Legacy Giving Programs Take Plenty Of Planning

August 1, 2012       Patrick Sullivan      

When Variety — The Children’s Charity of British Columbia hired Peter Chipman to be its director of planned giving and major gifts in 2001, its legacy giving program raised about $200,000 (Can) annually and was staffed by volunteers. Chipman switched the program to paid staff, and it now generates roughly $1 million (Can) annually for the Burnaby, British Columbia charity.

“This stuff does not happen by magic,” said Chipman. “It’s grunt work.” Canadians seem to be putting in the work. According to the 2010 “Canada Survey of Giving, Volunteering and Participating,” approximately 740,000 Canadians age 15 and older included a bequest in their wills. That’s approximately 3 percent of the total population age 15 and older.

“There has been long-term systemic work of making Canadians more aware (of bequest opportunities),” said Michael Johnston, founder and president of the Toronto, Ontario firm Hewitt & Johnston Consultants (hjc). “There are enough programs in enough provinces. Organizations are being more proactive internally, using different channels and more communication to their donor base.”

While that might be correct, the number of Canadians donating via a will was down in 2010 as compared to 2007, when an estimated 840,000 Canadians made a bequest. It is a similar situation in the United States: Americans donated $22.83 billion in bequests in 2010, up 18 percent from 2009, but down from $23.15 billion, or 7.6 percent of all donations, in 2007.

The United States and Canada are very similar when it comes to donors, said Johnston. “In both countries, the same British common law principles hold true. If you don’t write (a will), the government is going to grab a bunch of (your estate).”

Contrast that with the Napoleonic Code of law principles, utilized by much of Europe including France, Italy, Spain and Portugal. “Families are given a percentage of an estate by law,” said Johnston. “Therefore, it decreases the percentage of wills.”

A 2010 poll by Good Works, based in Ottawa, Ontario, found that 53 percent of Canadians have wills. Only about 35 percent of Americans have wills, according to a December 2009 survey administered by Harris Interactive, a New York City research and polling firm. Of those Americans without wills, 44 percent reported they do not have a will because they’re more focused on day-to-day essentials.

Johnston said another difference between legacy giving in the two countries is the larger average bequest in the United States. The average bequest size in the United States is about $32,000, according to nonprofit watchdog organization Guidestar, with headquarters in Williamsburg, Va. According to a 2011 Blackbaud study, it is between $35,000 and $70,000. The same Blackbaud report showed the average bequest size in Canada is $30,000.

Johnston said that, although Canada’s economy did not decline as sharply as the United States’, “(Canadians) devour U.S. media in large amounts and can’t help but watch the news,” and therefore more cautious with their money when the U.S. economy is struggling.

That could be good news for planned gift officers, said Diane MacDonald, executive director of the Canadian Association of Gift Planners (CAGP), an association in Ottawa, Ontario with about approximately 1,350 members. A bequest is essentially a promise of future donation, with no immediate monetary commitment. “Having conversations with donors about their money after death…might be a good conversation to have today even when donors are not inclined to give as much,” said MacDonald.

Tanya Howe Johnson, president and CEO of the Partnership for Philanthropic Planning (PPP) in Indianapolis, Ind., agreed regarding timing. Despite a challenging economic climate compelling nonprofits to focus more on short-term fundraising, “there needs to be value within the organization placed on long-term viability, looking forward to the future,” she said. “We have organizations struggling to put resources into long-term development, but we also have donors who are wanting more options for how to support organizations and increase giving during hard times.”

Johnston believes that the average Canadian bequest will increase due to a stronger Canadian housing market: “(There has been) no decline in housing pricing or a banking crisis in Canada,” he said. “As our net value per capita has gone up, it might mean estate values being higher and coming closer to the U.S.A.”

The lack of estate tax in Canada might also influence legacy gifts. When a U.S. citizen dies and lists beneficiaries in a will, the government takes a percentage of the decedent’s total assets, known as the gross estate, over a certain amount. Legacy gifts can reduce the gross estate, which can potentially bring it under the exemption amount. The estate tax was repealed for people dying in 2010, but reinstated in 2011. For 2013, the exemption is expected to be $1 million; anything more than that will be taxed at 55 percent. In contrast, Canada abolished its estate tax in 1972.

Taxation issues might have less of an impact than at first glance. A study entitled “Charitable Giving by Canadians,” based on 2010 data from Statistics Canada, showed tax credits to be the least cited reason for giving (23 percent), behind fulfilling religious obligations (27 percent), being personally affected by a particular cause (61 percent) making a contribution to the community (79 percent), personal belief in a cause (85 percent), and feeling compassion toward people in need (89 percent).

“Our theory is the tax incentives might be important but studies say they’re at the bottom of the list,” said MacDonald. “We believe it’s not the primary reason for giving, but there’s usually a conversation about tax incentives.”

Although tax issues rank low on the list of reasons donors leave a legacy, MacDonald’s organization has been fighting for the expansion of tax incentives. In January, the CAGP submitted a study to the House of Commons Standing Committee on Finance that recommends three tax regime changes aimed at enticing donors to make large planned (not just legacy) gifts. The first change, known as a “stretch” tax credit, would give Canadians an incentive to donate more per year than they had ever previously donated in a single year. The stretch tax credit would provide a 25 percent credit — if the amount is less than $200 (CAN) — or 39 percent credit for amounts greater than $200 (CAN) if the donor’s total donations exceed the highest pervious giving level in a year.

According to the report, “the stretch tax credit would increase donation levels overall, expand the donor base for all charities, provide tax relief for moderate to middle income families, encourage long-term giving and stronger relationships with charities, and ensure that organizations of all sizes and in every community are assisted in fulfilling their mission.” The other two modifications would build upon the 2006 exemption from capital gains taxes on gifts of public company shares. CAGP wants to see that exemption extended to gifts of real estate and gifts of shares in private companies.

Exemption of gifts of real estate would include both in-kind gifts of property and donations from the sale of real estate if the proceeds are given to a charity within 30 days of sale. This would give donors the option of either allowing a charity to use the real estate itself for programs or as an investment, or accepting a large monetary gift.

Also piggybacking on the exemption for public company share gifts would be gifts of private company shares, such as a percentage of a family business. “From a charity perspective,” according to the recommendation, “the wealth in these (private) companies represents the most significant unexploited source of wealth in Canada for donation purposes.” With such an exemption, gifts of private company shares would most likely occur at the time of a company’s sale, and CAGP said total donations of private company shares “could be a very significant amount.”

Regardless of whether your organization is based in Canada or in the United States, certain planned giving best practices will always hold true, said Variety’s Chipman. “You need to advertise you’re open for business and ready to accept bequests,” he said. “It’s as simple as that and it drives me nuts that some nonprofits…(make) it more difficult than it needs to be. If you don’t tell (donors) you’re open for business, they’ll do it for other charities.”

It is not just large nonprofits such as hospitals and museums that benefit from a planned giving program. Smaller organizations, such as the Toronto, Ontario-based Muscular Dystrophy Canada (MDC), with a national staff of about 50 and approximate yearly revenue of $10 million (Can.), has integrated a planned giving program that generates about 5 percent of its annual revenue.

Lisa Pottie, executive director of MDC’s Atlantic Region in Dartmouth, Nova Scotia, said that small organizations, which often lack a dedicated planned giving officer, must make sure that “whoever has the expertise is the one who can advise” donors on matters of estate planning and legacy gifts. Pottie has a fundraising background and so was tapped to help coordinate MDC’s national planned giving program.

Pottie also said to integrate legacy donor stewardship into the direct mail stream. Legacy donors, who are generally older, will often be more connected to your organization through direct mail than through online or social media means, she said.

Johnston advocates the use of online surveys and checkboxes in direct mail pieces so donors interested in legacy giving can self-identify. “Don’t be afraid to go out in all channels,” he said. “We’ve learned older people are comfortable with all channels to self-identify, without false positives, their interest in leaving a legacy.”

A legacy gifts officer must be subtle and sensitive. Aside from uncomfortable thoughts of death that asking for a bequest might evoke, “many are concerned that the mere mention of leaving a bequest will cause inter-family bickering,” said Chipman. Often, he said, family members “don’t understand that charitable bequests in a will can have fairly significant benefits in estate planning.”

And, if a donor identifies a charity in a will, it is because the organization has become cherished by the person. “When someone puts an organization in their will, they’re elevating the organization to the level of a loved one,” said PPP’s Johnson. “When they do that it means (the nonprofit) has earned their trust, and they’re telling their other loved ones that this is important.”

Added hjc’s Johnston: “Overall you end up with the same feelings of donors no matter where you are. Regardless of legal overlay, people kind of think the same.” NPT