Case Studies and Articles

Planned Gifts Don’t Have to be Deferred – Vaughn W. Henry & Associates

Planned Gifts Don’t Have to be Deferred – Vaughn W. Henry & Associates

Planned Doesn’t Always Mean Deferred

One of the biggest stumbling blocks planned giving officers have with their supervisors and other development staff is the long-term nature of a “planned gift”.  By definition, a planned gift is often tied to a donor’s estate or financial plan and implies a long wait.  As a result, many nonprofit organizations don’t solicit for charitable trusts and bequests because of design complexity and the length of time needed before the deferred gift “matures”.  For fundraisers used to working one on one with a donor’s annual gifts in support of charitable programs, most remain wary about jumping into a complex and hard to understand planned giving effort.  Besides needing to understand business succession, income and estate tax concepts, a more sophisticated gift forces planned giving officers to deal with the donor and all of the for-profit advisors who have to sign off on their client’s convoluted plan.

Not All Planned Gifts are Deferred,

Some Provide Current Support to Charities

Johnson Plan

72/72 – 8% AFR

All Deferred



Partial Immediate Gift – Deferred Gift CRAT w/Balance
Establish CRT With … $500,000 $400,000
Percent Initial Annual Payout 5% 6.25%
Annual Distribution (fixed payment) $25,000 $25,000
CRT Income Tax Deduction $288,360 $188,360
Outright Tax Deductible Gift Now  – $100,000

To counter the impression that a planned gift only helps a charity at the end of a long wait, look at the case study of George and Ruby Johnson.  It is illustrative of the flexibility in a well-designed gift, as it helps both the donor and the nonprofit organization.  George has accumulated some stock and real estate in his portfolio and uses the dividends from $500,000 worth of stock in his electronics company to pay the $25,000 annual fees for his vacation home.  However, since his son has taken over the reins of the business, the dividends from his stock have been reduced as revenue has been reinvested in upgrading the company’s technology.  Seeking a reliable source of funding for his golfing excursions, George approached the planned giving officer at his alma mater about “one of those CRT things” they had previously discussed.  George proposed a simple 5% CRAT funded with his stock that would generate the cash flow needed, but the planned giving officer offered a different plan.  While the traditional 5% CRAT was prized, it wasn’t as appealing to the college’s foundation, already in the middle of a large capital campaign, as a current gift.  The experienced development officer knew that George just needed something that generated $25,000 a year, so he suggested the plan be modified to pay 6.25% from a $400,000 CRAT.  That produced a $25,000 annual distribution and the remaining $100,000 could then be used to fund an immediate capital campaign gift.  The $288,360 charitable income tax deductions generated by both approaches are equal; the difference is that the foundation receives a portion of the planned gift now, rather than waiting for the CRAT to mature when George and Ruby pass away.

A new development officer needs to recognize planning opportunities, e.g., when the donor sells appreciated assets, has a need to diversify; or receives an inheritance, significant retirement assets or stock options.  Knowing when a tool is useful makes it more likely it be used when really needed, and the proper tool that solves a donor’s problem is less likely to be derailed by the donor’s financial and tax advisors.  Cultivate this ability to help the donors, and more tax efficient gifts will follow.


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