Many not-for-profit (NFP) 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 nurturing, it can become a thriving source of support for generations.
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.
An essential component of donor research is determining who in the organization has the strongest ties to the most philanthropic donors. Often this is the executive director or a board member. Working through the development staffers and including the individual with ties to the donor, the not-for-profit team will meet with key donors to personally announce the establishment of a planned giving initiative and explain the benefits to the donors.
A high priority is the expansion of the not-for-profit’s gift acceptance policies to include guidelines for helping donors add the not-for-profit’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.
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 to maintain regular contact with donors. For most NFPs, it’s important to note that the general ledger is not the appropriate place for this kind of data. Some softwares specifically designed for NFPs often have a donor tracking module, similar to a client relationship management (CRM) tool, that can be a great place to house this type of data.
Many not-for-profits institute a planned giving committee with members of the development 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, and recent communications on gifts. It seems like a morbid meeting to have regularly, but some sophisticated planned giving tools are tied to standardized mortality tables, making consideration of a donor’s passing a critical component of planning.
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.
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. 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 not-for-profit. 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 not-for-profit 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 not-for-profit and other parties are named as beneficiaries of the assets. If the not-for-profit 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 not-for-profits 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 not-for-profit by supporting beneficial programs it provides.
If you have any questions on developing a planned giving program for your not-for-profit organization...
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