LGT's Profit Sense

Many nonprofit organizations develop planned giving programs to ensure the sustainability and stability of their organization over the long term.

The cultivation of a planned giving program may take years to grow into a viable source of reliable support, but with careful planning and cultivation, it can become a thriving source of organizational support.

The fundraising, development, and finance departments work together to create a planned giving program. Many teams begin their efforts with donor research and the assignment of critical duties to one or two development staffers.

A high priority is the expansion of the nonprofit’s gift acceptance policies to include guidelines for helping donors add the nonprofit’s name to their wills and aiding them in managing their estates. Additional financial policies may be needed to include guidance for trust acceptance and split-interest gifts.

Read more: Not-for-Profits Benefit from Effective Grant Management

Managing the Financial Aspects of Planned Giving Programs

A critical component of planned giving programs is the implementation of a reliable gift tracking system that will function effectively over the long term. This system should record relevant donor information including their names, ages, and beneficiaries (if any); the type and form of gift designated, such as through a will, trust, or bequest; and communications functions and policies to maintain regular contact with donors.

Many nonprofits institute a planned giving committee with members of the development, marketing, and finance departments who meet monthly or quarterly. These meetings provide a forum for sharing information on cash flow projects, new gifts, recent donor deaths, estimates on donor life expectancies ongoing and upcoming campaigns, and recent communications on gifts.

These discussions enable the finance department to process and appropriately record gifts in the financial statements, as well as to create projections for the growth of the planned giving portfolio.

Growing Your Program

Once a planned giving program is in place, the organization must make the program known to potential donors. The easiest way to jump start your program is bringing it to the attention of the organization’s executives and board members. Asking those already dedicated to the organization to help jump start and market the program will help others gain awareness.

Creating an outreach program with the marketing department to reach the organization’s target audience identified during the donor research process can also help establish and grow the program. The marketing department can assist through running various campaigns, including details on the planned giving program and how it works in the monthly newsletters, and other regular fundraising outreaches.

Further information on how donors can get involved and the process of setting up planned giving can be added to the organization’s home page to facilitate additional outreach.

Read more: Donor Advised Funds: Smart Giving

Applying Revenue Recognition Accounting Principles

Generally accepted accounting principles for most wills and estates require that when a donor commits to an unconditional donation, it should be recorded as an increase to net assets. A donation is considered unconditional when there are no barriers the organization must overcome before they are entitled to the asset and there is no right to return the assets provided. However, other guidance indicates that simply listing a gift in a donor’s will indicates an intent on the donor’s part to give to that nonprofit. It often falls to state and local probate courts to decide the final beneficiaries of the estate.

When an estate goes through probate, revenue is recognized at that time. After the death of the donor but before probate, the gift is considered a conditional promise and the court must lift this condition through the probate process.

For trusts, revenue recognition depends on the type of trust. An irrevocable trust income may be recognized in the books as a beneficial interest. Revocable trust income is not recognized unless and until the time that the trust becomes irrevocable, usually upon the death of the donor.

If the nonprofit is named as trustee of certain assets, a line item may be added to the listing for the assets on the financial statements designating them as trust assets or beneficial interest. Trust assets apply when the organization itself is named trustee and beneficial interest applies when trust assets are held by a third-party trustee.

Some donors designate split-interest arrangements, which occur when the nonprofit and other parties are named as beneficiaries of the assets. If the nonprofit holds the designated assets as the trustee, it may need to record a separate liability to those third parties. Many states have laws concerning such arrangements, so nonprofits should obtain legal guidance from an attorney who is familiar with state laws.

Planned giving programs may take years to fully develop, but the rewards of such effort will ensure the long-term viability of a nonprofit and the beneficial programs it provides.

If you have any questions on developing a planned giving program for your nonprofit organization, then you can contact LGT for more information.

Want to learn more about planned giving? 

Join us for our Not-for-Profit event in April!