October 2007 Issue

Options for all

In years past, planned giving was considered a tool of the very wealthy, who often structured their charitable activities to ease their tax burdens while ensuring their legacies.

But the versatility of today’s planned-giving options is making it possible for people of average means to make a lasting impact on their favorite charities. That’s good news for nonprofit organizations throughout Ohio, as a broad spectrum of institutions are increasingly relying on planned gifts to supplement their annual fundraising campaigns.

“In recent years, planned giving has been democratized,” says Joe Macedo, associate vice president for gift and estate planning at Kent State University. “People of all income levels have discovered that they can now make exceptional charitable contributions.

“For example, a retired schoolteacher or firefighter who owns his or her own house can make a planned gift of that house to a charity after they die. Let’s say that house is worth $200,000. A contribution of that amount during their lifetime would be darn near impossible because it would interfere with their own daily financial needs. But they can bequeath their house and change the destiny of a charity with a single gift.”

Macedo and his peers say that middle-class donors are the fastest-growing segment of the planned-giving industry. “With planned gifts, every person can do what a rich person does,” he notes. “People of modest means can’t afford to give away as much when they are living, so they give their assets away when they are finished using them, whether it’s their house, their artwork or their jewelry.”

During the next several decades, our nation will experience an unprecedented transfer of intergenerational wealth — about $10 trillion, according to a study by Cornell University economists. With an eye toward attracting a portion of that wealth, nonprofit organizations of all sizes are touting the benefits of planned giving, which are essentially tools that enable donors to support a charity after their death. Planned-giving strategies can range from complex trusts to gift annuities and simple bequests in a will.

 

Gifts of Any Size
In some planned-giving scenarios, donors who pledge assets to a charity can get a tax deduction and lifetime income based on the size of the gift. Upon the donor’s death, the assets are transferred to the charity. While the charities don’t receive the full benefit of the donation for years or decades, the client gets immediate tax relief, lifetime income and the gratification of giving.

“I think people are beginning to realize that planned giving is not difficult and it’s not just the domain of millionaires,” says Jodi Segal, director of development at the Ohio Environmental Council (OEC). “Setting up a planned gift can be as easy as adding a line in your will. And we’re finding that the people who donate $25 and $50 at a time are often the people who are making planned gifts these days. “Of course, we’d love to have that million-dollar donor also, but a gift of $5,000 can really help us.”

 

Founded in the early 1970s, the OEC works to secure fresh air, sustainable land use and clean water for all Ohioans. “We’re focused on the most important environmental issues facing the state,” says Segal. “Fortunately, there’s been a huge upturn in public interest in these issues in recent years. It’s not just the so-called tree huggers anymore who are concerned; it’s soccer moms and NASCAR dads who are concerned about the environment. It’s become a pressing issue for more and more people.”

Segal says planned gifts add a measure of stability to the OEC’s operating revenues. “If you have a retirement fund or you own your home, then please think of us when you’re drafting your will,” she notes. “A gift to the OEC can have a real lasting impact.”

 

With increasing competition for charitable dollars, many nonprofit organizations are relying on their network of community-based professional advisors to cultivate planned-giving donors. “We spend a lot of time educating local attorneys, accountants and insurance people about the importance of our organization,” says Mary Newman, director of planned giving at the Cincinnati Zoo & Botanical Garden.

“By [our] educating the professional advisors about our mission and needs, they can help their clients to recognize the difference they can make by supporting us,” Newman explains. “We want anyone who has a passion for wildlife conservation and the environment to know that they don’t have to be wealthy to help. Whether it’s $2,500, $10,000 or a much larger gift, the bequests and other planned gifts are important because they build our endowment and allow us to continue our critical research and educational projects.”

Newman says she’s finding that many members of the zoo’s volunteer corps have become planned givers. “They are so dedicated and they have such a strong commitment to the zoo that they want to assist us by including us in their will,” she says. However, she adds that in more than 75 percent of cases, the donors don’t disclose they have arranged to make a planned gift. “That’s too bad, because we would have liked the opportunity to thank them during their lifetime. I think that most nonprofits feel the same way. We would all like to be informed that someone is planning to leave us something. It helps us plan our budget and also gives us a chance to show our appreciation.”

 

 

Planned-giving Strategies
Will bequests are a simple, straightforward method of planned giving, but many individuals wish to donate assets to a charity while they are alive, but elect not to because of their need for income. The solution may be a charitable gift annuity. With this vehicle, you make an irrevocable gift of cash, securities or other assets to a charity and receive a guaranteed payment for life or a specified term. The rate of payment increases with the beneficiary’s age, and because charities are generally tax-exempt, the rate of payment is typically higher than a comparable certificate of deposit. Most charities follow rates that are recommended by the American Council on Gift Annuities. In addition, donors may be able to claim a charitable deduction for a portion of their gift.

 

Other planned-giving vehicles are available for donors who wish to reduce their income and estate-tax liabilities — and leave more for their heirs. (Of course, before embarking on a planned-giving strategy, it’s important to consult with your professional advisor to ensure that your philanthropic goals match up with your particular financial situation.)

If you own appreciated assets such as stock or real estate, and are reluctant to sell because of hefty capital gains taxes, a charitable remainder trust (CRT) may be an attractive option. The CRT is most often used for donations of $100,000 or more. To establish a CRT, you donate assets to a nonprofit, which sells the asset and manages the proceeds so they will produce income for the donor or a named beneficiary. You receive an immediate charitable income tax deduction and then, at your death or the end of the period you set, the property goes to the named charity. Since the property is no longer in your estate, it isn’t subject to federal estate tax.

For those who wish to support charitable organizations during their lifetime, yet pass on their assets to their families, the vehicle of choice may be a Charitable Lead Trust (CLT). In a typical scenario, the donor sets aside stocks or other financial assets that provide interest income to a charity during the donor’s lifetime. At the donor’s death, the assets are passed back to named beneficiaries (often children and/or grandchildren). As in the CRT, Charitable Lead Trusts receive preferential tax treatment.

At the Cleveland Council on World Affairs, officials are in the process of launching a planned-giving program that will focus on the use of donor-advised funds administered through The Cleveland Foundation.

The increasingly popular donor-advised funds are investment accounts that enable individuals to contribute assets to a community foundation or financial institution (the minimum is usually $10,000) and receive an immediate tax deduction. The foundation or financial institution then makes periodic grants (in this case, to the Cleveland Council on World Affairs) based on instructions from the donor and family members. “Planned giving is certainly a critical tool for those organizations that bring significant value to their communities and, in turn, would spur an individual to want to support that organization,” says Mark Santo, the Council’s president and CEO.

Founded in 1923 to promote world peace, the Council hosts foreign visitors and sponsors lectures and educational programs that promote greater understanding and personal engagement in international relations and global issues.

 

While he acknowledges the preponderance of worthy charitable organizations in Ohio, Santo says it’s becoming increasingly important to support the Council and similar groups.

“Why would someone want to consider us for a planned gift? The answer is ‘globalization,’” he explains. “Particularly in northeast Ohio, globalization has hollowed out our industrial base and led to the continuing decline of the City of Cleveland In the past 10 years, India and China have put a billion more people in the world’s workforce. This will have a profound impact on us and will change the nature of economies and nations in years to come. Issues such as climate change, immigration flows, and the decline of the U.S. dollar all fit under the rubric of globalization and will affect every one of our livelihoods. The Cleveland Council on World Affairs can have a positive effect on the community by helping to eliminate the issues surrounding globalization. This alone makes us worthy of significant planned giving.”