How Your Church Can Raise 6 Figures In 90 Days

I am a participant in a forum composed of planned giving officers, attorneys, CPAs and other professionals working in the charitable giving field.

Recently there was a question, followed by a series of posts, which asked how best to fund a charitable trust designed to pay out income when the amount was $150,000 or less.

You can learn a lot from just what briefly follows. If you are a church leader, I’m going to show you how you can potentially put 6 figures in your bank account in the next 90 days.

First, the discussion and the problems that surfaced…

The initial post outlined a tentative plan to fund a $100,000 to $150,000 gift using a charitable remainder trust (CRT). These trusts pay out a percentage of the trust assets for the life of an individual, or multiple individuals, and then pass the value of the trust to a charity.

The first response was from a CPA who indicated that the cost to file the myriad of forms required was not warranted unless the trust was funded with at least $100,000.

The second suggested using a single premium immediate annuity (SPIA) to fund a charitable gift annuity. Gift annuities are simple to set up, have low administration costs, and are best suited for elderly donors. The donor gets an immediate tax deduction and a guaranteed life income. Since a high percentage (70%+, depending on age) of the payout is excluded from tax, the effective yield can be twice that of a CD. Like a CRT, the gift annuity passes to the charity at the donor’s death.

The discussion that followed on the forum surrounded using the SPIA to “re-insure” the charity’s obligation. The quirk about gift annuities is that they are regulated by each state. If an organization has been in existence for less than 20 years and has assets of less than 2 million specifically designated to back gift annuity agreements, some states require re-insurance.

All this discussion was interesting and informative. However, I thought everyone was missing the boat. In my experience, the main reason for using a SPIA to fund a charitable gift annuity is to provide the charity immediate access to a portion of the gift.

Important!

I have done what I am going to describe next. However, before you put a plan like this in motion in your church, you need to consult with your attorney, have him or her research the charitable gift annuity regulations and reserve requirements for your state.

Let’s take a 75-year-old woman who wants to give $100,000 to her church in exchange for a life income. When she dies, whatever is left over after funding her income will go to the church.

I won’t go into why she may want to do this or the problems she has that this arrangement will solve. Furthermore, we’ll assume that a charitable gift annuity is the solution of choice.

A “normal” gift annuity that is sponsored by your national church would take the $100,000, set aside the required reserve, invest conservatively and pay out the annual rate suggested for her age by the American Council on Gift Annuities of 6.3%. These rates are actuarially calculated to leave about half of the initial gift to the charity at the life expectancy of the donor.

The church will have to wait until this woman dies to receive any benefit. Plus, I would check and see if the money goes to your national church or to your parish.

How can we provide the same income stream and an immediate benefit to your local church? Here are the numbers…

The cost to buy a SPIA on a 75-year-old female that would pay $6,300 a year as of the date of this post is $64,116. For the analyticals out there, this is a life only, no certain period annuity. That means the church can put $35,884 in the bank or endowment fund and use it in any manner desired.

One astute forum participant pointed out that some insurance companies will medically underwrite annuities. If the person has health problems and their assumed life expectancy is reduced as a result, the cost of the annuity is less.

I had a case several years ago where we were trying to fund a $3,000 a month life income on a woman age 88. The best bid for a traditional SPIA was $215,000. However, this lady had health problems. When I went to a carrier that medically underwrote the case, the bid dropped to $130,000, 40% less!

Every situation will be different. If I apply this 40% discount to my original example, the cost to the church to fund $6,300 a year for life via a SPIA drops to $38,470 and allows $61,530 to available for  immediate use.

Now let’s set up a plan at your church to put 6 figures in your bank account in the next 90 days.

First, check with your attorney to make sure this will work in your state.

Next, publicize the project. I would suggest having a specific goal in mind that has an emotional appeal to the congregation.

Let’s assume that this idea only applies to 2% of your membership. After all, it works best for donors over age 70. If you have a 500 member church, that’s just 10 people.

Using the non-medically reviewed SPIA example and cutting the donation in half to $50,000, each charitable gift annuity/SPIA transaction would raise about $18,000.

Ten donors times $18,000 is $180,000. And, hey, all you are looking for is 10 folks with a $50,000 CD with a crummy (and taxable) interest rate that would be interested in doubling their income and helping the church.

I realize this is all very sketchy, but there’s your 6 figures. Moreover, this all can be done in 90 days. I devote an entire lesson to this topic in The Smart Giver.

Need More Retirement Income? Sell Your Life Insurance Policy!

Did you know that there is now an “after market” for life insurance policies? If you are over age 65, there are companies that will buy your life insurance policy for more than the cash value. They will even buy term insurance, which has no cash value.

Who buys policies and why would they want them?

Institutional investments and pension funds buy policies to comprise a portion of the fixed income segment of their portfolio. The transaction is handled by life settlement companies that are legally bound to confidentiality and privacy. The pension fund that may buy your policy doesn’t know who you are or anything about you and could care less. For them, the transaction is all about the math.

Why would a person sell their life insurance policy?

Generally, the life insurance policy has outlived the need for which it was originally purchased. The kids are grown, education completed and the person’s 401(k) plan will provide for retirement.

In other cases, the sale averts a problem with the policy. For example…

Many Universal Life policies eventually reach a point where the original premium is no longer sufficient to carry the policy.
 
The premium required to carry a Universal Life policy to a certain age is dependent on mortality assumptions, insurance company expenses and interest rates. With the sharp decline in interest rates over the last few years, many UL policies now require a substantial increase in premium to keep them going.

Some policies have large loans. People may have tapped the cash value at some point and never paid themselves back. Some may have used the cash value to pay the premium.

My experience (over nearly 40 years) is most people do not pay the interest on the loan each year. If the policy owner doesn’t pay the interest, it is added to the principal. Over time, the loan and unpaid interest can eat up the entire cash value.

Eventually, the person finds themselves backed into a corner. They either pay the premium plus a huge interest requirement each year, pay the loan down or let the policy lapse.

Even if they do nothing, the policy will eventually collapse on itself for lack of sufficient cash value to pay the interest. When that happens, there are three bad results.

First, the insurance company sends the IRS with a report stating the gain. The gain is the excess of the total cash value (not counting the loan) over the total premiums paid.

Second, there is no money in the policy to pay the tax. It must come from other resources.

Third, the tax is ordinary income, not capital gain.

The third problem is a term policy that has reached the end of its term. It may have been a 10, 15, or 20 year level term. Despite what you may think, in the real world, many of my clients in their late 50’s or early 60’s who have a policy that is soon to expire, still want and need insurance coverage. When I go shopping on their behalf, I have to break it to them that the premium is substantially more than they were paying and/or their current medical condition (even for minor things) has put them a less favorable underwriting classification with a higher premium.

Selling a policy averts all these problems. There are a number of areas to which the funds received can be applied, which I’ll cover in a subsequent post. One application can quickly add substantial funds to a church’s endowment fund.

How a Gift To Your Church Can Also Solve A Problem

In a previous post, I mentioned that I had just started to read, “The 11 Questions Every Donor Asks”, by Harvey McKinnon. Because I have over 20,000 face-to-face interviews under my belt in the financial and estate planning arena, I figured I could come up with my own eleven questions. However, my questions would be questions donors should be asking, but don’t.

Now that I have finished the book, I can report that Mr. McKinnon relays many more than eleven questions than his book title purports. I didn’t count them, but there could be a hundred. This is an excellent book and I recommend it for anyone who is involved in fundraising for his or her church.

The plethora of questions is going to make it even more difficult for me to come up with my own eleven, despite the fact I am taking a different slant. My list consists of questions people don’t ask because they don’t know enough about the subject matter. Nevertheless, I’m going to give it my best shot.

My first question people should be asking was, “How can I make a gift to my church without disinheriting my children”?

Today, my second question is, “How can making a gift to my church also solve a problem I have”?

This may sound a little self-serving, but, hey, we’re all human. From a practical point of view, why wouldn’t someone be interested in making a gift if a pressing problem was simultaneously solved?

More important, if you are a fundraiser for your church, wouldn’t you have a better chance at securing a gift if the process of making the gift also solved a donor’s problem?

The key to making this happen is two-fold. First, you have to determine what problem(s) your donor has. This is a skill and topic all to itself. It involves asking questions and patiently listening to the answers. Second, you have to know the potential problems. Education is the solution.

If you’ll permit a short plug, that’s where my publication The Smart Giver comes in. Each of the 16 lessons outlines a typical problem and provides a solution that results in a gift to the person’s church.

Let me give you one quick example of how a gift to a person’s church can also solve a problem.

Libby is a senior living on a fixed income. The current economy has not been kind to her. She has a $50,000 CD down at the bank that has been providing some of the income for her living expenses.

Libby has three problems:

1. The CD is only paying 4.5%.

2. All of the CD’s interest is taxable. In Libby’s tax bracket, she only has $1,900 a year of spendable income.

3. She’s scared to death she will lose her money. Her CD was with Washington Mutual, one of the biggest savings and loans in the country, and they went bankrupt. Her CD was taken over my JP Morgan Chase, another financial giant, but that’s not making Libby sleep any better.

One of the lessons in The Smart Giver goes into detail about how these three problems are solved. I also have a short video at The Smart Giver Podcast that deals with Libby’s problems.

Here, I’ll simply provide a before and after picture:

	Before	After
Amount	$50,000	$50,000
Annual Interest Rate	4.5%	7.1%
Annual Income	$2,250	$3,550
Percent Not Taxed	0%	70.3%
Effective Annual Interest Rate	4.5%	8.49%
Income Tax Deduction	0	$20,047
Gift to Libby’s Church at Her Death	0	$50,000

In summary, our solution:

1. Increases Libby’s income.

2. Lowers her taxes.

3. Both of these stretch the buying power of the income from her $50,000.

4. Since Her money was moved to an institution she has supreme confidence in, her worry has evaporated.

5. Results in a gift to her church.

Autoresponders: Church Communication and Fundraising Applications

A number of technology tools can help a church in their fundraising and communication. Over time, I will post information about them. This article will deal with one of the most basic: autoresponders.

What is an autoresponder?

An autoresponder is an email facility that allows for the broadcast of an email, or a series of emails mailed at predetermined intervals, to be sent to people who give their OK (voluntarily opt-in) to receive the information.

Who can autoresponders reach?

Today, virtually everyone. Most people have a computer. Even my 90-year old mother had a computer. She communicated with friends and relatives all over the place. Her grandchildren grew up in an era where the word “letter” was not in their vocabulary. Everything was email. Today, my mom would have to buy an iPhone or a Blackberry and learn how to text message. But those are topics for a future post. Almost everyone who has a computer can send and receive email.

Are autoresponders intrusive?

No. First, a person normally has to fill out a form on a web site, enter their email address and give permission for information to be sent to them via email.

To prevent someone from entering your email address, reputable autoresponder companies use a double opt-in process. After you fill out the form, an email is sent to the email address you provided with a link you must click on to activate the autoresponder. For a church, this is also an added safeguard in that this confirmation provides proof of the opt-in if the person forgets or if there is a spam complaint.

What if you are a church with an existing email list? Can you import all these emails into an autoresponder? Generally, no. Most autoresponder providers either require everyone on your list to opt-in or require the church to show that everyone has already opted in to another list.

Autoresponders in general

The mechanics are very simple. There are ways to use an autoresponder without a web site, although a web site or blog would be necessary in order to put up a form allowing folks to put in their name and email to subscribe.

Emails can be sent out in text or HTML format. Some autoresponder companies have their system programmed so that if you send out an HTML email and the person’s email client can’t read HTML, a text email will be substituted.

If you choose to use HTML, there are tons of template choices. You can use the autoresponder provider’s templates or a company that specializes in email templates.

With that quick overview, I want to spend the rest of the article suggesting applications of autoresponders in your church. This is certainly not an all-inclusive list. Perhaps one topic will spark your creative juices and you will come up with many more uses.

Register for an event

It’s a simple process to put up a form on your web site allowing people to sign up for a class, dinner, teleseminar or webinar. I’ll discuss below how you can customize your form to gather many different kinds of information. For example, you could find out how many in the family will be attending the dinner. Once they have registered and are on that specific list, the church can follow up with reminders, change of plans or the specifics on how to access the teleconference or webinar. After the event, the autoresponder can provide for any follow up necessary.

Email classes

The class could be about anything. The pastor could provide an email class similar to one he/she would teach in person. The key is, however, is that the class would only have to be composed once. Subsequent classes would be sent by the autoresponder at, for example, weekly intervals as new students sign up.

Updates

While the most common use of autoresponders is to send out prewritten messages at intervals, there is a broadcast feature that allows a message to be sent out to everyone on a specific list whenever you want. Your church could be involved in a capital campaign or the search for a new pastor. The autoresponder could be used to broadcast updates.

Newsletter

The most common use of the broadcast feature is to send out a newsletter. With postage rates going up, the ability to send a newsletter for free is a welcome alternative.

Collect information

The web form where people enter their name and email address can contain many other fields. As such, it can operate as a mechanism to collect things such as birthdays, anniversaries etc. It can also function as a way to conduct a simple survey.

Communicating with non-attendees

The two groups that immediately come to mind are the home bound and service men and women.

I’m sure every communication, announcement and update about what’s going on at the church is very much appreciated by those who are tied to their home. What could brighten a person’s day more who is half way around the world, putting their life on the line to defend our freedom than a message or prayer from the pastor?

Those who have moved away

We are in a mobile society. Just because someone moved to another community doesn’t mean they have lost interest in what’s going on at the church they attended. I think that includes potential financial support as well. Keep in touch.

Send links to other resources

To be delivered and read, emails should be short. The autoresponder can send out a broadcast message, which includes a link to a video or audio posted on your web site or blog.

On the fundraising side, you could produce DVDs or audio CDs of events or sermons and sell them to raise money. The DVDs and CDs could be physical. Today, there are ways to deliver this content digitally as well. Either way, the announcement about the content can be communicated via an autoresponder.

To form subgroups

Use a web form to have church members sign up for a committee. Use the form to build a youth group. In both cases, now you have a segregated list that can be used to communicate with the subgroup as necessary.

Coordinate with a blog

If your church has a blog, you can put an autoresponder form on the blog, which allows people to sign up to get a heads up email when blog posts appear. You can set your autoresponder to send out an email whenever a certain number of blogs posts accrue, on a specific day or days of the month or automatically every time a new blog post is published.

There are a number of autoresponder providers, but only a couple that are the cream of the crop. I use two, one of which is coordinated with my shopping cart. The one I would recommend you check out is AWeber.

I hope that this post gives you some ideas you can employ in your church. Post your creative applications under ‘Leave A Comment’ so everyone else can benefit.

Critical Statistics For Church Fundraising

One of the first tenets of selling is to define your market. Once you’ve done that, the next step is to research the demographics of that group of people. Then you need to determine how you can best reach them. Where do they hang out? Finally, you have to choose the medium(s) by which to communicate your message.

If you are involved in fundraising for your church, let’s call a spade a spade: you are selling. If you want to be as successful as possible in your endeavor, you really need to walk through each of the above steps.

I subscribe to Contributions, a publication for nonprofit professionals. Recently there was an article by James P. Gellat, PhD (I have put his bio below) about trends in a number of areas. I have extracted a few that have a bearing on churches. They are all great food for thought and, in my view, should be addressed when putting together any fundraising campaign.

• Nine countries account for half of the world’s population. In 2050, the four largest countries will be India, China, US and Pakistan. Globally, there are more people over 60 than under 15.
• In 2007, the number of people in the United States turning 60 increased by 600,000. By 2050, the elderly population will double.
• The Baby Boom Generation (those born between 1945 and 1964) account for 40% of US households and half the consumer spending. Boomers are twice as likely to own a second home. Even by 2010, spending by Americans 40 or older will be one trillion dollars more than the 18 to 34 age bracket.
• In addition, it is predicted that 80% of the US population increase in the next 30 years will be immigrants and their children/grandchildren.  By 2016, one in four Americans will be Hispanic.
• More than one quarter of all US households are singles.
• About 28 million Americans are classified as “contingent workers”, that is, they work part time, do outsourcing work or work by contract. That is 400% greater than in 1980. While Americans traditionally have commuted to work, today 60% do jobs where the physical location is not a factor.
• Thanks to technology, all of the routine transactions that a business or consumer does each day are being replaced by some kind of digital technology. For example, there is now one cell phone for every two humans on earth. It is predicted that eventually there will be more cell phones users than people who can read or write.
• 120,000 blogs are created every day. People are uploading 15 hours of video per minute to YouTube. Facebook has 175 million users, uploads 415,000 videos per day and now is the world’s largest online photo site. Go do your own research on Myspace, LinkedIn and Twitter. The reach these social networks have will blow your mind.
• Donors who are used to direct mail are “aging out” (what a great term!). Wealthy people are increasingly likely to use the Internet to make their donations.

I hope that these statistics cause you to stop and do the preliminary research about the people you are trying to reach, how they access information today and all the options you have to communicate your message that you never have used before.

James P. Gelatt, PhD, is the author of “Managing Nonprofits in the 21st Century” and general editor of Aspen’s Fund Raising Series for the 21st Century. He is the president of Prentice Associates, a management consulting company specializing in national associations and nonprofits, and a past-president of the Greater Washington, D.C. chapter of the National Society of Association Executives.

Three Ways To Add Emotion Into Your Fundraising

If you are involved in fundraising for your church, here are three things you can do to increase the number and size of the gifts.

These suggestions apply to current gifts as well as gifts to your endowment fund. Donors can often see the results of their current gift right away. Gifts that will find their way into the endowment fund may come years later. Nevertheless, it is still possible to apply these three gifting mainstays to future gifts.

In selling, those on the marketing end know that, most of the time, a person buys on emotion and later justifies their purchase with logic. Why do you think the sales person down at the car dealership suggests your taking the car you are considering for a spin around the block? Words are no substitute for the smell of leather and the surge of power you feel by actually driving the car.

Planned giving professionals tell us that donors also give on emotion. In fact, one book I recently read claims that major donors often make their decision to give (and we’re talking million dollar plus gifts) in a split second. That decision occurs a split second after the donor feels the emotion of the application of the funds you are asking for.

Here are three things that can create that emotion for the ministries in your church.

1. Personalize

Communicate clearly how the gift will affect people. Dollar amounts are cold and nebulous. Donors want to see the people with the problems their money will solve. There is no need to bring out the violins. Laying out the problem in front of someone carries enough emotion by itself to tug at anyone’s heartstrings.

2. Quantify

How many shoes will a certain amount of money buy? How many children will the missionary teach? How many people will your gift feed?

It’s a lot easier to relate to a gift’s specific end result, as opposed to $100 or $500. This allows the donor to visualize his or her gift in action. Just running this through the imagination creates emotion.

3. Show

Not only is a picture worth a thousand words, it creates emotion. In today’s high-tech world, “pictures” include the entire gamut of audio-visual tools. Video, video DVDs, audio CDs, podcasts (both audio and video), audio and video on web sites, slide shows – and the list could go on.

Here’s an example that produced good results. Nothing fancy. Just pictures. Our church participates in a larger worldwide program, which sponsors children in third world countries. The program encourages the donor and the child to write back and forth. Often, the child sends pictures they have drawn that end up on the donor’s refrigerator door.

One woman at our church decided to actually visit the little girl she was sponsoring in a Latin American country. Once a year our church devotes part of a Sunday service toward asking people to sponsor a child. Last year, this woman shared many of the photographs of her trip. Pictures of the child she sponsors, her school and village were projected up on the big screen as she moderated her trip and what she saw and learned. It was powerful. The ushers had to pass the tissue boxes out.

The emotion her little presentation and pictures evoked “sold out” all the sponsorships.

If you take the time to translate the dollar amount of your fundraising goal into these three emotion-creating suggestions, I believe your results will be multiplied.

Three Steps Toward Building an Endowment Fund for Your Church

For all the good churches do, most of the funding for their ministries come from pledges. What if every church was endowed? Here are some suggestions you can employ in your church to build a bigger endowment fund.

All 88 keys of the Phoenix Symphony’s Steinway piano are endowed. They went for $5,000 a key. Penn State has every position on its football team endowed.

Is your church endowed? If not, why not?

The church I just started to attend just celebrated its 50th anniversary. It’s not a big church – about 350 members. It finished 2008 $33,000 in the red.

This is not unusual. Because of the current economic climate, many churches took a big hit the fourth quarter of 2008. In a December 1, 2008 article, The Barna Group predicted that churches would receive $3 billion to $5 billion less than expected the last quarter of 2008.

Financing ministries from the interest on endowment funds goes a long way toward shielding the good a church can do from economic downturns.

Some churches have done a good job building their endowment fund. I would refer you to ‘Financing American Religion” by Mark Chaves and Sharon L. Miller. However, every church can do more. Here are several of my opinions about some of the steps needed to build a church’s endowment fund.

1. Fish where the big fish swim

You probably have heard of the 80/20 rule, which holds that 80% of anything comes from 20% of the people involved in the activity. With respect to building an endowment fund, it’s more like 98/2. You need to concentrate on major gifts. 98% of the money will come from 2% of your congregation.

2. Solve a problem

While it is true that many donors are 100% altruistic, you stand a better chance of getting a major gift if you can show a major donor how to solve a problem that simultaneously results in a gift to your church.

Most of these problems involve tax savings. For example, how to sell a business without paying a capital gains tax and how to pass on wealth to the next generation without first giving half of the person’s estate to the government are typical examples.

Yes, I know, the tax aspect of major gifts is not the primary reason gifts are made. Most of the time, it’s not even on a person’s list. Nevertheless, if you can show someone who is interested in your cause how to make a gift that satisfies his or her interest and support of your mission and help them solve a problem at the same time, your chances of getting the gift (maybe even a larger one) is enhanced.

3. Provide case study information

I believe that many potential major donors do not know about the planning techniques the law allows that lead to a major gift.

In my financial and estate planning practice of 39 years, I called on numerous business owners who had no idea they had a problem. No one had ever pointed the problem out to them. My view is that it’s the same lack of communication of “what’s possible” that limits the receipt of major gifts by a church.

If you provide examples of what others have done to solve specific problems, people can easily see if the solution might work for them. This is the first step in opening up a dialogue about the possibility of a major gift.

The Psychology Behind Church Stewardship

I’m just starting to read the book, “The 11 Questions Every Donor Asks” by Harvey McKinnon. So far, I think it’s a great book. It is written for fundraisers and people on boards whose partial role is to solicit gifts.  It would certainly make sense to be on the shelf of every pastor’s office as well as every member of the church’s stewardship committee.

By contrast, The Smart Giver, which I publish, is written for the churchgoer. In McKinnon’s book, people in a church congregation are on the other side of the equation as potential donors.

Harvey McKinnon has been involved in fundraising for three decades. He’s pretty much a household word in the profession. The forward to his book was written by Jerold Pannas, who is like the king.

By contrast, I am not a fundraiser. I come from the financial and estate planning world. However, I have spent nearly 40 years (and over 20,000 face-to-face interviews) helping people solve problems, in a lot of cases, they didn’t even know they had before I walked in the door.

Let me give you a quick example. I used to call on business owners with a list of ten questions. Instead of spouting off all my credentials (who cares?) I would simply ask each question one at a time and shut my mouth. Pretty good selling, actually. To make my point, here is one question. This is not true when applying today’s tax rules, but it is a real good example.

Here is the question: “Mr. Business Owner, are you aware that if your wife dies before you do that the IRS is going to want up to 50% of the value of your estate paid to them in cash within nine months?”

To clarify: I live in Arizona, a community property state. When I was using this question, estate taxes were due when either spouse died. Not true today.

To pick up on my story…

As I sat there in silence (extremely hard to do), I often could see the blood drain from my prospect’s face. No one clutched their chest, but I’m sure their heart beat took a leap. The reason was that the businessman’s business generally represented the bulk of his estate. It was all tied up in bricks, mortar and steel. The prospect of having to convert half of it into cash within nine months was scary and in most cases impossible. It would break him and all his hard work would go down the drain.

Of course, I had the solution: simply buy a life insurance policy on his wife.

My point is, though, that most people I called on were fat, dumb and happy. They had no clue they were living with a potential problem that could ruin them financially—much less having to deal with the loss of a loved one.

So even though I am not a fundraiser, I think I am qualified to come up with my own eleven questions. However, the title of my book would be, “The 11 Questions Every Donor Should Ask”.

Why “should” ask? Because, just like my business owner example, most people don’t know enough about all the options they have in making a gift to even know the questions it would make the most sense to ask.

So over the next couple of months, I’m going to give it my best shot to come up my own 11 questions everyone should ask.

Here’s the first one… How can I make a gift to my church without disinheriting my children?

Let’s say you owned a piece of property that now is in the path of progress. You bought it many years ago for a song or inherited it. Your church approaches you and asks you to donate the land because it wants to build a new building.

As much as you may love your church and even be emotionally connected to the cause that the building will promote, here’s the tug of war that may be going on in your mind: you want the property to go to your kids. You always have and they are looking forward to it.

What’s the chance of your making the gift?

On the other hand, what if there were a way for you give the property to the church and still provide your children with an equivalent value as their inheritance? In other words, what if there were a way for you to “give it away and still keep it?”

Let’s flip this around. What if you were the pastor or a member of the stewardship, finance or building committee and you came armed with a plan that would allow the parishioner with the land to make the gift and not cut his children out of his will? What do you think your chances of getting the gift would be then?

Actually, there are a number of ways to “give it away and still keep it.” I can think of four off the top of my head as I write and each is covered within the lessons contained in The Smart Giver.

So, that’s the first question people “should” be asking themselves: “How can I make a gift to my church without disinheriting my children?” Ten more to go. Stay tuned.

Christian Money Management: The Silver Lining In The Current Bad Economy

Every cloud has a silver lining. There are two sides to every coin. The knife cuts both ways.

The dire state of the economy has given rise to some of the best opportunities to make a gift to your church seen in decades.

Many gifts in the planned giving arena use the IRS’s current “Section 7520″ rate, commonly referred to as the AFR, in the calculation of the income tax deduction you receive as a result of your gift.

Just to give you some historical perspective, a couple of years ago, in March  2007, the AFR was 5.8%. A year later, in March of 2008, it had dropped to 3.6%. In February, 2009, it hit the lowest it has ever been since Sec. 7520 was put into effect in 1989: 2.0%. As I write this, March 2009, it is 2.4%.

What does this have to do with me you say? Let me give you a couple of examples.

Let’s say you are age 75 and have a $50,000 CD down at the bank paying 4%. This only spins off $2,000 a year in interest and the interest is taxable. If you are in the 15% tax bracket, that leaves you with $1,700 to take to the store and buy groceries.

You need more income. Hey, have you noticed the price of bread and milk today? You would not be opposed to increasing your income and helping your church at the same time. In meeting with your financial planner, she suggests you look at a charitable gift annuity. CGAs are pretty plain vanilla—they have been around for over 100 years.

Here is a quick summary of the benefits of using a CGA.

1. Your income will increase from $2,000 a year to $3,150.
2. The rules say you can use the February AFR of 2.0 even though you make your gift in March of 2009. This means that 78.7% of the $3,150 is not subject to tax. Bottom line: More money for groceries.
3. When you die, your church receives $50,000.

Let’s change the assumptions a little. Let’s say you were age 75 in March of 2000 and set up the same CGA when the Sec. 7520 rate was 8.0%. The amount excluded from tax would have been only 53.7%. 

Translation: With today’s low AFR, you pay less income tax and have more money for groceries.

 Another example on the other end of the spectrum. Let’s say you are a multimillionaire and are looking for ways to pass your estate on to your children with the least tax impact possible.

One option may be to use a charitable lead trust. The way this works is:

1. You contribute (generally income-producing) property to a charitable lead trust that your attorney drafts for you.
2. Your church (or another qualified charity) receives income from the trust for your life or a certain number of years.
3. When you die, or when the number of years has expired, the property is distributed to your children.

In a nutshell, given the current AFR, the payout percentage chosen and the number of years the payout will last allows the property to pass to the children at a lower tax transfer cost or even no cost at all.

There’s a lot more to it than that, but for our discussion let’s see how the current low Sec. 7520 rate makes the charitable lead trust more attractive than ever before.

Assume you funded the lead trust with $1,000,000 and set it up to pay 7% ($70,000) a year to your church for 15 years at which time the trust would end and the property dispersed to your kids.

If the AFR was 8% (as it was in Feb. 2000), after doing the math the taxable gift resulting in transferring $1,000,00 to the next generation is $295,040. That is a substantial savings.

However, if the AFR was 2%, the taxable gift would only be $100,549!

In fairness, I should point out that other planned giving vehicles, a lower AFR produces worse results.

I hope the take-a-way from this is that if you are a person who is interested in increasing your income, reducing your taxes, preserving your estate from undo taxation while simultaneously helping your church, it would be prudent to examine the various planning giving techniques which may apply to your situation.

If you represent a church and are interested in raising more money for your ministries and/or building an endowment fund so that eventually your church can finance its operations from the interest on the investments in your endowment fund instead of primarily relying on pledges, it would be wise to communicate and publicize the planned giving techniques that currently have high value due to the low AFR.

This is no small potato. During a planned giving seminar I attended in June of 2008, the attorney from the software company that I use to crunch the numbers indicated that the average lead trust that they consulted on in 2008 was $5,000,000.

If you are a church, I’ll leave you with this thought: A $5,000,000 lead trust that paid out 6% for 15 years would generate an annual income to your church of $300,000. Over the 15 years, it would add up to $4,500,000. If the $300,000 were put in your endowment fund and earned 6% for 15 years, it would grow to $7,400,000 (and change). $7,400,000 at 6% would spin off $444,000 a year forever.

What ministries do you have that could benefit?

How To Make Tax Free Transfers From Your IRA

Want to potentially lower your taxes and help your church financially? Then acquaint yourself with the IRA Charitable Rollover. Currently, this piece of legislation has a time limit and is due to expire at the end of 2009.

The IRA Charitable Rollover was originally a part of the Pension Protection Act of 2006. It expired 12/31/2007. It was “extended” effective October 3, 2008 and expires again 12/31/09.

It allows persons 70 1/2 and older who have an IRA to transfer up to $100,000 tax-free to the qualified charities of their choice. The operative words are “tax free.”

Transferring an amount equal to or greater than the Required Minimum Distribution from an IRA can lower taxes as an IRA Charitable Rollover satisfies the RMD requirement but is not taxed.

RMDs have been suspended for 2009, but there is a push on to make the IRA Charitable Rollover permanent.

In addition, planned giving professionals and legislators are seeking to extend the tax-free transfers to charitable remainder unitrusts, charitable remainder annuity trusts, pooled income funds and charitable gift annuities.

If you don’t itemize, the IRA Charitable Rollover can enable a gift without any tax consequences. For non-itemizers, charitable gifts are otherwise non-deductible.

Using the IRA Charitable Rollover can possibly lower or eliminate the tax on Social Security retirement benefits.

If you are a generous donor, it can allow you to exceed the 50% of adjusted gross income limitation for cash contributions.

Bottom line: If you do not familiarize yourself with the IRA Charitable Rollover, you may be leaving money on the table.

If you represent a church and do not fully communicate the benefits of the IRA Charitable Rollover to your congregation, you are passing up an opportunity to put a six-figure number in your bank account or endowment fund.

For more information, see the video entitled, “How To Make A Tax-Free Transfer From Your IRA” at http://thesmartgiver.com/podcast/

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