Church Gift Deduction Rules – Part I

May 5, 2009 by  
Filed under Fundraising

bills150x131Are you considering making a gift to your church? If so, you need to be aware of a number of factors, some of which are new as a result of the Pension Protection Act of 2006. In summary, they are:

  • IRS approved charities.
  • Allowable income tax deductions for various categories of gifts.
  • The substantiation of value rules for each type of property given.
  • The penalties for overvaluation.
  • How to deliver the gift and when it is deemed a completed gift.

In this post, I will cover the deduction allowed for the most common categories of gifts. In a follow up post, I’ll go over the treatment of less common gifts.

Cash

This is the most straightforward. Whatever you give, you can deduct. However, each category of gift has its own limitation based on your adjusted gross income (AGI) and the type of charity (public or private family foundations). The limit for cash contributions to a public charity is 50% of AGI. Churches are public charities.

Stocks, Bonds, Real Estate

If the asset has been held for more than a year, the deduction is the fair market value. However, for real estate, there are some situations that may limit the deduction to the cost basis.

If the asset has been held for less than a year, it would produce ordinary income, not a capital gain, if sold. Therefore, the deduction is limited to the cost basis. Other examples of deductions limited to the cost basis are works of art donated by the artist and inventory.

As an example of a gift of inventory, my church has an annual shoe drive to benefit children. If the owner of a shoe store donated 50 pairs of shoes, the deduction would be limited to the cost basis, not the retail price.

Series E and EE Bonds

Series E bonds cannot be transferred to a charity during the owner’s lifetime. You would first have to cash in the bonds, pay the tax on the gain (which has been deferred similar to an annuity) and then contribute whatever is left over.

Planes, Trains and Automobiles

There are new rules, which became effective January 1, 2005.

If the charity doesn’t have a use for the donated vehicle and sells it, the deduction is whatever they get for it or the fair market value, if lower. However, if the charity fixes it up, uses it or plans on giving the vehicle to a needy person, you can deduct the fair market value.

Disclaimer

Bear in mind, I am not a tax authority. Before you make any gift, you should consult with a qualified tax professional. Furthermore, some gifts may not be acceptable to the church or have to pass through a review process (life insurance is a good example). Therefore, in these situations bring the church into the gifting process early on as well.

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Review: Mega Gifts by Jerold Panas

April 27, 2009 by  
Filed under Fundraising

newbills150x131If you are a church leader, who is even remotely involved with fundraising, as soon as you finish reading this post, drop everything, go online, and buy Jerold Panas’ book, “Mega Gifts –Who Gives Them, Who Gets Them.”

Jerry Panas is one of the deans of fundraising. Armed with forty years of experience, Panas interviewed 50 men and women who had made gifts of one million dollars or more and surveyed about 1,000 fundraisers.

His goal? To document the factors that leads to and motivates donors to make mega gifts.

Virtually every page contains a gem of wisdom that can make the difference between your visit to a potential major donor a success and going home empty-handed. Here are some examples…

Preparation

  • Why 85% of securing a major gift is in getting the appointment.
  • Why “doing your homework” can be the difference between success and failure.
  • Who is the best person to make the initial contact and set the appointment?
  • What is the one element of an organization’s staff that Panas found to be a requirement in every major gift?

The Approach

  • Who is the best person to set the appointment?
  • Can you reach a donor through his or her children?
  • Why no one ever got milk from a cow by sending a letter.

The Presentation

  • What is the most important aspect of your church’s appeal for funds?
  • Why should you sell this first?
  • Why involving both spouses can prevent your most compelling presentation from failing.
  • Is a donor’s close friend a good choice for making the presentation?
  • How many people should attend the presentation?
  • Should be presentation be done over lunch?
  • What is the chance of getting a major gift on the first visit?
  • How many visits should you make to a major donor?
  • Why is listening the most important component of the fundraising presentation?
  • What you should be listening for?  When you find it, what should you do next?

Ask

  • Why “ask and you shall receive” is a critical component.
  • How many times should you ask?
  • Why “you’ll be hurt more by those who would have said, “yes,” but weren’t asked than by those who say, “no.”
  • What is the “Rule of Thirds” and how can applying this rule multiply your results?
  • What is the “greatest commandment” of fundraising?

Donor Mind Set

  • Are major donors’ decisions to give spontaneous or do most want to think it over?
  • Why most donors are not motivated by the needs of your organization.
  • Can you secure a major gift by making the donor feel guilty?
  • What is the singular most compelling reason a donor makes a major gift?
  • Why do major donors make gifts?  Why incorporating the answer in your presentation is essential.

Mega Gift Characteristics

  • What is the “Rule of Sevens” and why it can lead to larger and larger subsequent gifts?
  • Are “matching gifts” effective?
  • What kind of a gift suggestion will often increase the donor’s gift?
  • Does a major donor have to be a member of your organization?

‘Nuff said. Buy the book.

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How Your Church Can Raise 6 Figures In 90 Days

April 13, 2009 by  
Filed under Fundraising

joyousrays150x131I 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.

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How a Gift To Your Church Can Also Solve A Problem

April 6, 2009 by  
Filed under Fundraising

questionmaze150x131In 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.

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Critical Statistics For Church Fundraising

March 30, 2009 by  
Filed under Fundraising

whitedove150x131One 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.

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Three Ways To Add Emotion Into Your Fundraising

March 27, 2009 by  
Filed under Fundraising

freedom150x1311If 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.

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The Psychology Behind Church Stewardship

March 6, 2009 by  
Filed under Fundraising

brain150x113I’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.

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Robert Cavanaugh, EzineArticles.com Platinum Author