Planned gifts, also called legacy gifts or deferred gifts, is an agreement to give a donation at a later date and come in all shapes and sizes. Nonprofit organization can choose to offer simple planned giving vehicles such as outright gifts: bequests, gifts of stock, etc. to more structured giving vehicles such as Split-interest Agreements.
Read more: Developing and Maintaining a Nonprofit Planned Giving Program
Below is a sampling of some of the most common gifting vehicles:
- Bequest: A gift from an estate, which might include a transfer of cash, property, or other assets to charity that is stipulated in a will. Some bequests specify an amount of money to donate, while others earmark a percentage of an estate or the amount left after other specific payments are made.
- Trust: A legal agreement that assigns a third party, like a bank, to hold assets on behalf of a beneficiary. The individual who sets up the trust is called the grantor. The outside entity who manages the fund is called the trustee. In arranging a trust, the grantor designates one or more beneficiaries of the funds. These might be individuals, a charity, or a combination of both.
- Revocable trust: Also known as a “living trust,” a trust arrangement in which the donor can cancel or change the terms up until death. This is treated as an intention to give.
- Irrevocable trust: The opposite of a revocable trust. Donors cannot modify the terms of these trusts after they are established. Because the assets are transferred out of the estate, donors of these trusts are not taxed for any income their assets generate.
- Charitable remainder trust: A trust that provides income for a donor, usually for the lifetime of that person, and in some cases also for a spouse or another individual for his or her lifetime, before generating a gift to charity. The organization may have general use of the assets or the donor may place restrictions on the assets transferred to the nonprofit organization. Unlike bequests, which can be altered or withdrawn when a donor changes his or her mind, charitable remainder trusts are irrevocable.
- Charitable gift annuity: An arrangement in which a donor gives cash, securities, or other assets to a charity to invest and, in return, receives a tax break and fixed, regular payments for life. Annuity payments are typically worth more than donors would receive from treasury bonds, certificates of deposit, or money-market funds, but because the payments are fixed, their value may diminish over time due to inflation.
Nonprofit organizations should establish accounting records and control procedures adequate to identify, measure, record, and segregate the cash, investments, and other assets received under split-interest agreements and the obligations, if any, for payments to beneficiaries.
Generally, management and the board will be involved in authorizing all split-interest agreements. Control procedures are necessary to ensure that the organization receives and records all distributions to which it is entitled under those agreements. If the assets in the split-interest agreement are held by a third-party trustee, procedures for reviewing account statements and other periodic reports will help ensure the trustee is complying with the terms of the agreement.
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The accounting records and procedures also need to be adequate to facilitate monitoring of compliance with the terms of the split-interest agreement, related restrictions (including, possibly, restrictions or regulations by local governmental agencies relating to annuity arrangements), and the termination of payments. Procedures need to be in place so that management is notified timely of the death of a beneficiary that is receiving payments from the organization under a split-interest agreement.
The donor relations or fund-raising personnel typically would be among the first in the organization to know about such an occurrence. Separate registers and files may be maintained for each gift to record the related assets, liabilities, and activity and to maintain copies of the gift agreements, correspondence with donors and beneficiaries, etc.
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