Nonprofits perform important functions in society. From animal rescue groups and small neighborhood clinics to city- and nationwide organizations that help large sectors of people, nonprofits offer help right where it’s needed.
People who begin nonprofits, believe in the work they do, or have benefited from their services are often donors who help keep things going. Most donors make smaller contributions rather than larger ones. For the person doing their estate planning, planned giving is a great way to leave a legacy that helps continue the mission. But there are also benefits for the nonprofit that goes beyond the money.
How It Works
Planned giving is also known as “deferred giving,” “legacy giving,” or “gift planning.” A donor makes plans to gift money to the nonprofit at a certain point during their life, or in their estate plan after death.
This means that although the gift will greatly benefit the nonprofit, it won’t happen immediately. It is, however, an investment in the nonprofit’s future, and will likely be more substantial than capital or annual donations.
A gift of such size can continue to make money for the nonprofit or be used as needed. The nonprofit can invest the gift, or they can receive an income from it for many years.
Many donors don’t have the capacity to make an immediate large donation. But given the opportunity, many will include a nonprofit in their estate planning. Even a small nonprofit can set up a simple bequest program so that potential donors can include them in their wills. People who couldn’t be donors on an ordinary income can make one donation that makes a difference.
A planned gift allows a nonprofit to better plan and can help when regular donations decrease.
Types Of Giving
The most common type is the bequest, in which a donor includes a specific amount of money upon death. This could be a lump sum, a percentage of their estate or the remainder of their estate after the rest of the bequests have been paid.
Other common forms of planned giving include:
• Charitable gift annuities are a contract between a donor and a nonprofit where the donor gives a large amount of money in exchange for the nonprofit’s promise to pay them a fixed amount for an agreed-upon period, or for the rest of the donor’s life. The nonprofit keeps any remaining funds once the contract period ends.
• Two types of trusts, in which recipients receive a set amount of money for a specific time period, or until the donor passes away
o Charitable remainder trusts, which pay a specific amount of money annually to the recipient for life, (or another specific time period) with the remaining funds going to the nonprofit at the end of the term.
o Charitable lead trusts, which make annual payments to the nonprofit, while the principal goes to the donor or their beneficiaries at the end of the term.
The amount of a person’s income during their life doesn’t necessarily limit their ability to donate to the nonprofit with planned giving.
Reasons For a Planned Giving Program
Planned giving has one of the highest returns on investments since it’s a low-cost method and brings in bigger donations. Giving supporters multiple opportunities to become donors can significantly increase overall donations. Although many assume that planned giving will lead to lower donations, one study shows that donors who add a charity to their wills and estate planning also increase their annual donations.
Including a bequest in estate planning doesn’t interfere with a donor’s everyday cash flow. By marketing to donors who aren’t high-wealth, nonprofits can also invite bequests from individuals who might not have considered leaving something in their will.
Provenza Law for Your Nonprofit’s Planned Giving
Adding a planned giving program for your nonprofit can bring additional donations that can make a large difference in cash flow over time.
If you’re interested in adding planned giving to your nonprofit, we’re happy to help. James C. Provenza is an Illinois nonprofit attorney with more than 25 years of experience with Chicago nonprofit organizations. Call our firm today at (847) 729-3939, or use our online contact form.