Gift Planning 101

Transforming Ministry with Gift Planning

One of today’s biggest areas of growth for churches is Gift Planning. It is estimated that over the next 30 years nearly $41 trillion will transfer to charitable organizations through bequests, trusts and other planned gifts. Just last year, over $30 billion was transferred via bequests alone.

Because of the unique legal, administrative, and personal aspects of planned gifts, managing the process can be a complicated task, especially without tools that are built specifically for this type of gift.

What is Gift Planning?

Often alternately known as legacy programs, Gift Planning programs are a means of cultivating strong relationships with givers and supporting them throughout the process of enacting a planned gift. Gift Planning programs are unique because of the length of time involved in the gift process, and the fact that multiple contacts beyond the giver themselves are often involved, such as lawyers, estate planners, and other beneficiaries. Such programs involve long-term efforts to build relationships with donors and manage the legal and financial details of the gift.

The type of relationship and information management required varies depending on the type of planned gift in question. Gift Planning most often takes one of the following forms, bequests, charitable gift annuities, trusts, donor-advised funds, and pooled income funds. 

Bequests

90% of planned gifts take the form of bequests; legacy gifts left to a nonprofit after a giver has passed away, for which the donation process is relatively straightforward. A giver can make a charitable bequest via a trust, will, or estate plan. 

Charitable bequests usually fall into three categories:

• Specific Amount: Just as it sounds, in these cases a giver allocates an exact set of funds to an organization.

• Remainder: In this case, a giver can choose to have a nonprofit receive any money left after all other bequests are paid out.

• Percentage: A giver can also choose to gift your organization a set percentage of his or her total wealth.

No matter which category of charitable bequest a planned gift comes from, the gift process for a bequest is fairly straightforward.

Charitable Gift Annuities 

A somewhat more complicated process, charitable gift annuities are contracts between a giver and a nonprofit in which the giver gives a large amount of money in exchange for the church’s promise to pay the giver a fixed annual income for life, or some other mutually agreed-upon period of time. During this time, the church is able to invest the money and grow income through it. Once the pay period ends, the church retains any remaining funds.

Because charitable gift annuities involve a back-and-forth process that happens over time, they must be thought of as an ongoing event rather than a one-time occurrence. 

Trusts

There are several types of trust, but each share the basic principle that recipients are given a certain amount of money from the trust annually until its completion. These fall into two main categories, Charitable Remainder Trusts and Charitable Lead Trusts. 

Charitable Remainder Trusts are irrevocable trusts that pays a specified annual amount to the recipient for life, or another fixed period of time. At the end of the term, the remaining trust assets are transferred to the charity. This type of trust can be structured as either an annuity trust which pays out a fixed amount to the recipient each year, or a unitrust, which pays out a fixed percentage of the trust value which is recalculated annually.

Charitable Lead Trusts are similar to charitable remainder trusts, but annual payments are given to a church rather than the giver, and the principal reverts to the giver or their designated beneficiaries at the end of the trust term.

Donor-Advised Funds

A donor-advised fund is like a charitable investment account, for the sole purpose of supporting charitable organizations the giver designates. When the giver contributes cash, securities or other assets to a donor-advised fund at a public charity, they are generally eligible to take an immediate tax deduction. Then those funds can be invested for tax-free growth and the giver can recommend grants to virtually any IRS-qualified public charity.

Donor-advised funds are the fastest-growing charitable giving vehicle in the United States because they are one of the easiest and most tax-advantageous ways to give to charity.

Pooled Income Funds

A pooled income fund is a trust that is established and maintained by a public charity, and operates similarly to a charitable remainder mutual fund. Individual givers contribute to the fund, which combines them for investment purposes. Each year, the fund's net investment income is distributed among fund participants, proportionally to their investment. Such distributions occur throughout the giver's lifetime, after which the portion of fund assets attributable to that donor is removed from the fund and transferred to the organization.

Planned Giving should be a central focus for your church and givers who wish to leave a legacy in support of the causes that they care about. Gift Planning programs require careful management and execution, but can form a very valuable part of long-term funding strategy. Kingdom Investment Strategies can help you develop, build, and execute a successful Gift Planning program. Contact us today for a free Gift Planning report and analysis of your church’s potential.