10 Fundraising Strategies for Complex & Major Gifts During COVID-19

The following guest blog post is from philanthropy researcher Russell N. James III, JD, PhD, CFP^®. He originally posted it on LinkedIn, and I’m reposting it here with Russell’s kind permission. I’m reposting the piece because of the enormous importance of the subject and the valuable information it contains.

Engaging donors in planned-giving conversations is still possible during the coronavirus pandemic. Last week, Russell and I shared our FREE whitepaper “Legacy Giving: The Best of Times or the Worst of Times?” Now, I want to share Russell’s 10 charitable planning strategies you should keep in mind when seeking complex and major gifts during these challenging times:

 

The market went down. A lot. The economy is temporarily frozen. Unemployment may increase dramatically. In the past, all of these things have been bad for charitable giving. We can’t control that. So, what can we control? What strategies make sense for fundraising, in particular for complex and major gifts?

Here are ten charitable planning concepts to keep in mind.

1.    Crisis is the time to show support

A social/friendship/family relationship encourages sharing. A transactional/market/exchange relationship does not. We see this in fundraising experiments where family language (simple words and stories) consistently outperforms formal language (technical words and contract language). One of the defining moments that identifies a friendship relationship, rather than a transactional relationship, is during a crisis.

In our personal lives, we know this. When you might be in trouble, a good friend is one who reaches out to help. A friend visits you in the hospital. A friend comes to the funeral with you. A friend listens whenever trouble strikes. In time of crisis, reaching out with concern, help, or even a relevant gift reinforces this social/friendship/family type of relationship.

Ideally, the first contact with donors in a time such as this should begin with concern. Are you OK? Do you need anything? Can we help? Later, we can return to the typical donor-charity dynamic. (If you represent a cause related to public health or COVID-related assistance, that return may happen more quickly.) But, first we want to show friendship-like support during a time of crisis.

2.    The first giving conversations should be with DAF-holders

Requests made to donors with funded Donor Advised Funds will be successful earlier than requests made to others. During times of downturn and uncertainty, people are more likely to hold tightly to their wealth. This drives down charitable giving. But distributing funds already in a DAF doesn’t affect personal financial security.

During the last major economic downturn, many private foundations temporarily increased their distributions to help soften the blow for their grantees. The same reasoning can apply to individual donors who have already funded their DAFs. Due to tax planning strategies, many may have placed multiple years’ worth of future expected donations into a DAF. Given the current crisis, it makes sense to consider this as a time to empty those accounts earlier than originally planned.

3.    One-time special requests work, but be careful with a crisis

In fundraising experiments, people are more willing to donate in response to a special, one-time need than for ongoing needs. An appeal for one-time needs that arise as a result of the current turbulence may be particularly effective. In experiments, people respond more to appeals during a time of crisis. We are all sharing this experience together. We can work together to help overcome the effects of this hit.

However, it is important in such appeals to identify the crisis as a crisis for beneficiaries or for the cause, but not an organizational crisis. Projecting organizational instability might help get the $50 gift today, but it will come at the cost of the major donation later down the road. Major philanthropic investments don’t go to unstable organizations.

4.    Use planned gifts as your “Plan B”

During times of downturn and uncertainty, people are more likely to hold tightly to their wealth. Planned giving opportunities can help “lean into” this uncertainty.

Estate gifts take place only after the donor no longer needs the money personally. They can also be revocable. They can be a percentage of the estate, and thus can vary in size with financial ups and downs. These percentage gifts are actually much better for charities because they usually end up being much larger. (Fixed dollar gifts tend not to get updated for inflation.)

Irrevocable planned gifts can also help with financial uncertainty. These typically give the donor lifetime income or lifetime use of the donated property. Thus, the gift can be made while still protecting the financial security of the donor.

If a donor needs to back away from a commitment or feels that a future ask is too daunting, consider planned gifts as a “Plan B”. A response to such a refusal might include revocable or irrevocable planned gift options.

I certainly understand your concerns. I know others in your same situation who have decided to move their commitment into an estate gift instead. This provides flexibility with no upfront cost. There are even ways to do it that provide tax benefits. Would you be interested in learning more about these options?”

[This is followed by discussion of: 1) Gift in a will. 2) Beneficiary designation on an IRA/401(k), avoiding income taxes that heirs would otherwise have to pay. 3) Retained life estate, creating an immediate income tax deduction, discussed below.]

I certainly understand your concerns. I know others like you who have decided instead to make a gift that gives them lifetime income. With interest rates being so low and the market being so volatile, many people like the fixed payments coming from a charitable gift annuity. Would you like to learn more about this?”

5.    A charitable gift annuity as a two-stage gift

For those representing stable institutions offering Charitable Gift Annuities (CGAs), this may become a particularly attractive gift. A CGA usually trades a gift for annual lifetime payments to the donor (or donor and spouse). During times of uncertainty, the guarantee of fixed payments from a stable institution can be attractive. Following the last dramatic drop in the market in 2008, some large, stable organizations reported receiving exceptionally large CGAs. These very large gifts would normally have been structured as a Charitable Remainder Trust. But during extreme volatility, donors instead preferred the certainty and stability of payments guaranteed by the organization rather than payments tied to investment returns.

A charitable gift annuity can sometimes be presented as a two-stage alternative when uncertainty prevents a normal gift from being made.

I certainly understand your concerns. Another donor like you was in your same situation and she decided to protect against all this volatility by making the gift in two stages. First, she made a gift that gave her annual payments for life. If things go downhill, she has that income. But, if everything turns around and she ends up not needing the extra money, then she can donate those future payments as a second gift.”

Section II: Wonky Charitable Tax Planning Opportunities

New Charitable Giving Incentives in CARES Act

At the end of last week, President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The $2.2 trillion rescue package comes in response to the economic fallout from the coronavirus pandemic. The measure contains a number of provisions to encourage greater charitable giving including:

Universal Charitable Deduction Provision. Taxpayers who are non-itemizers may take an above-the-line deduction for charitable giving up to $300 in cash contributions during 2020. Contributions to Donor Advised Funds are not eligible. While the provision was intended to be temporary, the law itself states it “begins in 2020” and does not contain a sunset date, according to Jason Lee, former Chief Advocacy and Strategy Officer and General Counsel at the Association of Fundraising Professionals. That means that the provision might extend beyond 2020, something advocacy groups will seek to ensure along with trying to raise the $300 cap.

Increase of Itemizer Charitable Giving Cap. For 2020, the CARES Act eliminates the current cap on annual deductible-contributions for those who itemize. The law raises the cap from 60 percent of adjusted gross income to 100 percent.

Corporate Giving Incentives. The law raises the annual giving limit from 10 percent to 25 percent of taxable income. Furthermore, corporations will be permitted to increase deductions for food donations with the cap increasing from 15 percent to 25 percent of taxable income.

Non-philanthropic Provisions for Nonprofits. The law contains several other provisions that can directly benefit nonprofit organizations while not involving philanthropy. The National Council of Nonprofits has prepared a summary of these key provisions, which you can find by clicking here.

It’s All Up to You Now

It’s that time of year once again. It’s the season when most charities raise the most amount of money, perhaps because that’s when most fundraising activity happens. However, how tough will it be to raise money as the end of 2019 approaches?

You might be concerned about a recession on the horizon. You should be. We’re experiencing a record for sustained economic growth that quite simply can’t go on forever. A recession is bound to hit eventually even without factoring in trade wars, political turmoil, disruptions to the global oil supply, and the threat of foreign wars.

Among ultra-wealthy Americans, those with an average worth of $1.2 billion, 55 percent believe the US will enter a recession within the next year, according to the UBS Global Family Office Report. About 45 percent of respondents are sufficiently concerned that they are boosting their cash reserves, and 45 percent are realigning their investment strategies to mitigate risk.

While recession fears loom, a major economic downturn has yet to take shape. In other words, the economic climate is currently good from a fundraiser’s perspective. Could it be better? Sure. Always. But, it’s plenty good enough for you to anticipate a successful year-end fundraising effort. Consider some of the following six economic factors (as of Oct 4, 2019):

Gross Domestic Product. GDP is growing at a rate of 2.0 percent. Overall philanthropy historically correlates closely with GDP. So, if GDP goes up, we can anticipate that philanthropic giving will also increase.

Unemployment. The national unemployment rate is 3.5 percent, the lowest since 1969. If more people are working, more people will likely have funds with which they can donate.

Wages. Wages have increased 2.9 percent over 2018. Individual giving closely correlates to personal income. So, if personal income is rising, we can anticipate a rise in individual philanthropy.

Stock Market. The stock market, while volatile, has been performing well. This year, the Dow is up 13.92 percent, the NASDAQ is up 20.30 percent, and the S&P is up 17.76 percent. This is good for fundraising for two important reasons worth mentioning here. First, stock growth means that foundations and donor-advised funds will have more money with which to donate. Second, many individuals own stocks that have appreciated in value. When donating appreciated stocks, individual donors can avoid capital gains tax. In other words, even if someone can’t claim a charitable gift deduction under the current tax code, they can still derive a tax benefit by contributing appreciated securities.

All You Need to Know about Decrease in Itemized Charitable Deductions

When it comes to philanthropic trends, recent media reports have left many fundraising professionals lost in the weeds and confused by misleading analysis. So, I’m going to give you the most important insights about individual giving that you need to know now along with three practical tips.

First, here’s some quick background. Overall, charitable giving reached an historic high in 2018 with $427.71 billion contributed, according to Giving USA 2019. Despite this great news, individual giving, excluding bequests, fell 1.1 percent to $292.02 billion. There are many reasons for the slight dip, which you can read about in one of my prior posts. One of the factors that may have played a role is the new tax code. With it, we saw a dramatic increase in the number of taxpayers taking the standard deduction and a drop in the number choosing to itemize their deductions.

That brings us to a big takeaway that almost no one is talking about:

The charitable tax-deduction is not a substitute for a solid case for support.

This was true prior to passage of the Tax Cut and Jobs Act; it’s even more true today. Before the new tax code went into effect, less than one-third of taxpayers itemized their returns, and less than one-quarter of taxpayers claimed a charitable tax-deduction. Now, only about 10 percent itemize and 8.5 percent claim a charitable deduction, according to the Tax Policy Center. To put things another way, for the majority of donors, tax issues were never a viable consideration when it came to charitable giving. Today, tax considerations are an issue for even fewer people.

This all means that the classic, but foolish, year-end appeals touting the tax benefit of giving before December 31 are even more irrelevant than ever. Furthermore, it means that the relevance of the idea of year-end giving itself has been diminished. If someone doesn’t need to do year-end tax planning, why would they need to wait until year-end to donate? The reality is most people can give at any time with the same effect on their finances.

In light of all of this, here are the three things you should do:

Do Not Fall for Newsweek’s Fake News!

You might have seen it recently. Sophie Penney, PhD, President of i5 Fundraising, saw it and then asked me what I thought. So, thank you for the question, Sophie; here goes…

Newsweek posted an article with this headline: “Trump Tax Plan Leads to $54 Billion Decline in Charitable Giving.”

There’s only one problem: IT IS NOT TRUE!

Shockingly, not even the body of the article supports the headline. Instead, the writer talks briefly about a $54 billion drop in itemized donations NOT a $54 billion drop in giving. This does NOT mean there was a $54 billion drop in actual giving. With fewer people itemizing their taxes, of course there would be fewer itemized donations. However, that does not mean fewer donations. Many donors will continue to give and continue to give generously despite not being able to itemize. By the way, the writer provided no source for the $54 billion figure.

The article furthers its doom-and-gloom theme by asserting that there was a 1.7 percent decline in overall charitable giving. However, the writer did not mention that that figure was for inflation-adjusted dollars. In real dollars, giving actually went up $2.97 billion (0.7 percent) between 2017 and 2018, and now stands at $427.71 billion, the highest level of all time, according to Giving USA 2019. Even if we look at inflation-adjusted dollars, giving in 2018 was the second highest in recorded history. Not bad.

If we want to understand the current philanthropy environment, we need to have an honest conversation using real information. In a previous post, I identified several factors affecting charitable giving:

I Told You So: Charitable Giving is Up!

Most charity pundits, mainstream media, and press serving the nonprofit sector got it wrong. Sadly, none of them is admitting their mistake, and many are continuing to advance a false narrative. However, I always told you the truth, and I’ll continue to do so.

I’ve often encouraged you not to overuse statistics in your appeals. But, we can all certainly benefit from reading lots of illuminating statistics.

In 2017 and 2018, most pundits and the media were convinced that the Tax Cut and Jobs Act would result in up to a $21 billion decrease in philanthropic giving. In January 2018, I joined a tiny group of professionals who predicted the decrease in giving would be far less than that and giving might actually increase. This was not a guess on our part, but a well-educated expectation based on research, experience, and observation.

Now, with the release of Giving USA 2019, we know who was correct.

Overall, philanthropic giving in constant dollars INCREASED by $2.97 billion (0.7 percent) between 2017 and 2018, and now stands at $427.71 billion, the highest level of all time. Relative to Gross Domestic Product, giving remained at 2.1 percent, which is greater than the 40-year average of 2.0 percent.

Despite the generally good news, the philanthropy scene is not entirely positive. When adjusting for inflation, giving in 2018 did decline by 1.7 percent, though that was much less than the doom and gloom estimates. Furthermore, giving by individuals as a share of overall philanthropy accounted for 68 percent; this is the first time since at least 1954 that it has fallen below 70 percent. In 2018, individual giving fell by 1.1 percent in constant dollars.

While the new tax code likely had an effect on charitable giving, we need to be careful not to overstate its impact. A number of factors have influenced giving:

New Tax Code. All or part of the decline in individual giving in 2018 could be due to donors taking action in advance of the tax law change. We saw this in 1986 when there was a spike in charitable giving in advance of the Reagan tax cuts in 1987.

In 2017, many donors likely front-loaded their philanthropic giving since they would no longer be able to deduct gifts beginning in 2018. In addition, many donors chose to bundle their philanthropy by contributing to Donor-Advised Funds at record levels in 2017. Together, these two factors might explain the 1.1 percent decrease in individual giving in 2018 compared to a 5.7 percent increase in 2017. If not for the new tax rules going into effect in 2018, some of those 2017 donations might have been made in 2018 instead.

The tax code might also affect giving in other ways that we just don’t see clearly at this point. Just as we had to wait until 1988 to see giving normalize following the Reagan tax cuts, we may need to wait another year or two to understand the full effect of the current tax code.

Decline in the Number of Donors. Since 2001, the percentage of US households contributing to charity has fallen steadily from a high of 67.63 percent to 55.51 percent in 2014, according to data from the Indiana University Lilly Family School of Philanthropy’s Philanthropy Panel Study. In other words, the new tax code is not responsible for a sudden decline in the number of donors. This trend has been going on for years.

How Generous is the Charitable Giving of Presidential Candidates?

While I applaud anyone who donates money and/or time to charities, some deserve more applause than others do. Since the presidential campaign season has begun, and with federal tax returns due earlier this week, The Washington Post has reviewed the charitable giving of the 2020 presidential candidates who have released their federal tax returns so far.

Here is what we know from the most recently released tax returns (with candidates and their spouses ranked from least to most generous as a percentage of Adjusted Gross Income):

Beto O’Rourke donated $1,166, 0.3 percent of AGI.

Kamala Harris donated $27,259, 1.4 percent of AGI.

Kirsten Gillibrand donated $3,750, 1.75 percent of AGI.

Amy Klobuchar donated $6,602, 1.85 percent of AGI.

Bernie Sanders donated $18,950, 3.4 percent of AGI.

Jay Inslee donated $8,295, 4.0 percent of AGI.

Elizabeth Warren donated $50,128, 5.5 percent of AGI.

For perspective, here is some information about past presidential candidates:

Here are Some Things You Need to Know

Now that the 2018 year-end fundraising season has closed and you’ve had a moment to catch your breath, I want to share some things with you that you might have missed.

To begin, here is a list of my top ten most read posts published last year:

1. How Bad is the New Tax Code for Your Charity?
2. It’s Time to Stop Whining about Donor-Advised Funds!
3. 9 Hard Truths Every Fundraiser Needs to Face in the 21st Century
4. New Charitable Gift Annuity Rates Announced
5. Jerold Panas (1928-2018), He Will Be Missed
6. Setting the Record Straight about Jimmy LaRose
7. Will One Charity’s Surprising Year-End Email Make You Look Bad?
8. The Dark Side of the Fundraising Profession
9. How to Get Last Year’s Donors to Give More this Year
10. Avoid the 7 Deadly Sins When Working with Volunteers

Here’s a list of just five of my older posts that remained popular in 2018:

1. Can a Nonprofit Return a Donor’s Gift?
2. Can You Spot a Child Molester? Discover the Warning Signs
3. Here is One Word You Should Stop Using
4. 5 Things Never to Do in Your Phone Fundraising Calls
5. Special Report: Top 40 Most Effective Fundraising Consultants Identified

I invite you to read any posts that might interest you by clicking on the title above. If you’ve read them all, thank you for being a committed reader.

Over the years, I’ve been honored to have my blog recognized by respected peers. I’m pleased that, among the thousands of nonprofit and fundraising sites, my blog continues to be ranked as a “Top 75 Fundraising Blog” and as a “Top Fundraising Blog – 2019.”

To make sure you don’t miss any of my future posts, please take a moment to subscribe to this site for free in the designated spot in the column to the right. You can subscribe with peace of mind knowing that I will respect your privacy. As a special bonus for you as a new subscriber, I’ll send you a link to a free e-book from philanthropy researcher Russell James, JD, PhD, CFP^®.

In 2018, I was pleased to have two of my articles published in Advancing Philanthropy, the official magazine of the Association of Fundraising Professionals:

Have You Done Something Stupid to Alienate Donors?

As 2018 drew to a close, my wife and I received a few good emails from nonprofit organizations. I even highlighted one of those in a recent blog post. Unfortunately, we received far more fundraising appeals that I can only describe as stupid.

The garbage email appeals simply mentioned that December 31 was fast approaching and, therefore, I should donate to that particular charity while there was still a chance to do so in 2018. Doing multiple count-down to year-end emails simply magnified the annoyance.

So, what’s the problem with that? Let me make it simple and clear:

The calendar is not a case for support!

Jack Silverstein, Vice President of Financial Development at the National Capital Region YMCA-YWCA (Ottawa, Canada), shares my frustration over this. He recently posted his views in “People Know When the End of the Year Is!!!” I encourage you to read it though it does contain a word some may find offensive.

Because I agree with Silverstein, I want to provide some highlights for you.

Your prospects and donors know when the year ends. They don’t need you to remind them. They’re not idiots.

With most charities engaged in year-end fundraising, people want to know why they should give to your nonprofit organization and why they should do so at the end of the year. The mere fact that it is year-end is not a reason. People can donate to any charity at year-end or, for that matter, at any time of year. You need to inspire them to give to your organization. In other words, you need to make a case for support.

A related mistake that charities frequently made was to highlight the tax-deductibility of donations. In the USA, some have estimated that as few as 10 percent of taxpayers will itemize. It’s only that small population that might be able to take advantage of the tax-deductibility of a contribution. However, even among that population, tax benefit is a low ranking reason why people donate. Furthermore, it’s no reason whatsoever why they should donate to your organization; after all, people can get the same tax benefit by donating to any qualified charity.

When charities send such terrible appeals, they are not being donor centered. Instead, Silverstein asserts:

As Giving Lags, Alarm Bells Sound. Should You Worry?

While the story at some individual charities might be different, charitable giving in the sector for the first half of 2018 is lagging behind the first six months of 2017, both in terms of the number of donors and the amount donated. That’s according to a recent report from the Fundraising Effectiveness Project.

As I write this post, the stock market has just taken a two-day beating with the Dow Jones Industrial Average down 1,378 points.

I won’t blame you if you’re feeling a bit pessimistic about philanthropy these days. However, I will respectfully suggest that you shouldn’t be overly worried. As I wrote in the current issue of Advancing Philanthropy, the official magazine of the Association of Fundraising Professionals, there are actually plenty of reasons for us to be optimistic about the current fundraising environment.

In my article for AFP, I show you how you can be your own fundraising superhero with six tips that will help you control your fundraising destiny. I also detail nine reasons for you to be upbeat about the current philanthropic environment as you seek year-end gifts. However, for now, I’ll just highlight some of the reasons why you should be upbeat about fundraising as year-end and the start of a new year approach:

1. Stock Market Growth. Despite the hit the stock market took this week, it remains above the 52-week level. An adjustment was expected. While volatile, the stock market is likely to stabilize somewhat and even continue to grow.

2. Dire Predictions Really Are Not that Dire. Some have predicted that the new federal tax code will negatively affect philanthropic giving. While it’s too soon to draw a firm conclusion, we do know that even if the worst-case prediction comes true, overall philanthropy will once again be approximately two percent of Gross Domestic Product, where it has been for decades.

3. Economic Growth. GDP growth for the first half of the year has been strong. If economic growth continues, as the Federal Reserve believes it will, this will likely have a positive effect on charitable giving. Remember, there’s a long correlation between philanthropy and GDP.

4. New Tax Code. For both individuals and corporations, a reduction in taxes makes more money available for charitable contributions. For example, many corporations (e.g., Wells Fargo, Southwest Airlines, JP Morgan Chase & Co., Best Buy, BB&T, Apple, Ally Financial, and others) have announced commitments to significantly increase corporate giving.