you how to use their donation: None of us will live forever, but often we can affect the legacy we leave behind. Donors can specify how they would like their donations to be allocated by the nonprofit. They can also choose whether to be anonymous or take credit for their largess. Prime examples of this range from a plaque on a refurbished Little League field to a brand-new hospital wing named after the donor.
- Live now, donate later: You may not be able to take it with you, but you're probably going to need it before you shuffle off this mortal coil. By setting up a planned gift that either gives back income or doesn't take effect until after their passing, the donor is assured that both their needs will be met and their charity will benefit as well from this type of estate planning.
- Having the security of a planned gift allows your nonprofit to operate with a level of security: It's normal for a donor to feel a sense of pride when they realize that their donation means your nonprofit isn't going to need to scramble to keep the lights on and get people paid. In essence, they're insiders, a vital part of your mission's success.
- Planned gifts are often greater in value: Yearly and legacy donations tend to be of higher amounts. In general, planned gift amounts tend to increase in value as the donor ages. Getting a piece or property or a bequest from an estate can be a gamechanger for your nonprofit and a way for the donor to forever be part of your organization.
Other good reasons for donations as planned gifts might present themselves from your unique situation. Any annual giving or charitable bequest is a bonus for your nonprofit.
The Gift That Keeps on Giving
Planned gifts are a great way to make the contributions of those who believe in your mission have the most impact. In addition to often being of increased value, knowing when your donations will be available and how much they'll be can provide advantages beneficial to your nonprofit's success.
Wanting to make the world a better place is admirable. Getting all the help you can to make your nonprofit's dream come true through annual gifts, endowments, and the fruits of a robust gift program is a good idea while providing a lasting legacy for your donors.
Related Resources
- How To Use Your Nonprofit Website To Fundraise (FindLaw's Small Business Law)
- How To Form a Nonprofit (FindLaw's Incorporation and Legal Structures)
- Fundraising Laws Entrepreneurs Should Know (FindLaw's Law and Daily Life)
