PG Calc Featured Articles

Funding a charitable gift annuity (CGA) with a retained life estate (RLE) in a personal residence or a farm can be an excellent gift from a charity’s standpoint.  It can also be a wonderful way for a donor to continue living in a place he or she has come to call home while using the home’s value to generate a stream of payments for life.

Published in early 2012, The Cultivation Funnel: How Content Marketing Can Help You Move Planned Giving Prospects from Awareness to Close is intended to encourage you to add a new element to your marketing mix of technique, timing, and audience – content marketing. Content marketing begins with growing awareness of planned gift opportunities at your organization and its mission, and ends with closing planned gifts. When executed well, the process we outline in the paper can help you do just that, and contribute to more successful planned giving outcomes.

Charitable remainder trusts, as we know them today, are a creation of the Tax Reform Act of 1969. Their popularity grew steadily for the first 20 years or so of their existence, and then exploded in the 1990s. According to IRS statistics, from 1999 to 2002 the number of charitable remainder annuity trusts (CRATs) grew 14% and the number of charitable remainder unitrusts (CRUTs) grew 38%. Since then, however, interest in CRTs has cooled: the number of charitable remainder unitrusts in force in 2010 was just 4.4% greater than it was in 2002, and the number of active charitable remainder annuity trusts declined 26.2% over the same period. Although the popularity of CRTs today is not what it once was, they remain an excellent solution in a variety of donor situations. Also, there may be changes afoot that will restore some of their former luster. Why the Ebb and Flow in CRT Popularity?

When a donor wants to give real estate to a charity in return for lifetime payments, the donor typically creates a charitable remainder unitrust, probably containing a “flip” provision that allows the trust to convert to a standard charitable trust upon the sale of the property. However, if the charitable remainder unitrust value shrinks, the trust payments shrink, too. With this in mind, some donors may prefer a gift annuity because the amount of the payments is fixed. The payments also constitute a general obligation of the charity – an attractive measure of security for many donors. In addition, a gift annuity may be the only practical life-income alternative for the charity when the value of the property is too low to justify establishing a trust.

As development officers, most (hopefully, all) have experienced that wonderful emotional moment when a donor agrees to make a bequest gift to their charity.  There is perhaps a second jolt of satisfaction and joy when evidence that the donor has followed through on his or her gift intention is received, perhaps through a confirmation e-mail, a gift notification form, or even a copy of the gift instrument (or the relevant portion thereof).  Such a gift is often the result of patient persistence in working with a donor and – risking the ire of certain cousins in England who claim this word is overused by Americans – it is awesome. 

In 2011 we wrote a feature article about the step lead trust. A year before that, we wrote an article about the “shark fin” or “balloon” lead trust. In both cases, we suggested that economic conditions were ideal for setting up these types of trusts in part because of the very low IRS discount rate. Well, it was about 3% then. Fast forward to 2017, the rate is still very low, currently at 2.6%. With the IRS discount rate continuing at record lows, it seems worthwhile to revisit these gift plans.

Many of our clients end their fiscal years on June 30. If you're one of them, you may have been requested to provide a report showing the liabilities associated with your organization's active planned gifts. If not, you may be, because Financial Accounting Standards Board (FASB) guidelines require all charities to include these liabilities in their annual financial statements.

When a donor establishes a life income gift such as a charitable remainder trust, a gift annuity, or a contribution to a pooled income fund, the arrangement usually remains in effect throughout the period set forth in the gift instrument. Sometimes, however, the donor or other beneficiary of the gift’s income interest decides to end the arrangement ahead of schedule. Doing so should be acceptable from a legal standpoint, provided certain steps are taken. Charities generally welcome such terminations. Typically terminations will result from a life income beneficiary making a charitable gift of his or her interest in the remaining payments. Nevertheless, if a life income beneficiary instead wants to “cash out” his or her interest, the charity will often accommodate the beneficiary’s wish in order to receive its share of the arrangement now, rather than wait to receive what could be a smaller benefit in the future. It is even possible for an existing life income gift to be transformed or “converted” into a new life income gift. Learn from the missteps of others.

A successful planned giving program requires a sound infrastructure, an ongoing commitment to the promotion of planned gifts, and dependable and repeatable processes that support the cultivation and stewardship of existing donors. While these fundamentals can be expanded to include dozens of “must haves” for charitable organizations, PG Calc has identified seven key characteristics in particular.

Have you wondered what role charitable remainder trusts, charitable lead trusts, and pooled income funds play in fundraising nationwide? Have you wondered how much organizations like yours typically benefit from these gifts? Have you wondered how many of each are in place across the country? You can answer these and many other questions about these gift arrangements by visiting the IRS website.