You can have it easy, or you can have it bigger. But rarely can you have both. That’s the nature of major gifts fundraising.
What are we talking about here?
There is often preference among nonprofit administrators, directors, and board members for gifts of cash. It’s easier. It’s simpler. It’s faster. You get it immediately and can use it right away. And, cash just feels good. Who doesn’t like having a big check written with their name on it?
Gifts of assets, on the other hand, tend to be more complicated. Slower. Requiring much more paperwork and process. You can’t use it right away. And unless you ask, you might not even know when the money actually comes in.
However, gifts of assets also tend to be bigger than cash. MUCH bigger.
So, what do you want? The ease and simplicity of cash, or the much bigger size of gifts of assets?
Here are five reasons you should almost always aim for gifts of assets from your major donors, with cash as a fallback.
Most wealthy people keep the vast majority of their wealth in assets rather than cash. This includes stocks and stock options, mutual funds, IRAs and various other retirement accounts, real estate, business equity, life insurance, and other types of investments.
So, when you ask for gifts of cash, you are trying to pull from a much smaller bucket. And everyone thinks proportionally about their money – including wealthy people. What does that mean? It means that when a typical person decides to give, they will look at how much money they have and settle on a figure that can work for them.
Suppose you’re working with a wealthy major donor prospect who has $500,000 spread across three bank accounts and $10 million wrapped up in various assets. You go for a cash donation and the donor agrees excitedly. So, they look at their $500,000. Some of it has been set aside for various purposes like a new car or college for the kids. Some is an emergency fund. But they feel great about writing a $25,000 check, and they hand it to you right there.
That’s great. Sort of. But what about the $10 million in assets you didn’t even ask about? Did you know that traditional IRAs are a tax nightmare when you hit a certain age in retirement, and that donating portions of them can greatly reduce your tax burden?
What if this donor has $2 million tied up in such an IRA, and you showed them how much tax money they could save by donating, say, $500,000 of it? Seems like a lot? Compared to $10 million, that’s only 5% of their non-cash wealth.
And you settled for $25,000 because it was cash (which happens to be 5% of $500k – see how proportional thinking works?)
Now, this example may seem extreme (it’s actually not), but the point remains – just about every wealthy person has far more of their wealth tied up in assets rather than cash. Aim for the bigger bucket. Ask for gifts of assets.
Consider the previous example again. Even though the donor may be excited about writing a $25,000 check (or maybe even up to $50,000), it still feels like a loss.
They think, “I had $500,000 in my account, and now I have $450,000.” That’s a loss. And because you pulled from the smaller bucket, the size of the gift feels larger. Even if they gave the exact same amount from their assets, it feels much smaller to take $50,000 out of $10 million that it does from $500,000.
Giving cash is a negative experience.
That’s why we recommend using six ways to reframe the cost of giving.
When you combine a gift of assets with the many tax breaks and incentives that are often available, the cost of giving goes way down for the donor.
For example, to use the IRA example again, after a certain age you are required to start taking money out of your IRA every year. If you don’t do it, the penalties get pretty steep. But if you do take out the required minimum distribution, it can bump you up to a much higher tax bracket, depending on your financial situation and other sources of income.
A simple way around those big taxes is to donate some of your IRA required minimum distributions. This can protect the donor from having to pay far higher taxes. So, to them, they might give the exact same amount of money, but it will cost them much less because it comes from their IRA rather than their checking account.
Basically – giving a gift of assets works out better for the donor, and makes them feel much better about their gift. You still get the same amount of money, or more, but it cost the donor less to give it. Everyone wins.
Once a donor has it in their mind that your nonprofit is happy to receive gifts of cash, it’s much harder to redirect the conversation later to gifts of assets. Why? Because it IS more complicated, for the donor too. They have to want to do it and see the benefits.
Getting a gift of assets as a first major gift makes it easier to get another gift of assets later. Over time, these tend to increase, especially when you start reaching the legacy giving scenarios.
Your future fundraising success will be far greater if you pursue gifts of assets over cash.
Research from Dr. Russell James published in 2018 found some startling revenue gaps between nonprofits that prioritized gifts of assets and those who settled for cash.
The study examined over a million tax returns over several years. So – this was not a small sample size. This data wasn’t just experimental. This is real data, from a LOT of organizations.
The study found that similar charities raising the same amounts in one year always ended up raising drastically different amounts a few years later.
What caused the difference?
The types of gifts asked for. Some raised money only from cash, whereas others raised money from both cash and stocks. Five years after starting off with comparable revenue, the charities seeking cash and stocks were bringing in twice as much revenue.
Again – this major gifts nonprofit fundraising data comes from over a million tax returns. Simply by pursuing gifts of assets instead of just cash, these organizations were bringing in twice as much revenue just five years later.
Imagine doubling your budget within five years.
If you want it to happen, start making the donation of assets a greater priority. Then, shift your mindset around wealth and wealthy donors, and you’ll be well on your way.
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