RESOURCES  |  May 19, 2020

The benefits of planned giving for nonprofits and donors

There are a number of benefits of planned giving for both nonprofits and donors alike. By making a planned gift, donors secure their own legacy while nonprofits secure the future of their organization. 

 

5 benefits of planned giving for nonprofits

Nonprofit organizations with strong legacy programs are the ones that will thrive even in times of trouble. If you’re trying to convince your board or boss to invest in planned giving, then you’ll need to know what the benefits are and how planned giving will support your organization’s mission for years to come.

 

Download: The case for planned giving in 2020

 

1. Planned gifts secure an organization’s future.

One of the major benefits of planned gifts is that they provide a promise of future funding for an organization. There are many ways to give a planned gift, but they’re generally left as a bequest in a will. They’re also occasionally given as large sums of money that a nonprofit can either invest or get an ‘income’ from for a long period of time.

 

Nonprofits need to steward planned giving donors to remain in their wills over time. However, they can still use these expected funds to plan ahead and budget for the future, including for economic crises. 

 

According to research from Blackbaud, some organizations receive more than 25% of their annual revenue from planned gifts. Blackbaud also showed that planned gifts actually increase nearly 5% every year — even during recessions when other sources of revenue decline. The more planned gifts an organization is able to secure, the better off they will be when there is a decrease in other giving channels.

 

Plus, when the United States increased the standard deduction for taxes in 2017, it caused the first year-over-year decrease in charitable giving from individuals for the first time in over five years. By investing in legacy programs now, nonprofits will benefit from planned gifts and be better able to recoup this kind of loss in the future.

 

2. Planned giving offers the highest ROI of all fundraising types.

Another benefit of planned giving is that these gifts are generally large and bringing them in is low cost. Because of this, planned giving offers the biggest return on investment of all fundraising types.

 

For every dollar spent on fundraising bequest gifts, organizations can expect an average return of $56.83. In comparison, major giving gets a return of $33.33 per dollar and regular giving sees $8.41 per dollar.


Average ROI per $1 spent on fundraising activities

 

Not only do planned gifts have a high ROI, but they’re often larger than annual or capital gifts. The average bequest left to a charitable organization on FreeWill is $78,630 while the U.S. average in 2011 was $35,000 to $70,000.

 

3. Planned giving increases annual giving.

Some nonprofit professionals worry that planned gifts will cannibalize annual giving to their organizations. However, planned giving has actually been found to trigger a 75% increase in annual gifts.

 

In 2014, Dr. Russell James, a Texas Tech professor and planned giving expert, conducted an in-depth analysis of charitable giving. He found that donors who add a charity to their wills increase annual gifts by more than $3,000 in the following years.

 

giving before and after adding charitable beneficiary to estate plan

Source: Planned giving myths

 

This means that when nonprofits start or nurture planned giving programs, they’re likely to see a positive impact on their other fundraising efforts, such as annual or major giving.

 

4. Bequest gifts are accessible to everyone, which inverts the traditional donor pyramid.

When a nonprofit’s supporter puts a charitable bequest in their will, they don’t affect their everyday cash flow. Because of this, planned giving is accessible to anyone who makes a will, regardless of their current income. By investing in planned giving, nonprofits can capitalize on loyalty from many different supporters who care deeply about their organization. 

 

In fact, small-dollar donors actually make up the bulk of planned giving donations at most organizations. When FreeWill’s founders researched planned giving, they spoke to a wide range of organizations. One large environmental organization they surveyed said that they receive 70% of their planned giving dollars from supporters who are not in their top 10% of donations. And a Midwestern university reported that 38% of their bequest dollars come from supporters who have never donated.

 

Due to this and the fact that planned giving can increase annual giving, one of the benefits of planned giving is that it can invert the traditional structure of the donor pyramid. Planned gift donors usually sit at the top of the pyramid, only making bequests after becoming annual or major donors. And planned giving officers are often a part of the major gifts teams at their organizations. As such, they adopt these teams’ tools for soliciting donations. They identify top prospects with a high net worth, meet with them, and gradually secure bequest commitments. 

 

Donor pyramid structure

Traditional structure of the donor pyramid

 

However, smaller donors and lifelong savers are often in the best position to make a significant bequest. By stewarding these donors, nonprofits can benefit from a pool of planned giving revenue that would otherwise go untapped.

 

5. Planned giving opens up more giving opportunities.

As mentioned above, many people don’t have the means to make annual or major contributions to charity during their lives. But that doesn’t mean that they wouldn’t do so if given the opportunity. The occasional donors, volunteers, and other supporters who sit at the bottom of the donor pyramid still care deeply about the organization. That’s why nonprofits should provide as many giving options to supporters as possible. This includes giving that doesn’t affect immediate income. By opening up planned giving as an option, nonprofits are more likely to benefit from a variety of supporters.

 

3 benefits of planned giving for donors

From becoming part of an organization’s legacy society to tax breaks, donors benefit from planned gifts in a number of ways. If nonprofits can clearly explain these benefits, planned giving can be an incredibly powerful way to raise funds and support their mission.

 

1. Donors can create a legacy for themselves or their families.

Through planned gifts, donors can leave a legacy behind after they pass. That’s why planned giving programs are often called legacy programs or legacy societies. Whether leaving a bequest as a tribute to a family member or to create a legacy for themselves, donors benefit from planned gifts because they can make a lasting impact on a cause that’s important to them. 

 

While major donors can create a big impact during their lifetimes and occasionally be recognized with naming opportunities, charitable bequests are one of the few ways that smaller donors can see similar recognition. To honor these gifts, nonprofits often offer perks like public acknowledgements or special events. Some universities will even create named scholarships in the donor’s memory.

 

By inviting planned giving donors to join a legacy society, nonprofits will strengthen connections to their organization’s cause. And this stewardship can be extremely important for ensuring the future of that planned gift. Over time, many bequest donors change their charitable plans as they update their wills. With active legacy societies, nonprofits encourage donors to keep them in their wills. 

 

2. Planned gifts may offer tax savings for donors or their heirs.

Planned gifts can come with a few tax benefits depending on the type of gift made. Bequests are particularly tax advantageous for donors with large estates. Estates worth more than $11.58 million will owe federal taxes. However, bequests of cash or other assets like real estate, autos, or stocks are deducted against the estate's value. This reduces federal estate taxes for a donor’s heirs. 

 

Other planned gift types see significant tax benefits as well. For example, charitable remainder trusts are tax-exempt. And when a donor makes a gift of real estate, they receive an income tax deduction equal to the value of the property and avoid capital gains tax. Some organizations also consider Qualified Charitable Distributions, or QCDs, as planned gifts. Donors over 70 1/2 use QCDs to make tax-free gifts from their IRA while still meeting their Required Minimum Distribution. (Quick note: RMDs have been waived for 2020.)

 

3. Planned giving donors can determine how their gifts are spent.

One of the benefits of planned gifts is that donors have more control over where their money goes than with most annual gifts. Planned gifts are generally a part of a legal contract like a donor’s will This means the donor can include language that allocates how or where they want their charitable contribution to be spent (within certain limitations depending on organization). 

 

This is also a great reason for nonprofits to continue stewarding their planned giving donors. When donors update their wills, gift officers can keep them updated on where their donations will make the most impact and leave a powerful legacy.

 

Now that you know the benefits of planned gifts for both nonprofits and donors, you’ll be able to make the case for investing in planned giving at your organization.

 

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