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Planned giving strategies: Strategies, tactics and tools

MUSE  | 

It’s important to understand your donors’ perspectives on philanthropy and tailor the conversation about planned giving accordingly. Being able to clearly explain the organization’s goals are just as important. It then falls to the organization to put that understanding and clarity of purpose into practice.

According to the U.S. Trust Insights on Wealth and Worth® survey, about 47 percent of high net worth individuals surveyed believe that their advisors are good at discussing personal or charitable goals. But while nearly two-thirds feel that their advisor is proficient at rendering philanthropic advice, most advisors start with the technical rather than the emotional aspects of giving. To be successful, organizations need to break out of this cycle and discover what matters most to the individual donor.

Customize the approach to donors

The first hurdle is basic education: Organizations are not stating as clearly as they should what they are looking for and matching it appropriately to the needs of donors. Understanding how much and why donors are giving, when they are giving and in what manner is important.

Because the mindsets of donors will differ, the approach to them should be appropriately different as well. A 65-year-old married couple’s donor profile—their business earnings, philanthropic interests and values—will be dissimilar to a couple in their mid-40s with young children. A retired C-suite executive will have different priorities—and different levels of liquidity—than an active hedge fund manager.

Research into sources of wealth and other background information can help in this regard. Social media can tell something about donors’ backgrounds. A search engine such as Google or Bing can reveal where they went to college or where they might make donations. GuideStar USA or GrantSpace can help uncover if they have a donor-advised fund as well as patterns of donation behavior. Sources of wealth matter, as they can tell an organization whether to seek, for example, legacy gifts, appreciated securities or structured gifts from a particular donor. A basic investment manager’s assets will differ from those of a private equity manager.

Philanthropy itself can differ in the types of investments being made. Some take on social issues or startup companies. But in the end, donors are looking for results. They want a return on investment, whether it’s in human, social, financial or intellectual capital. Organizations need to frame their solicitations in terms of the type of capital and the type of result that is of interest to the donor.

Research by the Center for High Impact Philanthropy at the University of Pennsylvania found that the primary focus for many donors is to achieve social impact. They are trying to leverage the best available evidence to identify problems and solutions. They want to link costs and impact; in other words, they want to understand where they can get the most bang for their buck. They will continue to learn and refine what they know and how they approach their charitable endeavors.

Helping to craft a philanthropic plan

So-called “checkbook philanthropy” is where many donors start—and often where they end. Donors write a check to a charity and that is all they do. This approach is not necessarily tied to net worth as much as it is the style of the donor. Others prefer to set up private foundations, donor-advised funds or structured legacy gifts.


If organizations are working with a family that has a more formal plan for giving, there are a number of questions to walk through with them regarding their philanthropic vision (see figure 1 above). To the extent that it’s possible, organizations can use these questions in a dialogue to understand the donors’ beliefs and hopes for change through philanthropy, the strategy to achieve their goals and how they prefer to give. Based on the answers to these questions, organizations can customize donation requests.

Often when donors are making decisions, there are a number of common factors they consider. They want to provide a benefit to the charity but are concerned about giving too much away. Some will want to give immediately and get the maximum tax benefit they are allowed. Still others will want to provide a long-term economic benefit to charity and are willing to take a partial tax deduction. In these cases, a charitable lead trust, an outright gift or a charitable remainder trust would be the appropriate donation vehicle.

Tax reform and bunching

With the changes to itemized deductions that came with tax reform, organizations may see donors make their gifts in one year and not make gifts in others. The new law nearly doubles the standard deduction, i.e., the amount taxpayers are allowed to subtract from their taxable income: Up to $12,000 for singles (from $6,350 for 2017) and $24,000 for married couples filing jointly (from $12,700 in 2017).

The amount of state taxes that can be deducted has been limited to $10,000, and investment advisory fees are no longer deductible. From middle class to high net worth households, this will affect donor behavior. Taxpayers may opt to make sizeable donations in alternate years, allowing them to maximize the impact (the deductibility) of these donations through itemizing—otherwise known as bunching.

This could make a planned giving vehicle more interesting to donors. If donors are concerned about the recipient of these funds, a chance to have control over how they are disbursed in the future may be more attractive to them.

There are still a number of open questions to be answered regarding tax reform and its impact on charitable giving. It may be too early to tell if the reforms will encourage bunching, and it is unclear how pre-existing pledges as well as grants from private foundations to donor-advised funds are to be handled in light of the reforms.

Restricted and unrestricted gifts

According to the U.S. Trust survey, nearly three-quarters of gifts given in 2015 were unrestricted, i.e., they were made by donors with no limitations on how the gifts were to be used. Although many donors spend time and energy creating a plan, they are still signing checks with no limitations attached. Most donors surveyed felt they had done their due diligence and that the recipient organizations’ values aligned with those of the donors.

Restricted gifts, however, were more effective because they were more targeted, allowing donors to monitor the use and impact of the funds more closely. So while the current trend is toward donations being made as outright gifts where the control of use and distribution is given to the charity, concern over the deductibility of a gift may cause donors to gift through private foundations or donor-advised funds.

Community foundations and donor-advised funds

Because there is a minimal amount of annual administration, donor-advised funds can be an attractive vehicle for charitable giving. Assistance in administration and guidance on matching charities with donor interests can be provided through a community foundation. There are no startup costs or annual taxes. In exchange, the donor gives up legal control over assets. Donors can request grants be made to specific recipients, but the community foundation’s board makes the ultimate decision. In addition, investment options can be limited, and some have higher fees and operating costs.

Private foundations

Alternatively, private foundations allow donors maximum independence and control over where the funds are distributed. This vehicle allows for legacy giving over the long term. The donor and board control all investment decisions and grant-making bequests. In exchange for control, private foundations are subject to annual excise taxes on net investment income, and a required minimum spend of about 5 percent of assets per year.

Where charities should focus their planned giving efforts

Following are some trends and issues to watch:

  • Uneven income flows in upcoming gift giving due to bunching.
  • Misinformation on tax law and a delay in donor understanding of tax implications. There will be uncertainty regarding the impact of new tax law on an organization’s overall financial picture.
  • A possible renewed focus on different demographics to set up funds, such as younger donors who give outright donations, middle-aged donors who benefit from bunching.
  •  A possible renewed focus on structured or legacy gifts.

To learn more about planned giving strategies and donation vehicles, listen to the webcast.

Contributed with permission by Holly Isdale, founder of Wealthaven.