Planned Giving Definition: What is Planned Giving?

Planned Giving Definition: What is Planned Giving?

November 22, 2019

Ever wondered how planned giving can benefit your nonprofit? Keep reading to find out- let’s begin with a planned giving definition along with information on the three primary ways donors contribute planned gifts. In other words, here’s all you need to know about planned giving in a nutshell.

What is Planned Giving?

Planned giving is also referred to as gift planning or legacy giving. In a nutshell, it is a donor’s intention to contribute a major gift to an organization, beyond their lifetime. So, unlike an annual gift (an outright gift made for current use), a planned gift is for the future. Essentially, donors make arrangements for planned gifts in the present but they are actually doled out at a later date. Additionally, the major gifts contributed by a donor can be made as a part of their financial or estate plans.

So by definition, planned giving is not limited by donors’ current wealth. Unlike the value of donations, donors contribute on a recurring basis, planned giving enables them to contribute gifts that they wouldn’t ordinarily be able to make. The gifts donated end up being larger and aren’t dependent on one’s regular income. That’s why most planned gifts contributed by donors take the form of life insurance, equity, or real estate holdings (among others). Thus, even if a donor consistently contributed small gifts, their planned gift can be of a much higher value.

Top 3 Tax Vehicles for Planned Giving

In order for an individual to leave behind a major gift, planned gifts can take many different forms. They can take the form of real estate, personal property, life insurance, or even cash. However, the majority of donors seem to gravitate towards 3 primary planned giving options:

1. Bequest

A gift (typically cash; personal property; real estate; stocks; or bonds) left behind in a will for a group, individual, or organization. There are four types of charitable bequests:

  • General Bequests: gifts of property taken from the assets of an estate.
  • Demonstrative Bequests: gifts that come from a source, such as a bank account.
  • Specific Bequests: gifts of personal property such as cash, jewelry, or other tangible assets.
  • Residuary Gifts: gifts that come from the remainder of any debts or expenses that have been paid along with other bequests that have been made.

Additionally, out of all the planned gift options a donor could choose from, bequests are the most popular.  In a 2016 study conducted by Indiana University, it was reported that 42% of all planned gifts (given by donors in their subsample) were bequests.

2. Annuity

A fixed sum of money paid to an organization each year. So, this typically takes the form of a simple contract between a donor and a charity. Also known as a charitable gift annuity, a donor transfers cash, security, or assets to a cause in exchange for a partial tax deduction. They can also receive a lifetime stream of annual income from the charity itself.

3. Trust

A legal entity whereby an individual holds or invests property as its titular owner. This can be for one or more beneficiaries. Additionally, there are two types of charitable trusts:

  • Charitable Remainder Trust:  a tax-exempt trust created to reduce an individual’s taxable income by dispersing their earnings to the beneficiaries of the trust over time. The remainder of the trust goes to the organization outlined in the trust.
  • Charitable Lead Trust:  this is the inverse of a charitable remainder trust. The trust provides financial support to multiple causes over a specified period of time. The remainder of the trust then goes to the other beneficiaries (family members, friends, etc.)

Motivations Behind Planned Giving

Above all,  planned giving preserves a donor’s legacy. Donors first begin thinking about planned giving when they are nearing retirement age, between the ages of 40 and 60. So, donors may give to organizations that act in accordance with their personal values and beliefs. As a result, their planned gift symbolizes the relationship they’ve cultivated with the cause they’ve given to. If anything, they want their contribution to help secure the future of the organization. It also represents their commitment to positively impacting communities in actionable ways.

Driving the Donor Journey: Guide to Descriptive Modeling

Boost your fundraising using WealthEngine’s descriptive modeling tool. Discover your next best donors you have yet to connect with.

We hope you enjoyed learning about planned giving in a nutshell. Stay tuned to our series as we explore more related topics beyond planned giving’s definition. Next, we will explore modeling and how to leverage it to identify your next best planned giving donors.

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