If your not-for-profit focuses most of its fundraising energy on donors who can contribute to your mission and programs now, you may have neglected legacy gifts. Such gifts represent a portion of wealthy donors’ estates that go to your organization on their death. Legacy gifts can help position your nonprofit for sustained growth well into the future. Let’s take a closer look at the hows and the whys.
The vast majority of legacy gifts are made through wills and living trusts, as well as with beneficiary designations on retirement accounts such as 401(k) and IRA plans and insurance policies. However, charitable annuities and other more complex estate planning instruments may come into play.
In most cases, your organization doesn’t actually need to be directly involved when a donor establishes gifts through a will, trust or financial account designation. But you and your development staff should know how the process works and what your nonprofit can to do to facilitate matters.
For starters, donors should indicate the following information in a legally binding document (such as a will or trust):
The gifting process can be made even easier if donors simply name your organization as the beneficiary of a financial account or life insurance policy. Financial institutions involved typically can provide required paperwork for making these gifts.
Your organization can grease the skids by featuring information about making legacy gifts in prominent locations on your website, in your newsletter and in brochures and other promotional materials. Don’t assume that only older, long-time donors might be interested (although they certainly are potential participants). Many people may not even consider making a legacy gift unless you educate them that it’s an option.
Your not-for-profit can be reactive and accept windfalls that come your way or you can proactively pursue legacy gifts. The latter is more likely to provide significant donations.
To help ensure you’re doing everything possible to encourage these gifts:
Promote your organization. Promoting can be as simple as reminding donors about gift-giving options on your website and in marketing materials. But you should also discuss and acknowledge gifts on social media platforms and during fundraising and speaking events.
Show how you’ll use the gifts. Most donors will probably expect legacy gifts to go toward special projects or programs rather than your day-to-day expenses. You can help provide ideas for potential special uses, however you may also want to make the case for a gift to your general operating fund.
Thank gift-givers publicly. Some donors may prefer to remain anonymous, but chances are, your donors won’t mind public thank-yous. For larger gifts, you might provide a plaque or inscribed remembrance or even name a room or building after the donor. Be careful to follow the same rules for similar gifts.
Point out estate planning pitfalls. Even wealthy individuals may fail to make proper estate plans. They may promise to leave something to your organization, but if they don’t put it in writing, state intestacy laws may cause unintended results. Use subtle (and sensitive) messages to get the point across.
Prove your staying power. Donors are unlikely to give legacy gifts to organizations that might not be around much longer. If you already have a lengthy track record, you have an edge. But even if you don’t, you can share detailed plans (including the funding required to meet goals) with potential donors.
Explain the tax impact. Donors may be more likely to make a legacy gift if they understand current — and future — estate tax rules. For example, unless Congress acts, the current generous estate tax exemption, $12.06 million in 2022, is scheduled to revert to $5 million in 2026. So your supporters may want to act before then.
Meet face-to-face. You can’t expect people to create legacy gifts without developing a relationship with your organization. Sit down with donors to discuss their estate plans and your organization’s mission. The more they embrace your cause and feel a personal connection to it, the more likely they are to commit to a legacy gift.
Many legacy gifts come with strings attached — for example, they’re earmarked for an endowment, scholarship or other passion project. Be sure to observe the legalities and keep legacy gifts separate from regular funds.
Please contact Holly Caporale via our online contact form for more information.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.