1. Enhancing the Major Gift Donor’s Relationship with Planned Giving Opportunities Michael J. Degenhart, CFRE 2013 Emerging Philanthropy Conference April 25, 2013

2. What are the obstacles? Primacy of outright gifts Tyranny of the urgent – Dean/Executive Director’s priorities – Annual goals Staffing structures Who gets credit Lack of knowledge or comfort with planned giving conversations

3. Three Fundraising Strategies Annual Giving Programs Special & Major Gifts Programs Planned Giving Programs

4. Three Fundraising Strategies Annual Giving Programs Special & Major Gifts Programs Planned Giving Programs Donor’s Source of Funds for Gift income or cash on hand assets or multi- year pledges estate wealth

5. Three Fundraising Strategies Annual Giving Programs Special & Major Gifts Programs Planned Giving Programs Donor’s Source of Funds for Gift income or cash on hand assets or multi- year pledges estate wealth Charity’s Use of Contribution primarily on- going operations special projects or unique needs Endowment

6. Three Fundraising Strategies Annual Giving Programs Special & Major Gifts Programs Planned Giving Programs Donor’s Source of Funds for Gift income or cash on hand assets or multi- year pledges estate wealth Charity’s Use of Contribution primarily on- going operations special projects or unique needs Endowment Target Audienceany and all constituents qualified prospects with linkages, interest and liability anyone who might be interested in the cause

7. Three Fundraising Strategies Annual Giving Programs Special & Major Gifts Programs Planned Giving Programs Donor’s Source of Funds for Gift income or cash on hand assets or multi- year pledges estate wealth Charity’s Use of Contribution primarily on- going operations special projects or unique needs Endowment Target Audienceany and all constituents qualified prospects with linkages, interest and liability anyone who might be interested in the cause Tacticsannual solicitation or event opportunistic / seek to match prospects and needs continuous education, long term cultivation

8. Donor Cultivation Process Discovery – Gain insights into affinity for your institution – Capacity for a major gift Qualification – Affinity and capacity indicate a major gift Cultivation – Engagement with institution and determining passion for its programs Solicitation – (and the next solicitation and the next…) Stewardship

9. Characteristics of Qualified Prospects Affinity – a genuine interest in the mission and work of the organization, can be strengthened over time Ability – the financial wherewithal to make a significant sized contribution, can be expanded through gift planning Access – the opportunity to meet with the prospective donor on favorable terms

10. Points of Conversation During the Relationship Learning about their family – Children – Grandchildren – Siblings – Their situations

11. Points of Conversation (continued) What did the donor develop during his or her career? – Available wealth in IRAs – 401(k)s – Stock options – What is their current income – What will their income be in retirement

12. Points of Conversation (continued) Lifestyle they want to maintain – Travel – Vacation homes – Automobiles – Art collections

13. Listening for Other Clues Financial situations they may have: – Low yielding stock – Low yielding CDs – Concern about capital gains Appreciated property Securities – Management of assets – Diversification

14. Common Gift Objections Planning for retirement Paying for college educations Selling a business Income tax deductibility issues Unknown future health care expenses Concerned about care of others (spouse, parents, children) Who will take care of me?

15. Role Play - What We Hear from Our Prospects “I can’t make that gift because… …all my assets are tied up or illiquid.” What’s behind this statement? How to reply

16. “All my assets are tied up or illiquid.” What’s behind this statement? – May think that they can only use cash to make the gift. – May think they would have to sell something to make the gift and don’t want to pay capital gains taxes. – Majority of wealth may be in family-owned or closely held business. How to reply to “All my assets are tied up or illiquid.” – “Did you know you can give part or all of certain stocks and bonds, real estate, business interests, collectibles, mineral interests, intellectual property, and partial interests in annuities and trusts?” – “You don’t have to sell an asset to make a charitable gift, so you don’t owe any capital gains taxes when you make a gift like this.” What are potential giving options?

17. Possible Solution – Bob and Mary Donor Ages 72 and 74 Long-time annual donors Want to support Mary’s class scholarship fund Concerned about income – IRAs have declined in value; CD’s renewing at low rates; portfolio of securities still appreciated but down by 30%.

18. Charitable Gift Annuity Bob and Mary contribute $25,000 of appreciated stock with a cost basis of $10,000 and a dividend yield of 2% for a CGA. Annual income: $1,200 (4.8%) Income tax deduction: $7,370.25 Tax-free portion: $166.61 Capital gain: $807.79 Ordinary income: $225.60 Increased annual income: $700 (compared with dividend from stock)

19. Role Play - What We Hear from Our Prospects “I can’t make that gift because… …I’m helping my parents or siblings/spouse or partner.” What’s behind this statement? How to reply

20. “I’m helping my parents or siblings/spouse or partner.” What’s behind this statement? – Donor probably doesn’t know about the myriad ways he or she can help or provide for a sibling/parent and make a gift. – Donor has not considered the tax implications of leaving assets to a same- generation heir rather than income. – Donor has concerns about spouse or partner managing inherited property but does not know how to provide him or her with diversified sources of income.

21. “I’m helping my parents or siblings/spouse or partner.” How to reply to “I’m helping my parents or siblings/spouse or partner.” – “Did you know you can continue helping your parents/siblings at a lower out-of-pocket cost to you now while making a future gift?” – “Such a gift allows you to avoid paying income tax on the income they receive.” – “Did you know you can provide income to your mother/father for her/his life with the income continuing to you after her/his death that also includes a future gift?” – “Have you considered leaving your siblings or partner income rather than assets?” What are potential giving options?

22. Potential Solution – Charitable Remainder Unitrust Taking Care of Family Mike and Sue want to help their daughter Kathy with their 13 year-old grandson’s college education. They would also like to create a fund for cancer research at Public University Cancer Center. They have a portfolio of highly appreciated but low yielding securities they would like to put to better use.

23. Charitable Remainder Unitrust Taking Care of Family Mike and Sue contribute $100,000 in securities with a cost basis of $25,000 to a charitable remainder unitrust that will pay 5% to Kathy for 10 years. At the end of the 10-year term, the remainder will go to Public University Cancer Center to establish a research fund in their names.

24. Charitable Remainder Unitrust Taking Care of Family Total before-tax income to Kathy: $50,000 Income tax deduction for Mike and Sue: $60,108 Remainder to Cancer Center for research fund: $134,392 Total benefit from $250,000 contribution: $184,392 There may be gift tax implications. Mike and Sue should consult with their professional tax advisor before completing this transaction.

25. Role Play - What We Hear from Our Prospects “I can’t make that gift because… …I want to leave as much as possible to my heirs/spouse/partner.” What’s behind this statement? How to reply

26. “…I want to leave as much as possible to my heirs/spouse/partner.” What’s behind this statement? – May not know that retirement plans passed to heirs could be subject to multiple taxes after death of plan owner and spouse. – Included in estate, different assets may be subject to different tax treatment. – Heirs (other than spouse) pay income taxes, possibly also state or even federal income taxes, on retirement plan assets, inherit the net after those multiple taxes.

27. “…I want to leave as much as possible to my heirs/spouse/partner.” How to reply to “…I want to leave as much as possible to my heirs/spouse/partner.” – “Did you know that with careful planning, you can leave Penn State the amount your heirs will lose due to estate and income taxes? Gifts to Penn State will reduce your tax bill, not the amount your heirs receive.” – “Did you know that you can use certain heavily taxed assets like qualified retirement plans to make your gifts to one or more charities, or to fund a charitable income arrangement for heirs?”” What are potential giving options?

28. Potential Solution - Charitable Lead Trust Reverse of charitable remainder trust Periodic distributions to charity for term of trust (life of donor or term of years) Remainder value to donor or his/her heirs Charitable gift tax or estate tax deduction – sometimes an income tax deduction Tool for tax efficient transfer of assets to heirs Can be established through donor’s estate Charitable lead annuity trust or charitable lead unitrust

29. Charitable Lead Trust for Charity and Family Meg Abucks is a 52 year-old entrepreneur who has benefited from many successful start-ups. She is on Private University’s campaign leadership cabinet and wants to make a lead gift. The dean of the business school told her, after significant negotiation and in consideration of her previous gifts, that for $1,000,000, she could name their entrepreneurship center.

30. Charitable Lead Trust for Charity and Family Meg has two daughters, age 15 and 18. She is concerned about giving away so much money now, as she wants to ensure a significant inheritance for her kids. She does, however, like the idea of having a woman’s name – especially hers – on the entrepreneurship center

31. Charitable Lead Trust for Charity and Family Private University’s planned giving director recommends a charitable lead annuity trust (CLAT) funded with $1,000,000 that pays the business school 7.2124% annually for 15 years. At the end of those 15 years, the assets in the trust pass to Meg’s daughters.

32. Total income to business school: $1,081,860 Gift tax deduction for Meg: $1,000,000 Remainder to Meg’s daughters: $1,213,850 Total benefit from $1,000,000 contribution: $2,295,710 Assumes trust earns 8% annually. Total benefit combines remainder to daughters and funding to business school, less gift tax paid. Charitable Lead Trust for Charity and Family

33. Common Gift Objections Planning for retirement – Deferred gift annuity – “Flip” Charitable Remainder Unitrust (CRUT) Paying for college educations – Flexible deferred gift annuity – Term-of-years CRUT Selling a business – “Flip” CRUT – Charitable Lead Trust (transfer to heirs) Income tax deductibility issues – Grantor charitable lead trust (accelerate deduction for future gifts)

34. Common Gift Objections Unknown future health care expenses – Gift annuity – Charitable Remainder Trust – Bequest/Retirement plan designation Concerned about care of others (spouse, parents, children) – Gift annuity (lifetime or testamentary) – Charitable Remainder Trust (lifetime or testamentary) – Bequest/Retirement plan designation Who will take care of me? – Gift annuity – Charitable Remainder Trust – Bequest/Retirement plan designation

35. Throughout cultivation process, you have: Engaged the prospect Discovered his or her passion for institution and its programs Determined the “right” ask Before the ask, the development officer will have a clear idea of if or how a planned gift will be part of the picture

36. Interesting to Note Age of first will and bequest is mid 40s Triggers – Becoming a widow – Diagnosis of serious illness – Positive change in assets – Positive change in financial independence of children Majority of people who create a bequest do not take it out of their will

37. Setting Up the Ask or the Dual Ask “Would you make a gift if we could show you how? What if you could (plan for retirement) and establish that (scholarship; patient care fund, etc.) … would you consider it?” “If I could show you how to double your gift, would you consider it?”

38. Planned gift can augment outright gift Donor contributes $5,000 annually Planned gift of $100,000 would endow that annual gift in perpetuity (assuming 5% endowment spending policy) Or, donor contributes $25,000 during life to establish named endowment fund. Planned gift of $50,000 would triple the fund.

39. Possible approaches to the “Planned Giving Conversation” 1.Combine a gift of cash with a planned gift to maximize support from the donor 2.Consider planned gifts to help overcome donors’ financial concerns or objections to outright gift 3.Outright donor may improve overall impact by adding planned gift 4.Planned gift may endow annual support

40. Counting Planned Gifts Counting – amount for recognition and promotion purposes – CASE Management and Reporting Standards (2008) – NCPG Guidelines for Reporting and Counting Charitable Gifts (2006)

41. Questions?