The 7520 Rate on Charitable Giving is at an All-Time Low:
What Does that Mean for Major Gift Officers?
The October 2011 announcement that the 7520 rate for October, November and December 2011 is at an all-time low of 1.4% is some of the best news not-for-profits have received from the IRS in months. But what does it mean, exactly? The Internal Revenue Code Section 7520 is used for valuing annuities, life interests and remainder interests for income and gift tax purposes. Among other things, it is used to value deductions resulting from charitable lead and remainder trusts. In order to help a donor understand how this 7520 rate can help her simultaneously maximize a gift and personal return, we, as stewards of gifts must first have command of the details.
In order to best explain the potential advantages of the current 7520 rate, Ter Molen Watkins & Brandt spoke with Kirk Hoopingarner, a partner in the Quarles and Brady’s Trusts and Estates and Tax-Exempt Organizations practice groups. For over twenty years, Mr. Hoopingarner has concentrated his practice on all facets of wealth planning and philanthropy for high-net-worth families and individuals. His practice includes extensive experience in sophisticated charitable planning, both for individual donors and for substantial charitable organizations.
Mr. Hoopingarner told TW&B, “This rate really provides an added incentive for donors to consider using a charitable lead trust because (a) the charitable deduction is based on a discounted present value of the annuity stream to the charity and, therefore, low rates are favorable for the deduction, and (b) the hurdle rate for determining how much can pass to the non-charitable remaindermen is very low, so the risk of having nothing left at the end of the term is minimal and the chances of having total growth greatly exceed the assumed rate is very high. This presents a potential “win-win” for a donor interested in benefiting a charity now with a stream of payments, while providing potential tax free transfer of wealth to her children. It could be a great way to leverage a portion of a donor's increased gift tax exemption.
Another charitable planned giving technique favorable with this extremely low rate is to give a remainder interest in a personal residence or other real estate. The charitable deduction is based on the total value less the assumed retained income stream of the donor. Because the assumed rate is so low, the value of the remainder is higher and, therefore, a much higher charitable deduction can be obtained by a gift that may not actually occur for many years. This can be especially appealing to a donor with no children who fully intends to leave all or a substantial portion of her estate to a favorite charity. In this way, she can get a substantial current tax deduction and retain the right to use the property for the balance of her lifetime.”
The aforementioned scenarios allow a donor to make a gift to a not-for-profit while making a sound financial decision that will immediately augment her bottom line. It is our responsibility as fundraisers to create opportunities such as these for our donors—opportunities that make it possible to say ‘yes’ without compromising personal assets. Let the planned giving commence!
*This rate can be used in plans made in November and December of 2011 as well.
If you would like to speak further with Kirk Hoopingarner, he can be reached at: Kirk.Hoopingarner@quarles.com
Arming Solicitors During Uncertain Economic Times
The last few weeks have reminded us how unpredictable and highly volatile the stock market can be. There is no question that this volatility has dampened the confidence of volunteers and professional fundraisers alike in regard to major gift solicitation. Clients of ours have already expressed concern that important fundraising calls are being postponed because of the uncertainty of the markets. For some, it is hard to muster the courage to ask for a major commitment when the elephant of economic uncertainty looms so large in the room.
Fundraisers, however, should take heart. The 2010 Giving USA report reminds us that while charitable giving declined in 2009, individual giving did not decrease. We believe that this reflects the fact that individuals recognize the importance of their support to the success of non-profit organizations.
Even so, if you are out there asking for major commitments from individuals, you have likely been turned down or put off because of economic conditions. This is why we believe that it is essential to prepare for major gift solicitations with as much solid and valuable information about your organization as possible. Being well prepared gives the solicitor the confidence to ask for the commitment, even during challenging economic times.
Yours is a well managed, prudent institution. Be prepared to discuss your organization’s responsiveness to the economic challenges it faces. Cite reductions in overhead, increased capacity and creative solutions to financial issues. This is also an opportunity to make the case that your organization provides a valuable service even in difficult times. Make your prospects feel confident that they are giving to an extremely worthwhile organization.
What a contribution today will do tomorrow. Be ready to explain what the impact of a major gift will be to your organization and the constituency it serves. A recent major donor told us “I only make commitments to organizations that really make a difference—and I want to know what difference my contribution will make.” Major prospects want to know how their commitment will impact your organization.
There are many ways to make a major gift. Perhaps your prospect’s stock portfolio is down, perhaps they are feeling uncertain about their current financial situation. Be ready to discuss how they might use other charitable vehicles, like charitable trusts or estate planning to support your organization. Being well prepared with alternatives to outright cash contributions is essential. We recommend that key major gift calls be rehearsed in advance—if you are working with a volunteer solicitor this can be even more important.
Ter Molen Watkins & Brandt provides solicitation training and advice to professional staff and key volunteers who are participating in major gift calls. We believe it is essential that you equip yourself and your volunteers with the information and knowledge necessary to encourage a positive response from your prospects, even in uncertain times. Contact us to arrange an opportunity to discuss how we can help you maximize your major gift program.
Ter Molen Watkins & Brandt Moves to the Loop
The executive offices of Ter Molen Watkins & Brandt are now located at Two North Riverside Plaza, Chicago, IL 60606. Our phone numbers, fax, emails and web address remain the same.
Please make a note of our new contact information.
Ter Molen Watkins & Brandt, LLC
Tel: 312-222-0560
Fax: 312-222-0565
www.twbfundraising.com
Major Campaign for Renovations at Baltimore Museum of Art
Gene Brandt's long-time client, The Baltimore Museum of Art (BMA), recently unveiled a $24 million renovation plan. Thanks to a $10 million multi-year committment from the State of Maryland, BMA's plans will include gallery renovations for three major art collections— Contemporary, American and African, as well as improving visitor amenities and upgrading essential infrastructure.