Posts tagged ‘white paper’

April 14, 2020

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

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April 10, 2020

Legacy Fundraising: The Best of Times or the Worst of Times?

Over the past couple of weeks, social media, the blogosphere, and countless webinars have pondered the question: Is this the best or worst of times for legacy fundraising? Unfortunately, despite the high volume of opinions circulating, a view grounded in science has yet to emerge. So, philanthropy researcher Russell N. James III, JD, PhD, CFP® and I teamed up to prepare a special white paper for you that analyzes the current legacy-giving environment and reveals to you a path forward that we base on fact rather than emotional whim.

This blog post provides you with the full paper, nearly 5,000 words, with all of its insights and tips. In addition, you can download the PDF version for FREE. You may want to share the white paper PDF with your CEO, CFO, and board leadership.

Because of the unusual length of this post, I won’t offer any additional introductory comments other than to say that Russell and I are available for speaking engagements, training sessions, consultation, and interviews to address this and other relevant subjects. For more information, please contact me.

Now, here is the complete white paper:

 

Legacy Fundraising: The Best of Times or the Worst of Times?

Russell N. James III, JD, PhD, CFP® and Michael J. Rosen

The death media currently inundate us with panic-inducing news. Ubiquitous reports about the spreading coronavirus (COVID-19) pandemic. Daily death tolls. Images of people in masks or complete hazmat suits. Talk of overwhelmed hospitals. News of quarantined regions and nations.

What should a legacy fundraiser do in the midst of a societal crisis? Stop communicating altogether? Make a last-minute push to get into a donor’s Will before it’s too late? Something in between? All of the above?

To get some guidance, it helps to start with a bit of social-science theory, a look at recent financial history, and early empirical data.

Social-Science Theory

We start with social-science theory because it’s actually quite useful to first understand what we know about how people react to reminders of death.

An entire field of experimental psychology focuses on this very topic. Scientists call it Terror Management Theory. This field has produced many hundreds of experimental results. Therefore, we know quite a lot about what happens when you remind people that they are going to die.

There are many technical books and papers on the subject. Google Scholar lists 12,500 of them. Here’s a quick summary. Death is a problem. People use two solutions:  1) ignore the problem, or 2) live on after death. Allow us to explain.

The Two Defenses to Death Reminders

People respond to death reminders with two stages of defense. The first stage (proximal) defense is avoidance. Avoidance comes from a desire to suppress the reminder. This suppression can be expressed in many ways. For example, it might involve physically moving away from the reminder (e.g., avoiding strolling past a hospital or cemetery when taking a walk). It might involve denigrating a mortality reminder’s validity or personal applicability (e.g., it can’t happen to me). It might be dismissing the subject with humor (e.g., the film Death at a Funeral).

The second stage (distal) defense is pursuit of symbolic immortality or lasting social impact. When avoidance doesn’t work, then we must somehow deal with our own earthly impermanence. We deal with this by latching on to those things that will remain after we are gone. In other words, I may disappear, but some part of my identity – my family, my values, my in-group, my people, my story, my causes – will remain.

People don’t treat personal death reminders in the same way they treat other pieces of objective information. In legacy fundraising, it has always been important to understand this. These two underlying defensive responses help to explain how people will respond.

Death Just Got Way More Offensive

In experiments, personal death reminders ramp up avoidance responses. The more death reminders, the more avoidance people will exhibit. Right now, COVID-19 news engulfs our audiences in personal death reminders. For many people, this will make any death-related communications aversive.

(Interestingly, people will gladly read the latest news headlines as a means of pursuing avoidance. People hunger for details on how to avoid the death risk. They will support strong action that promises the same. Others may even pursue avoidance by putting unwarranted faith in untested treatments or unproven protocols.)

In addition to people living in an environment that stimulates greater levels of death avoidance, current conditions cause individuals to feel less of an emotional sense of wellbeing.

Dr. Jen Shang, a philanthropic psychologist and co-founder of the Institute for Sustainable Philanthropy, among other social scientists, believes that wellbeing involves three essential characteristics:

  • autonomy – a sense of control
  • connectedness – the quantity and quality of relationships
  • competence – effectiveness

The more autonomous, connected, and competent people feel, the greater sense of personal wellbeing they will feel. Conversely, when people feel those qualities eroding, they will feel a decline in wellbeing.

In addition to the physical health risks associated with the novel coronavirus pandemic, people are experiencing psychological stress. Many individuals feel that current events are overwhelming them, knocking them out of their routines, and causing them to lose control of their professional and personal lives. With the uncertainty of the near-term, it’s not surprising that people would feel they have lost a great deal of control over their lives.

As the pandemic leads government officials to suggest or order people to stay at home, practice social distancing, and limit even essential activities such as grocery shopping, people are losing their sense of connection to other people including neighbors, extended family members, friends, colleagues, and more.

During the coronavirus pandemic, people are grappling with their feeling of competency when facing new conditions. Many have set-up a home workspace for the first time. Others are learning new technologies to communicate more effectively with others.

People want to have a sense of wellbeing. The more autonomy, connectedness, and competency they feel, the better they will feel. Generally, people will seek to engage in behaviors that enhance their sense of wellbeing. Furthermore, they will appreciate individuals and organizations that help them obtain greater wellbeing.

So, what does all of this mean for legacy fundraising (i.e., a key type of planned giving)? To begin, it means the following:

  1. Legacy fundraising communications that “lead with death” need to be shelved.

Many fundraising professionals are accustomed to being direct. Being blunt. Making the ask. Making it early and often. That may be fine for some types of fundraising. While this type of approach was often less than ideal for legacy fundraising prior to the pandemic, this is even more true right now. This is not the time to lead with death. In normal times, this will create some pushback. In these times, expect it to create massive pushback.

Yes, you should absolutely communicate with your organization’s supporters. Moreover, those communications should be about delivering value to the donor. Through your outreach, you should strive to enhance each individual donor’s sense of wellbeing.

  1. Now is the time to be “top of mind.”

Most people tend to put off estate planning in normal times. For example, in the U.S., most adults over 50 have no Will or Trust documents. From what we know about avoidance, such delay is no surprise. But, from a massive longitudinal study in the U.S., we also know when those plans are made and changed. The typical triggers for planning fall into one of two camps, family structure changes or “death becomes real.” Family structure changes include marriage, divorce, birth of first child, birth of a first grandchild, and widowhood. “Death becomes real” includes diagnosis of cancer, heart disease, stroke, moving to a nursing home, or actually approaching death (measured retrospectively).

Right now, many people are living the “death becomes real” experience. Consequently, there is a major upsurge in Will document completions – particularly online. Some sites are reporting greater than 100 percent week-over-week increases in completed documents.1 The Remember a Charity website, which promotes legacy giving for the U.K. charity sector, has experienced twice as many people visiting its “Making A Will” page as would do so normally.2

As “death becomes real,” people are also increasingly expressing interest in life insurance.3 One online life insurance agency saw the most ever monthly applications and sales in March 2020 as the coronavirus pandemic gained traction. Another online life insurance agency saw an increase in applications of more than 50 percent since February.

We know from experimental research that the charitable component of an estate plan is, for many people, highly fluid. In one experiment with British solicitors (lawyers), simply asking the question, “Would you like to leave any money to charity?” more than doubled the share of people including charitable gifts in their Will documents. Even small alterations in the wording used to describe such gifts results in dramatic changes in both charitable intentions and actual document contents.

For a charity, being “top of mind” at the moment in which people are actually planning is absolutely critical. More people are planning right now than in any normal time. Clearly, this is the ideal time for your charity to be communicating about gifts in Wills and even beneficiary designations. However, the language of how you communicate is most critical.

When viewed through the social scientist’s lens of individual wellbeing, the enhanced interest in estate planning is not surprising. Drafting a Will or purchasing a life insurance policy is a way for someone to feel a sense of autonomy or control over the current situation. Through these actions, they can enhance the feeling of attachment from relationships with those they love as they make plans to take care of these people. When successfully achieving their estate planning objectives, including supporting values and causes that have been important in their lives, individuals will feel an elevated sense of competency. In other words, a major reason we now see a spike in interest in Wills and life insurance is that it gives people an enhanced sense of wellbeing.

If communications from charities also enhance a donor’s sense of wellbeing, organizations may find that their donors will have greater interest in supporting them with a commitment in a Will or through a life insurance beneficiary designation. In other words, helping a donor feel better may ultimately benefit the charity.

The Best of Times, the Worst of Times

Is this the best time or the worst time to be communicating about legacy gifts? Actually, it is both.

People are planning like never before because they seek to take care of their families, usually the first priority of those doing estate planning even in the best of times. The challenge for charities is that we need to be at the top of their minds when people are ready to make their plans. It’s definitely the best time for legacy fundraising. Furthermore, by engaging people, fundraisers have an opportunity, like never before, to perform a real service by helping donors enhance their feeling of wellbeing.

On the other hand, talking about legacy planning can be offensive like never before. People are emotionally-poised to lash out strongly against such death reminders. Take one step in that direction and the risk-averse herd animal known as your executive director will be ready to end your career. It can very-well seem like the worst time for legacy fundraising, particularly when done the wrong way.

We’re not talking about opposing camps. Instead, individual donors are experiencing both of these paradoxical orientations to one degree or another.

The Direct Route is Closed. Now What?

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