Winter 2009
Giving and Raising Individual
Donations in Challenging Times
Whether you're making or soliciting charitable gifts, you might want to follow this advice: Plan your work and work your plan.
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Jim Lund |
That may not be his official motto, but Jim Lund, Senior Financial Advisor at Ameriprise Financial, is serious about planning, for donors and fundraisers alike. With more than two decades of financial experience and a deep-rooted concern for nonprofits, he gladly offers advice to help shore up the beleaguered sector.
"Ninety percent of my focus is on charitable giving, for individuals and organizations," reports Lund. "I don't have a choice. It's ingrained in me."
His first recommendation is for everyone to maintain perspective. "We will go through up-and-down economic cycles. Nonprofits should know what will happen and not have to suffer in the down cycle if they plan for it," says Lund.
"True, some donors probably aren't giving as much right now, but that's not because of a lack of charitable intent." He notes, too, that "there is money out there," citing how some people are being counter-cyclical and giving more.
Replace Haphazard Giving with Comprehensive Plan
Proper planning enables people to recognize and act on their charitable intent. Lund recommends that individuals complete a comprehensive financial plan based on their personal objectives. He discusses with his clients their charitable goals, current giving and estate planning. "These are continuing conversations, even in this current market," he notes.
Sometimes giving by individuals is a bit haphazard. He remarks that folks often don't realize how much they're already giving — to their church or synagogue, through United Way, to their schools and to other favorite organizations. A plan enables them to reflect on their charitable activities, to consider their current budget, and to envision changes in their future giving.
An overall financial plan also helps individuals build up their assets and thus allay their fears that they will run out of money. They can then be confident that making charitable gifts won't adversely affect their future.
Address Current and Future Giving
"You must talk about current and planned giving in the same breath," explains Lund. One needs to ask, "In light of the current economic situation, what impact do I want to make on whom? How am I going to give away money to organizations that are important to me?"
"I live the talk," says Lund. "I firmly believe in giving back to the community." He and his wife belong to the local One Percent Club, whose members pledge each year to contribute 1 percent of their net worth or 5 percent of their income to nonprofit causes.
Whether just starting out and feeling the economic pinch, or reaching retirement in relative comfort, individuals young and old can support nonprofits through a wide array of planned giving options. For instance, explains Lund, younger workers can choose their favorite charity as the beneficiary of their life insurance policy from work. Or, a young couple who has a stable income but has not yet accumulated many assets may choose to take out a life insurance policy to bequeath to a nonprofit organization. The couple would pay the small monthly premium, and the nonprofit, as owner and beneficiary of the policy, could tap into the cash value during their lives and receive the death benefit at their passing.
Over the past few years it's been common for older individuals to gift appreciated assets instead of cash. This is still a win-win strategy for the charity and the donor, since he or she does not need to pay taxes on the gain and also receives a charitable deduction. But with the drop in the stock market, many people now have depreciated assets, so Lund suggests the opposite approach: Sell the asset, take the loss for tax purposes, and gift the cash instead.
Lund reminds older donors that they can also take advantage of the recent extension of the federal Charitable IRA Rollover legislation. This allows taxpayers to make donations directly to nonprofit organizations from their IRAs without paying taxes on the gifts. Individuals age 70-and-a-half or older can give up to $100,000 each year for the next two years.
Control Your Social Capital
Lund is very enthusiastic about encouraging individuals to minimize their tax burden in order to maximize their charitable giving. He calls this "controlling your social capital."
"The government can't solve all of our social problems, that's why we need nonprofits," he says. "I don't know the exact source, but I've heard that nonprofits return $1.40 for every $1 they spend. They're more efficient than government."
He shares an example of a business owner who starts with nothing and builds up a $5 million business. When he is ready to retire, the owner transfers half the value of his business, or $2.5 million, to a charitable remainder trust, assuring an income stream for the rest of his life while also donating the remaining funds to charity. Through that planned gift he lowers his estate taxes, gets a charitable deduction for a portion of his contribution, and cuts hundreds of thousands of dollars from his capital gains taxes.
"He avoids three taxes and helps the community," says Lund. "What a great deal."
Nonprofits Can Boost Individual Giving
Fund development offices at nonprofit organizations can also benefit from third-party financial expertise to gain awareness of planned giving tools and charitable giving strategies.
Financial planners like Lund sometimes serve as informal adjuncts to development departments at nonprofit organizations and at community foundations. Without creating a conflict of interest, advisors can openly talk with prospective donors about their charitable interests and illustrate planned giving vehicles, such as gift annuities, charitable lead trusts and others.
Investment Policies Critical
Lund also reinforces that it's essential that nonprofits (and individuals) know what they are investing in. Just mention Madoff or Petters, he says, and people quickly recognize the importance of having investment and conflict of interest policies.
Not surprisingly, he says that diversification is "the name of the game" when it comes to managing endowments and financial portfolios. Having served on nonprofit boards, he knows the importance of protecting organizations by diversifying, monitoring and rebalancing regularly.
Balancing Budgets at Nonprofits
In this economic downturn, Lund reminds nonprofit leaders to examine the revenue and the expense sides of the ledger to keep budgets balanced. Nonprofits should look through budgets and examine the largest expense items — often staff, rent and equipment — to identify ways to cut costs.
But he also recommends focusing on the top line, particularly by building up individual giving. "Remember the concentric circles," he says. "Go to the people you are closest to and expand from there. It extends indefinitely; we all have connections."
It's essential, too, for nonprofits to train their boards of directors to assist with fundraising. "Get people connected to your organization; otherwise, they have no reason to give," he continues. "Then give them options on how to give. If they have no cash, how about unused assets?" Even though nonprofits have immediate needs for cash gifts, they should not miss out on opportunities to obtain planned gifts.
© Copyright 2009 Minnesota Council on Foundations
Reproduction in any form without the written permission of the publisher
is prohibited.
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