One of the major recurring issues faced by non-profit organizations is the need to fund the annual budget. Highly successful organizations have a reliable source to which they can look to provide these funds. Most of us, however, must spend considerable time with our hands out. This article discusses two ways to alleviate the reliance on annual fundraisers by creating an income-producing endowment: estate planning and wealth retreats with affluent people sympathetic to your cause.
Some organizations have made their annual fundraising efforts easier by creating a memorable and profitable event that the community supports each and every year. This may be a black-tie auction or a great golfing event, but it almost always comes through with enough cash to keep the group on its mission.
Other organizations have learned how to organize and execute capital campaigns to reach more major milestones. These organizations successfully garner millions of dollars in capital contributions for new buildings, remodeling facilities, or launching new services. Campaigns that target sums in excess of around three million dollars almost always use fundraising consultants and almost always reach their targets when they do. While some board members can be reluctant to use consultants, we have found that the cost of the consultants is rarely of concern to donors so long as they are told up front how, and how much, the consultant is being paid and that the value good consultants bring far exceeds their cost.
These strategies are all part of every successful non-profit’s playbook. There is, however, one very major boat that seems to slip out of the harbor unseen far too frequently. Too often, the need for operating capital is so pressing that the organization asks only, “How big a check can you write?” The irony is that deferred or planned gifts alleviate the need to ask that question in the future by creating an income-generating endowment. Unfortunately, organizations rarely solicit these gifts from their donors.
Estate Planning as a Gifting Tool
What characteristics do all of your major contributors have? Likely, the answer is 1) money or assets and 2) a desire to donate some of those assets to your group, either for philanthropic or economic reasons. American Tax Council director and co-founder Perry Cochell has been the Senior Endowment Counsel for Boy Scouts of America’s Western Region since 1994. In that time, he has secured over $1.4 billion in planned gifts. How has he done it? A lot differently than you might think.
Rather than solicit gifts from donors at all, he helps them create estate plans. Through that process, which he calls counseling the affluent, clients learn that their estate is comprised of both personal capital and social capital. Personal capital is the part of your estate that you can give to whomever you choose – family, friends, even your dog. Social capital is what you must part with upon your death. It will pass to either the default charity – the IRS – or the charity of your choosing.
The estate-planning approach is a different relationship than asking for a direct contribution. A non-profit should create a separate campaign specifically to target planned gifts. This campaign can coincide with a giving campaign, but the process is distinct and, more importantly, the prospect list is different. Generally, a non-profit will enlist the aid of a financial planner who specializes in this area and refer to the planner as their endowment counsel or endowment specialist, though some larger organizations have experts like Perry on staff. We will discuss first who should be on the list.
Members of the board with deep rolodexes and several key, well-connected volunteers, if applicable, should hold a no-holds-barred brainstorming session to identify a list of prospects. After two hours or so, a group should arrive with two to three hundred names. These names will be everybody the group can think of, but will then be filtered to arrive at an initial-contact list of around two dozen. The people on that list should have the following characteristics:
- Have an understanding of or experience with the organization and its mission
- Be nearing or in retirement – those entering the distribution, not accumulation, phase of life
- Have a taxable estate, or one that will grow to become taxable
The volunteer, executive, or board member with the closest contact to the potential donor should call to schedule a twenty-minute appointment at the donor’s home. The phone call should go something like this:
“As you know the ABC Charity has begun an endowment campaign. Next week, Jonathan Jingleheimer, our Endowment Specialist will be in town. I’m setting appointments with those who have been prominent in our charity circles to meet with him over the next few months. We’d like to stop by next week to visit you. We will only have about 20 minutes to visit. Jonathan’s services may or may not directly give assistance to you, that’s really unimportant regarding the visit. My intent is that Jonathan meets you, and as a very important Board Member/Volunteer/Donor, that you are made aware of our approach for carrying out the endowment campaign.”
The caller need not be experienced in the endowment process, as that is the role of the endowment counsel. The endowment counsel will work closely with the callers to set up the appointments and will take the lead in working with the donors. The important thing for the organization is that there are appointments set with donors. The endowment counsel will take it from there.
The end result of the meeting will be to discuss estate-planning topics with the donors to allow them to get a feel for how they can structure their estate to accomplish the goals they have. Here, the important thing is to focus on the donor’s goals, not the organization’s. This is not a campaign that can or should be measured on a four-foot thermometer or a painted plywood Goal-o-Meter.
Due to the tax code, high-level professional estate planning almost always includes a charitable component, even if the donor is not charitably inclined. It is almost always better for the donor and the donor’s heirs to donate a portion of their assets. A truly skilled financial planner can do things with trusts, qualified plans (like IRAs), and real estate that would make your head spin. Donors with $2 million estates, for example, wind up having plans that send zero (or very little) to Uncle Sam, $2 million tax-free or tax-efficiently to heirs and $1-$3 million to causes, which generally include the charity that brought the planner to the donor in the first place. As estates increase in size, the charities wind up with large amounts of gifts – which could be revocable or irrevocable, present or future – because doing so allows the donor to meet three common goals: to be remembered, to control assets from the grave, and to keep Uncle Sam out of the estate.
The Wealth Retreat
One of the most powerful and time-efficient ways to bring donors together and procure large planned gifts is to sponsor a wealth retreat. This is a three- or four-day retreat for wealthy couples to attend that is sponsored by a non-profit with the intent of educating and motivating the couple to create an estate plan. It may be a cruise or long weekend at a resort. These retreats generally cost the couple $2,000-$3,000 to attend and involve multiple interview sessions with a financial planner. In private interviews, the planner delves into the couple’s value system, allowing them to discover not only their own feelings about their relationship with money, but those of their spouse as well.
How often does a couple discuss money? A lot, most likely. But, how often do they discuss their feelings about money? Probably just shy of never. In the interview, a spouse will be asked about how his or her family handled money while growing up, what the family’s attitude toward credit was, and so on. Often, the other spouse will be astounded by what they hear. The planner only guides the discussion, making no value judgments, offering no opinion, and taking no notes.
The interviews are videotaped and transcribed. The planner reviews the tape and uses the interview to help create a family mission statement and the estate plan itself. They walk out of the interview not just with a better understanding of their finances and what their estate options are, but more importantly, with a profound understanding of their values and an insight into their partner’s past they never explored together. That experience moves many, men and women alike, to tears.
As the estate plan is developed and charitable options are put on the table, couples are amazed to find they have the means to support their passions, pass on their values to their children, maintain or improve their lifestyle, and create a legacy of giving that will last generations.
Capital campaigns and annual fundraisers are a necessary part of any non-profit’s existence. The creation of a substantial endowment, however, means that your organization will have to work a lot less in the future to raise those annual dollars. Soliciting planned gifts gives the organization a more balanced fundraising plan. When you have an income-producing endowment that largely or fully supports your organization’s current operations and programs, you can use the efforts of your board to begin to expand your organization to provide additional services, build new facilities, or take on a new challenge that your organization could never before support. It creates a level of stability in staffing you could not otherwise achieve. You can touch lives that were beyond your reach.
All these are possible only when one makes the effort to reach past that which has always been done. You must look into the future, beyond the bake sale.
Mr. Don Smith is a fee-based financial planner specializing in estate planning and business succession issues. You can reach Don with questions at 877-528-7485 or by email at firstname.lastname@example.org. Based in Vancouver, WA he is a former business attorney and has served on the boards of several organizations.
Mr. Smith is registered with Allmerica Investment Management Company, Inc., a registered investment advisor, and is also a registered representative of Allmerica Investment, Inc., member NASD/SIPC and is a representative of Allmerica Financial Life Insurance & Annuity Company (licensed in all states except New York) and/or First Allmerica Financial Life Insurance Company. Copyright 2002. All rights reserved. 02-748W(11/02)
Custom Development Solutions, Inc. (CDS) is one of the most sought after fundraising consulting firms specializing in the strategic planning and tactical execution of capital campaigns for non-profits throughout the United States and Canada. If you have a fundraising question, please call CDS at 800-761-3833 or send an email to email@example.com.