Planned giving: A complete guide to legacy programs

Furthermore, Americans have been rushing to create wills in the face of the Coronavirus pandemic. Here at FreeWill, we saw a 600% increase in bequest giving for the week of March 23-30 as compared to the same time in 2019. This generated nearly $100 million in new planned gifts for the month.

If nonprofits can cultivate supporters now and make it easy for donors to include their organization in their wills, they can tap into what may be the biggest moment for planned giving, ever.

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What is planned giving?

Planned giving is the term that nonprofit organizations use to refer to the process of donors committing to a planned gift. Planned gifts are charitable contributions that are part of a donor’s financial or estate plans.

While there are a few different ways to give via planned giving, bequests are by far the most popular and easy type of planned gift. Bequests are gifts that are left in a donor’s trust, will, or estate plan, and given to a nonprofit upon the donor passing away. According to a report from Giving USA, bequests made up 9% of all charitable giving in 2018.

Nonprofits usually launch planned giving programs, or legacy programs, to grow their number of planned gifts and support the future of their organizations. Planned giving officers build relationships with prospective planned giving donors as well as support and strengthen existing donor relationships. Because planned gifts can often take years to materialize and donors may revise their wills, it’s essential for organizations to keep in touch with these donors and remind them of the impact of their gift.

The impact of planned giving for nonprofits

Planned giving has a major impact on how an organization is able to plan for its future and sustain itself in the long run. Here are three key benefits that nonprofits receive from planned giving programs:

1. Planned giving opens up a pool of untapped revenue.

Because planned gifts don’t affect a donor’s everyday cash flow, these types of gifts are accessible to everyone — from those whose incomes rarely permit them to give to major, loyal donors. While most planned giving officers focus on cultivating relationships with top donors, research from our founders actually shows that frugal donors who are lifelong savers are often in the best position to give large bequests.

Plus, in our 2019 planned giving report, we found that 79% of our users had never made a will before. Despite this, we’ve generated over $1.3 billion in bequests. Our users bequests span from as little as $5 to more than $10 million, representing a pool of planned giving revenue that would have otherwise gone untapped.

2. Planned gifts are large gifts that secure an organization’s future.

Blackbaud found that the average planned gift in the United States in 2011 was between $35,000 and $70,000. The average gift size from a will-maker on FreeWilll is $78,630. These large gifts bring in a consistent source of funding and support for nonprofit organizations even in times of economic crisis or losses in annual giving.

In fact, recent changes to the tax code in the United States made securing these gifts even more essential. With an increase in standard deductions, fewer Americans are able to itemize deductions on their tax returns. In 2018, this resulted in the first year-over-year decrease in charitable giving from individuals in more than five years. By securing planned gifts from a wide range of prospects, nonprofits can recoup these losses.

3. Planned giving increases annual giving.

Planned giving is generally thought to be at the top of the traditional donor pyramid — after donors have given major gifts.

Planned giving officers are often a part of the major gifts team at their organizations, adopting the tools of that discipline: identifying top prospects, meeting with them in-person, and then gradually securing bequest commitments. However, planned giving can actually invert the donor pyramid by increasing annual giving.

Russell James, a Texas Tech professor and planned giving expert, conducted an in-depth analysis of charitable giving in 2014. He found that donors who left a charitable bequest in their will increased their average annual giving by more than $3,000.

Donor pyramid

Traditional structure of the donor pyramid

How donors benefit from planned giving

Nonprofit organizations aren’t the only ones that benefit from planned giving — there are several ways that donors can take advantage of these types of gifts as well.

1. Planned giving allows donors to leave a legacy.

If a donor has been supporting your organization for years, making a bequest in their will is a powerful way to leave a lasting impact. And if they haven’t been able to make a large gift during their lifetimes, they can establish their legacy by making a bequest in their will and supporting their favorite organization for years to come.

2. Donors can decide how their contribution is used.

When leaving a bequest in a will to a charitable organization, donors can allocate how or where they want that money to be spent. Because wills are fairly easy to update, donors can also keep their bequests up-to-date, checking in with gift officers on where their donations will make the most impact.

3. Planned gifts can come with some tax breaks.

Depending on the type of planned gift a donor makes, there can be some tax benefits for them. Bequests can reduce federal estate taxes for heirs, and these deductions aren’t limited to cash — they can include assets like real estate, IRAs, and stock as well. Some other planned gift types, such as charitable remainder trusts, are granted a tax-exempt status by the IRS. However, tax advantages to planned gifts can be a little complicated, so gift officers should make sure to help donors evaluate them on a case-by-case basis.

4 common types of planned gifts

Planned gifts can come in a variety of forms from simple bequests to complex trusts — all with different requirements and advantages depending on a donor’s circumstances. However, planned gifts most commonly fall within a few categories: outright gifts of cash or non-cash assets, gifts that pay income, and more complex gifts that protect a donor’s assets.

Within these broad categories, there are a few common ways to give:

1. Bequests

Bequests are a popular and fairly simple way to make a planned gift. These ‘outright’ gifts are charitable contributions left as a bequest in a legal will. They’re usually given as a specific amount, a remainder of a donor’s estate after other bequests have been paid, or a percentage of a donor’s total wealth.

2. Charitable gift annuities

A charitable gift annuity allows a donor to give a large amount of cash or securities in exchange for a fixed income payment for life. The nonprofit keeps any leftover funds as well as any income it’s made from investing those funds.

3. Charitable remainder trusts

There are a couple types of charitable remainder trusts, but in each, the remaining funds go to the nonprofit after the trust is terminated. A charitable remainder annuity trust pays the donor a fixed amount based on a percentage of the initial assets used to fund the trust. A charitable remainder unitrust pays the donor a percentage of its principal and is revalued annually, so that payments increase over time.

4. Charitable lead trusts

When a donor makes this type of gift, the charitable lead trust pays an ‘income’ to the nonprofit for a specified number of years or for the donor’s lifetime. And when that term is up, the assets are given back to the donor or their beneficiaries.

Other gift types that some organizations include in their planned giving programs are non-cash assets, such as stock or real estate, giving from IRAs (also known as Qualified Charitable Distributions or QCDs), and Pooled Income Funds.

See our complete breakdown of the many types of planned gifts.

How to get started with planned giving

If your nonprofit organization is new to planned giving, there are a few steps you should follow to kick it off. We go over these steps in detail in this article on jump-starting your planned giving program, but here is the high level overview:

Step 1: Unify your teams.

Before you start a planned giving program, everyone at your nonprofit should be on board. You have to understand where this program will fit in within your organization’s existing infrastructure. Your organization will need to ask itself questions, such as:

• Will planned giving belong to the major gifts department? Will it have it’s own department?

• Will your organization hire an expert or train an existing staff member to collect planned gifts?

• What resources will your organization allocate to increasing or marketing planned gifts?

However your organization decides to approach planned giving, it’s important that development and communications teams are aligned and on the same page about marketing planned giving to your supporters. These teams should create shared goals and balance any competing priorities in order to identify key moments to solicit supporters and fundraise for your organization.

At this point, the planned giving team should also work closely with major gifts to identify top prospects for outreach.

Step 2: Outline your marketing plan.

To start bringing in planned gifts, your organization will need to create a detailed marketing plan. Just like communicating to your supporters about any other fundraising options or campaigns, repetition and ease is key for marketing planned giving.

As the first step in this process, you should make it incredibly easy for supporters to find and access this new way to give. Add planned giving as a donation option on your website, or create a dedicated landing page to explain all the ways a donor can make a planned gift. Give them resources that make it easy to leave a bequest, such as making a will through FreeWill, or offer them support by giving them a person to contact for more information.

Then, create marketing materials, such as emails and direct mail to speak to your donors about the impact and benefits of planned gifts. Identify the best marketing channels for planned giving, and add a few planned giving campaigns per year into your organization’s communications calendar.

Once your program is set up, your planned giving team should also start meeting with top prospects to help them make a planned gift.

Step 3: Acknowledge your donors.

Planned gifts, and especially bequests left in a will, can be difficult to track. Some organizations occasionally survey their supporters to see if there are any donors who have left bequests and forgotten to notify them. When you do learn about a planned gift, make sure you thank the donor and acknowledge the impact their gift will have on your organization’s mission. If you’re setting up a legacy society with any special perks, such as public acknowledgements, access to special events, or organizational communications, make sure you invite them to take part. Doing so, will help make the donors feel like a part of the community and strengthen their relationship with your organization.

Ready to kick start your planned giving program? FreeWill can help.