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National Standards for Gift Planning Success - A New Tool for Measuring Progress and Competency in Your Gift Planning Office

By: Bruce Bigelow and Carol Kolmerten, Charitable Development Consulting

Three years ago, the National Association of Charitable Gift Planners (CGP) embarked on an ambitious task of trying to define reasonable metrics for measuring gift planning success.  A national task force of more than a dozen experts began a spirited discussion of the issue.  Quickly, however, we discovered that trying to designate specific numerical metrics for all gift planning offices was a daunting task that might never provide the kind of guidance that we were seeking.  Accordingly, after a year of frustrating discussion and several dead end tries, we refocused our efforts away from specific metrics to a set of best practices or national standards that could apply to all gift planning programs, large and small, experienced and brand-new, sophisticated and simple.

CGP has just released these standards to the public and is now looking to publicize the standards and draw attention to the impact these standards can have on the success of gift planning programs.

CGP has divided the standards into three broad categories: support from the top, the ability and capacity to reach donors, and a donor-centered approach to gift planning.  As the details of the sixteen standards below indicate, CGP is working on the principle that each of these standards is critical to all gift planning programs.   Support from the top—from staff leadership and from board members—both verbal and financial, is critical to success.  Ability to execute—through solid donor data and through access to the broad range of gift planning techniques—likewise provides an important key to success.  And a successful program must have a at its core a donor-centered philosophy, measured in timely and regular communication with donors.  Following are the standards themselves:

Support from the top: Does the non-profit

• Have a clear mission, vision, and goals that make clear to everyone why raising money for the organization is important
• Measure the cost to raise a dollar and the return on investment for planned gifts
• Have clear roles and responsibilities for fundraisers and volunteer leaders
• Have updated gift acceptance policies, gift valuation policies, gift counting policies as well as stewardship and recognition policies
• Offer regular planned giving training
• Have a clearly defined process for managing donor relationships, with fundraisers meeting at least monthly to discuss prospects, review portfolios, and come to consensus on next moves
• Offer fundraisers performance reviews annually: especially for activities within the capacity of the individual
• Track gifts in different categories over a rolling 3-5 year period.

The ability to reach donors: Does the non-profit

• Have a case for current and future support
• Include clearly written and easily accessible gift-planning opportunities on its website
• Offers stories (and pictures) of donors who explain why and how they have given
• Have a sufficient budget for enough staff, marketing, research, wealth screening, training, stewardship, advisor cultivation, software, and consultants
• Have access to technical expertise either on staff or through counsel.

A donor-centered approach: Does the non-profit

• Endorse the Donor Bill of Rights and Model Standards of Practice
• Have a stewardship plan that specifies who is visited/called, by whom, and when
• Have a well thought out marketing plan both for estate gifts and for non-cash gifts that coordinates all messaging
• Regularly gather and file visit/contact reports
• Let planned giving donors hear about the impact of their gift (or their future gift) at least yearly
• Track legacy society members and offer them at least an annual event.

We invite you to look in more detail at the section on the CGP website that supports these standards: https://charitablegiftplanners.org/nsgps and to take the self-assessment that follows the standards themselves.   
We are now in the process of undertaking four parallel continuing initiatives:

1. Involving the major data-processing and data-gathering companies in order to be able to track and report data uniformly and easily across the non-profit spectrum.
2. Engaging the world of fundraising consultants who offer guidance to non-profits through planned giving assessments, fundraising direction, technical advice, and campaign support.
3. Partnering with the major professional organizations that represent the various segments of the non-profit world.
4. And bringing information about the standards to as many planned giving counsels as possible.  Already, the Task Force has presented the standards to the CGP Board, to the Leadership Institute, and to the attendees at the national conference.  Our next task is to bring the message to the counsels directly, through newsletters like this one and through presentations—virtual for the most part for now but in person as national health guidance allows throughout the next year.

These standards are meant to be a useful and practical tool for planned giving programs and a guide for addressing the most important issues that define a successful program.  We welcome your feedback and look forward to talking more about the standards in the months to follow.

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About the Authors

Drs. Bruce Bigelow and Carol Kolmerten are founding partners of Charitable Development Consulting, a firm that specializes in helping nonprofits increase gifts through non-cash assets.

With a BA from the College of Wooster and an MA and PhD from the University of Chicago, Dr. Bruce Bigelow has been a leader of the development community for over 30 years, serving in front line positions at two independent liberal arts colleges and helping to mold the gift planning profession from its inception in the mid-80s.  As a member of the first national planned giving governing board, the first chair of the research committee and chair of one of the organization’s early national conferences, Dr. Bigelow also was instrumental in developing the profession’s code of ethics (now almost universally adopted), its international outreach, and, more recently, the national guidelines for counting gifts in campaigns.  He currently serves as a member of the task force on standards for measuring and evaluating gift planning programs and gift officers.

Dr. Carol Kolmerten, who earned her BA from the University of Louisville and MA and PhD from Purdue, was a professor of English for 39 years at one of the small colleges where Dr. Bigelow was VP for Development (where they met in 1989). She has published five well received scholarly books (one of which was selected by Phi Beta Kappa as one of the “twenty best books of 1990”). She has given over 200 conference papers and has been a keynote speaker numerous times (in Recife, Brazil, New Lanark, Scotland, and Rome, Italy, for example). As the other founding partner of Charitable Development Consulting, Dr. Kolmerten has particular expertise in expanding fundraising programs (often through the use of focus groups and case-based training in methods of giving).

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The Non-qualified Lead Trust

By: Russ Willis

As most gift planners are aware, a split-interest trust is subject to the private foundation excise tax regime, per Code section 4947(a)(2), to the extent it is holding amounts for which an income or transfer tax charitable deduction has been allowed. In the case of a charitable lead annuity trust, there is an exception at section 4947(b)(3)(A) to the prohibition on excess business holdings, where the present value of the unexpired annuity stream is not more than 60 pct. of the value of the trust corpus. If we are trying to leverage the present value of the remainder gift, we are unlikely to meet that exception, at least at the front end.

But what if we were to simply not claim the gift tax charitable deduction? or what if we structured the payout as something other than a fixed annuity or unitrust amount, so that it would not qualify? We could still discount the remainder gift by the present value of the "income" stream. And by reserving a power to direct the payout among charities we could render the non-qualifying "income" gift incomplete without it being treated as "retained" for purposes of section 2702.

the objective

The object is to try to replicate some of the income and transfer tax benefits of a qualified non-grantor lead trust without triggering an excise tax on excess business holdings. To achieve a discount on the value of the remainder gift, in other words, while avoiding application of section 4947(a)(2) by not holding amounts for which an income or gift tax charitable deduction has been allowed.

Maybe also without having to meet a fixed annuity payout, which might have to be paired with staged redemptions, or maybe by borrowing from an "intentionally defective grantor trust" to meet the payout obligation, which would be self-dealing if the private foundation excise tax rules did apply. These details would be specific to the particular transaction. What we are looking for here is the flexibility to make such decisions without adverse tax consequence.

IRS has ruled privately at least twice that if the charitable deduction is not claimed, we need not concern ourselves with excess business holdings or with the prohibition on self-dealing. PLRs 201713002 and 201713003, identical verbatim, concerned a charitable remainder unitrust which otherwise qualified. PLR 200714025 concerned an ordinary "complex" trust in which the trustee had discretion to make deductible distributions to charity. In both instances, IRS agreed section 4947(a)(2) did not apply.

the mechanics

Code section 2522(c)(2) disallows a gift tax charitable deduction for a contribution to a lead trust unless the payout is in the form of a fixed annuity or a unitrust amount. If we set up a lead trust paying net fiduciary accounting income, the lead interest would not qualify.

The remainder gift would still be discounted, albeit not by nearly as much. In a low interest rate environment, a fixed annuity provides very strong leverage, a net income payout almost worse than none. Remainder values after a term unitrust are not affected by fluctuations in the 7520 rate.

But while we are forgoing the gift tax charitable deduction, we do not want to "waste" lifetime exclusion -- or worse, pay gift tax out of pocket -- on amounts that are in fact going to charity. So we would want to render the gift of the income interest incomplete, per reg. section 25.2511-2(c), until distributions are actually made, by reserving to the settlor a power to allocate among charitable distributees.

Per section 674(b)(4), this would not trigger "grantor" trust treatment. IRS confirmed this analysis in PLR 9742006, though in the particular case the settlor had also retained a testamentary power to alter the disposition among the remainder beneficiaries, rendering the entire gift incomplete.

More formally, in Rev. Rul. 77-275, IRS ruled that a settlor's reserved power to allocate income among charitable distributees would render the gift incomplete. The ruling supposed a pre-1988 "Clifford" trust, with a term of ten years and one month, implicitly confirming that the reserved power would not itself trigger "grantor" trust status.

However, the reserved power would cause inclusion in the settlor's estate per section 2038(a), with no offset for the unexpired, non-qualified term. As in the case of a grantor retained annuity trust, we would want to set the term well within the settlor's life expectancy, and to be prepared to accept the consequences of an early death. Or we might convert the net income payout at the settlor's death to a fixed annuity or straight unitrust, which would qualify under section 2055(e)(2).

As with any non-grantor lead trust, the non-qualified trust would be taxed as a "complex" trust, with an income tax deduction per section 642(c)(1) offsetting current net fiduciary accounting income. Although reg. section 1.642(c)-3(b)(2) requires that the charitable deduction be pro rated across various classes of income, thereby defeating any "ordering rule" that might otherwise purport to distribute items subject to higher rates first, reg. section 1.642(c)-3(c) does allow a deduction for distribution of realized gains, if the trust instrument expressly includes these in the mix.

If we are funding the trust with interests in a pass-through entity, the income tax charitable deduction will be limited to the extent we are funding distributions with unrelated business taxable income. The consequence may be that we are paying some amount of income tax at the trust level.

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About the Author

Russ Willis

Russ is a tax lawyer, a freelance writer, and a consultant to other lawyers -- an advisor to the advisor -- on issues arising in connection with wealth transfers. Among his other engagements, Russ is a manager of noncash research for Charitable Solutions, LLC, a planned gift risk management consulting firm headed by Bryan Clontz.

For ten years, he wrote for a subscription website that provided daily coverage and in-depth analysis of developments in tax law affecting charitable gift planning. About three years ago, he launched his own newsletter, the Jack Straw Fortnightly, analyzing current developments in the law -- both tax and nontax -- concerning the transfer of private wealth in this country.

As a practicing lawyer in St. Louis, Missouri, for more than 20 years, Russ chaired the Steering Committee of the Probate and Trust Law Section of the local bar association and served for years on a legislative drafting subcommittee of the Probate and Trust Law Committee of the State Bar. As an adjunct member of the faculty at the St. Louis University School of Law, he taught courses in future interests and tax-driven estate planning.

Russ has written numerous articles for law journals and publications serving the charitable planned giving profession, and he has been a frequent speaker at seminars for lawyers and for charitable gift planners.

Russ has a law degree from St. Louis University and a master's degree in Taxation Law from Washington University in St. Louis. His undergraduate degree in English Literature is from Indiana University, Bloomington, and he has a master's degree in English from the University of Chicago.