What you need to know about planned giving

Jeremy Monty and Karen Ellenbecker
Jeremy Monty and Karen Ellenbecker

Last updated on November 23rd, 2022 at 02:34 pm

The act of determining your charitable legacy – like writing a will – is easy to put off for a later date: Perhaps when you’ve accrued more wealth, or when you’ve paid off all your debts, or when retirement is more imminent. 

Whether from a lack of proactivity or awareness, some would-be donors are missing out on the opportunity to make an impact on the community and help sustain the work of worthy nonprofit organizations.

The following are common misconceptions about planned giving, along with the information you need to make an informed decision about your philanthropic legacy. 

Planned giving is for the ultra-wealthy.

No one should count themselves out when it comes to planned giving, said Karen Ellenbecker, founder and senior wealth advisor for Pewaukee-based Ellenbecker Investment Group. 

“You don’t have to have a lot of money to give. There are a lot of different ways people can give,” she said. “The people who want to give, they relate the giving to their heart; they don’t relate it just to their checkbook. People can give a huge gift, or they can give a smaller gift that’s comfortable for them.” 

Twenty-eight percent of donors that use a planned giving strategy have a net worth of less than $1 million; 30% have a household income of less than $100,000, according to Giving USA Foundation’s 2019 Leaving a Legacy report.

“This is not only for high-net-worth individuals,” said Jeremy Monty, vice president of CCS Fundraising, a New York-based strategic fundraising consulting firm that works with several local nonprofit organizations. “The basic goal is, if you want to ensure your assets are being distributed the way you want them to be, planning, just like anything else in this life, is key.” 

Those who aren’t necessarily cash rich but have assets – such as a building, appreciated stock, or insurance policies – can gift those to the organization of their choosing.

“When people think, ‘I don’t have enough money,’ or wonder where they can give from, sometimes they don’t want to take money out of their cash flow, but they’re willing to give money out of their IRA to not be taxed,” Ellenbecker said. 

Two common scenarios drive someone to make a planned gift: one sentimental, the other more pragmatic. Ellenbecker said clients often make a planned gift in response to a hardship or tragedy in their own life – the loss of a loved one to cancer, for example – while others are seeking a tax deduction, said Ellenbecker. 

“But most people do not do it because they need it to get a tax deduction if they don’t have a giving spirit,” she said. “Often the tax deduction defines the gifting, rather than the desire to give.” 

A 2021 Bank of America study of philanthropy bears that out. According to that study, the primary reason affluent Americans give is because of their affinity for the mission of an organization, with 58% citing that as their reason. In contrast, 15% said they give to receive a tax benefit. Just under three-quarters of affluent households said their charitable giving would stay the same if income tax deductions for charitable giving were eliminated. 

A bequest is my only option.

While a bequest is the most common type of planned gift (making up 68% of planned gifts, according to the Giving USA report), donors are not limited to simply writing an organization into their will. 

“A planned gift can actually be now as well,” said Monty. “People giving appreciated stock, people giving out of their retirement accounts to meet their required minimum distributions, people giving to donor-advised funds right now as part of a larger strategy they’re looking at later. … A significant portion of the wealth that is being transferred now is being done with gifts that can be realized immediately.”

Monty said it’s important for nonprofit organizations to make these options known to prospective donors. The same Giving USA study found that 40% of donors first learned about planned giving vehicles from a nonprofit organization, whether through a direct-mail piece or in-person conversations. 

“As a nonprofit that’s looking to communicate with donors, ensuring that you have someone on staff that understands at least the basics of these giving vehicles is important,” Monty said. “However, we advise our (nonprofit) clients to know the basics, but before a donor makes a decision on a planned gift, we encourage them to consult with a financial professional, whether it’s an attorney, accountant or financial advisor.”

Planned gifts are too complicated. 

The opposite is true, according to Ellenbecker. 

Donating to a donor-advised fund – an investment account for the purpose of supporting charitable organizations – can actually “uncomplicate your life,” she said. 

“If you use a donor-advised fund as a way of giving to a charity or giving gifts to more than one charity, they actually track everything for you,” Ellenbecker said. “During tax season, they print out a letter and say, ‘Give this to your tax advisor.’ You don’t have to keep all of those records.”

There are several simple options available to the donor, such as making a charity a beneficiary of their insurance; or gifting highly appreciated assets, such as stocks; or giving out of their IRA. 

“It’s all about being curious and talking to someone that you trust to figure out how you can give if you truly want to give. There is always a way,” Ellenbecker said. 

It’s too early to think about a planned legacy gift. 

Estate planning may be the last thing on the mind of a young parent or first-time homebuyer, but Ellenbecker recommends sitting down with an attorney early to map out your will and estate plan, even before you’ve made enough money to start giving it away. 

“You can work on a percentage. You can say, ‘Whatever I end up with in life, I want to give 10% to charity,’” she said. “So, it doesn’t matter how much money you have – you’re giving a percentage.” 

More often, retirement is what prompts people to begin thinking about giving, particularly at age 72, the time at which they must receive their required minimum distribution from their IRA. 

“Very often, we will say, ‘You can take that in-kind, take the money, or you can move it into your trust and you’re going to pay tax on it,” said Ellenbecker. “If you give it outright to a charity, a 501(c)3, you don’t have to pay taxes on it. That’s another way that people, as they get into retirement age, can give without taking it out of their immediate cashflow.” 

A 2017 change in federal tax law has created some urgency for high-net-worth individuals’ estate planning. The Tax Cuts and Jobs Act temporarily doubled the amount of assets one can transfer without being subject to the 40% federal gift and estate tax. The gift tax exclusion amount for the years 2018 through 2025 is around $12 million, meaning a married couple can transfer nearly $24 million to their heirs through lifetime gifts or their estates. After 2026, the exclusion amount is set to drop to $5 million. 

“Between 2022 and 2026, a lot of advisors like myself and accountants and attorneys are helping their clients figure out how they can take advantage of giving away $12 million per person before it drops down to $5 million. That’s a really big tax event,” Ellenbecker said. 

The 2021 Bank of America study indicates a slight increase in affluent households utilization of planned giving instruments over the past few years, including a 4% increase in households that have a will with a specific charitable provision compared to 2017, and a 2% increase in households that give to a donor-advised fund. 

While some tax advantages can’t be reaped until later in life, Ellenbecker said talking about giving should start early. 

“When is the right time to start thinking about giving? It’s when you’re very young. It allows you to get in the spirit of giving,” she said. 

Ellenbecker gives each of her children and grandchildren $500 every Thanksgiving, a gift they are to then give to a charity of their choice by Christmas.  

“At Christmas we sit around the table, and we talk about the charities we’re giving to and why. That’s the way of teaching. That’s how you start,” Ellenbecker said. “If you’re going to do planned giving, very often it’s with a donor-advised fund, and when you pass away your children are going to step in and do that gifting after you’re gone. You want them to understand the importance of giving.”

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