Useful Past Tips: Planned Giving : Beating the heirs to cash Disclosing everything to the donor Make sure your getting consider for bequests "Heir"-raising wealth transitions

1. Beating the heirs to cash

Sometimes knowing the secrets of influence can go a long way in securing that much-needed bequest from an aging businessman’s account before salivating heirs get their grubby hands on Grandpa’s cash.

Karen L. Niles, director of professional development at the American Speech-Language Hearing Association, gave a few pointers about the art of influence during a recent Direct Marketing Association of Washington conference.

There are two types of influence, she said. The first, coercion and power, attains influence through physical force, threat of punishment, or promise of reward. The second, persuasion, uses more subtle tactics of changing attitudes through verbal and nonverbal communication.

Niles, citing author Robert Cialdini, provided six principles of influence:

• Reciprocity: Those who receive gifts or favors develop an obligation to return the favor or gift in kind. This influence crosses cultures, is extremely powerful, and can compel gifts of greater value than the original, according to Niles.
• Comparisons/consensus: People usually behave as others around them behave. A person’s perception of “correct” behavior depends on the extent they see others behaving the same way. This effect gains strength during a time of uncertainty or in groups of similar people.
• Liking: People are more persuaded by someone they like. Attractiveness, compliments, similarity and cooperation are a few things that enhance “liking.” Competition, even if friendly, doesn’t help liking.
• Authority: Those perceived to hold authority possess a greater ability to persuade. Research has shown that people will do as told by authority figures even if it means inflicting pain on others. Status symbols enhance perceived authority. Authority can make people over ride personal professional judgment.
• Scarcity: That which is rare is valuable. This applies to opportunities, information, and objects. “People are more motivated to avoid a loss than to realize a gain of comparable magnitude,” according to Niles.
• Commitment/Consistency: People are motivated to behave consistently with their values and beliefs. This involves cognitive dissonance, related social phenomena, and attribution/inner choice.

2. Disclosing everything to the donor

It is possible for donors of planned gifts to be disappointed with some aspect of their return, but there are steps and organization can take to avoid problems that may arise.

Organizations routinely inform potential donors of the benefits that can be gained, but they are not often as forthcoming about risks. It is essential, therefore, that certain areas be disclosed in order to make donors aware of the pitfalls as well as the benefits of planned giving.

Those issues are:

• Investment or asset management issues. These include the choice of manager, how the gift will be invested, and potential risks.

• Gift vehicles. This involves the ramifications of particular gift planning options, such as the fixed or variable nature of payments, the irrevocability of the gift and the selection of a layout rate.

• Gift assets. This area includes the information that donors should have when deciding how to fund a particular gift plan, and it involves the tradeoffs of using cash versus appreciated assets and the issues to consider when giving real property or other hard-to-value assets.

• Financial and tax benefits. This involves the disclosure that should accompany projections of tax deductions, future beneficiary payments and the ultimate benefit to the charity.

• Gift administration. This concerns how the gift plan will operate, including payment methods, reporting and how fees and expenses will be paid.

3. Make sure your getting consider for bequests

Too many nonprofits are ignoring the value of planned giving and asset management for prospective donors. In every nonprofit direct mail piece, and on every nonprofit Web site there should be information on planned giving, said Paul Hansen, a chartered advisor in philanthropy with Smith Barney.

"Keep asking to be included in wills, in bequests. Keep asking in each mailer. Always remind the donor to 'please remember us in your will'," said Hansen, who made his comments during the recent annual conference of the New Jersey Chapter of the Association of Fundraising Professionals at the Marriott in East Hanover, N.J.

One of the best methods of planned giving, Hansen said, is through a gift annuity. A gift annuity increases income for the donor today, while profiting the charity in the long run.

A donor might have his or her funds tied up in low-yield mutual funds or certificates of deposit. Through a gift annuity, the donor can grow his or her investment at a higher interest rate, Hansen said and the donor would be able to live off that annuity until they die. "We are in a low interest environment," Hansen said and a higher yield annuity is a better way to go for the donor.

"Charitable giving in this way will complement their estate planning," he said.

Nonprofits should have someone on staff well versed in planned giving and the many ways it can benefit the donor and the charity, Hansen said.

Nonprofits will find, in many cases, that potential donors look at various trust accounts with financial institutions for estate management, but what sets gift annuities with nonprofits apart is that financial institutions continue to increase the minimum amount that needs to be deposited into the account, Hansen said.

Restrictions on nonprofit gift annuities are not as stringent, he added. The gift annuity will enable the donor to receive a steady income in retirement and then when he or she dies pass it onto the charity, Hansen said.

There should be five priorities when working with a client, Hansen said.

• Preserve wealth.

• Avoiding excessive taxes.

• Accumulating additional wealth.

• Passing wealth onto their children.

• Preserving the family business.

Another way that a potential donor can ensure a steady income, give to a charity, and make sure that his or her children receive an inheritance is through a Term Limit Trust, Hansen said.

The donor's money would be put into a trust with a high interest rate. The donor would assign half of the interest income to the charity while continuing to grow the total lump sum, which at the end of the agreed upon term (the death of the person) would transfer to the person's children. By doing this, the child would avoid having to pay federal and state gift taxes on the inheritance, Hansen explained.

A third method of planned giving, Hansen said, is via an insurance policy. He said that not many nonprofits or insurance companies have used this method, but it does work.

The donor purchases a cash value life insurance policy and signs it over to the nonprofit, making the nonprofit the owner. However, the donor agrees to pay the annual premium on the policy, Hansen said. By donating the policy to the charity, the donor gets to write-off each year's premium payment as a deduction on his or her income tax and when the donor dies, the charity gets the cash value of the policy, Hansen explained. The donation can even increase to the charity if the donor works for a company that has a matching donation program, Hansen said.

"These are all asset based strategies and every nonprofit should be familiar with them," Hansen said.

4. "Heir"-raising wealth transitions

Although generational transfer of wealth might seem like a simple matter, there can be difficulties with families that do not provide for a smooth transition of assets.

In their book Philanthropy Hers & Values, Roy Williams and Vic Preisser of the Williams Group offer a checklist of critical pre-transition statements for families that will be handing over wealth. Knowledge of these elements could prove beneficial to nonprofits that are earmarked to be included in a will.

• The family has a mission statement that spells out the overall purpose of our wealth.
  
  
• The entire family participates in most important decisions, such as defining a mission for our wealth.
  
  
• All family heirs have the option of participating in the management of the family's assets.
  
  
• Heirs understand their future roles, have bought into those roles and look forward to performing in those roles.
  
  
• Heirs have actually reviewed the family's estate plans and documents.
  
  
• Current wills, trusts and other documents make most asset distributions based upon heir readiness, not heir age.
  
  
• Family mission includes creating incentives and opportunities for the heirs.
  
  
• Younger children are encouraged to participate in the family's philanthropic grant-making decisions.
  
  
• The family considers family unity to be just as important as family financial strength.
  
  
• Members communicate well throughout the family and regularly meet as a family to discuss issues and changes.

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