Why You Should Stop Emphasizing Tax Savings When Promoting Planned Gifts

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Greg Warner is CEO and Founder of MarketSmart, a revolutionary marketing software and services firm that helps nonprofits raise more for less. In 2012 Greg coined the phrase “Engagement Fundraising” to encapsulate his breakthrough fundraising formula for achieving extraordinary results. Using their own innovative strategies and technologies, MarketSmart helps fundraisers around the world zero in on the donors most ready to support their organizations and institutions with major and legacy gifts.

A well-known speaker once led the opening presentation at the ACGA Annual Symposium right in my backyard— Baltimore, Maryland.
In his presentation, he mentioned that about 2.5 million people died in the U.S. in 2012 with an estimated 6% (150,000) leaving charitable bequests. But, interestingly, out of those 150,000 charitable estates, only 2,225 (1.5%) were taxable as a result of being worth more than $5 million.
So what does this mean?
Some of your supporters really do need sophisticated counsel to make the most of their taxable estates. How many? A whopping 1.5% of those that actually end up planning a gift (assuming that 2012 is analogous to other years).

The key marketing takeaway? Hold on tight because this might drive some of you batty if you enjoy the nuances of estate planning.
Stop emphasizing tax benefits when you promote planned gifts.
98.5% of the charitable estates in the U.S. will be non-taxable and most donors say that tax benefits are among the least influential factors in their decision making.
Percent of taxable charitable estates
 
 
 
 
 
 
 
 
 
 
 

Related posts:

>> eBook: The Law and Taxation of Charitable Gift Planning
>> Two Steps to Make the Best of Donor-advised Funds
 

14 responses to “Why You Should Stop Emphasizing Tax Savings When Promoting Planned Gifts”

  1. I would suggest a slight modification. The advice to “stop emphasizing ESTATE tax benefits” can make sense, especially when not dealing with the super-wealthy. But, there are a wide range of income tax benefits generated by planned giving that can be more relevant. Many of these can apply even for those who don’t itemize (e.g., avoiding capital gains taxes by giving appreciated securities instead of cash or leaving retirement accounts to charity at death because if the kids get those assets they have to pay income taxes when taking the money out, but charities don’t). It is also a good idea to be cautious when using survey results where people are asked to attribute motivations to their actions, because people consistently choose to report more socially acceptable motives for themselves (e.g, I am motivated by altruism, not personal benefits). But, when tax effects change the “price” of giving, we see substantial changes in resulting behavior, so price can still matter. Having said that, you can’t really start the conversation with “price” (i.e., tax benefits), it has to start with the connection of the cause to the donor.

    • Greg Warner says:

      Well said Russell. I agree.
      As you know, many people say I am “like a strong cup of coffee.” It may not taste good at first but at least it woke you up.
      My points were much better stated by you. Thanks for adding cream and sugar to my bitter taste. 🙂

  2. Tom Ligare says:

    Greg, I completely agree with you thoughts about giving and taxes, especially estate taxes. However, I am more in alignment with Russell’s comments that while we don’t want to emphasize tax benefits they do drive behavior and outcomes, especially with gifts of appreciated assets. With a donor who has a desire to leave a major gift to an organization that gift can be leveraged and tax advantaged using a Legacy program. The key is the original emotion of the desire to give.

    • Greg Warner says:

      Yep. Agreed Tom. Thanks for your input. You spend a heck of a lot more time with donors than I do. I only write about how to MARKET planned gifts. You are the expert once we (MarketSmart) tee-up awesome leads for you. That’s when you make the real magic happen!

  3. Scott Park says:

    It has been my experience that tax consequences don’t impact whether a person gives, but it may have an effect on the timing and sometimes the size of their gift. Because of this, I’ve always considered the tax benefits the “gravy” not the “meat and potatoes”. Emphasize? No, but mention, most certainly.

  4. Well said Greg W. It’s through one-one-one relationships that we learn of a specific supporter’s tax situation. And even there, taxation is an infrequent topic for most of those involved in the legacy conversation.
    So all of you those reading this who are letting ignorance of tax law get in the way of making legacy asks, don’t worry. Taxes rarely come up. And when it’s raised, and you don’t have an immediate answer, you’re really going to cement that relationship when you respond to a tax question with, “I don’t know, and I’ll get back to you by tomorrow.” Then pick up the phone, call a colleague, learn a little bit, report to your qualified lead, and enjoy the likely legacy commitment that will come as a result.

  5. Ronald Blaum says:

    My comment echos what others have said. It’s true that the current exclusion amount exempts most households from having a taxable estate, but in a great deal of my conversations people think that because they are not subject to estate tax there’s not much they have to plan around. As Russell pointed out, there are many reasons to discuss what assets to use for gifting versus leaving to heirs because of other tax implications. To be clear, affinity with the mission will be the primary reason for a donor to entertain making a major, planned, or blended gift. Anything we, as gift planners can do to make the dollars go farther for charity as well as for heirs has always been well received in the conversations I have had.

  6. Mike says:

    This is an interesting topic. As Russell pointed out, most people are not aware of the multiple tax liabilities of retirement assets. When given the opportunity of self-directing the taxes from the government to their favorite charities, 99% make the decision to direct the dollars to charity, even though they had no charitable intent prior to this knowledge.
    In the process of working with +90 nonprofits and facilitating +1,500 estates per year, our process is driven from a Statement of Values and Objectives prior to discussing tax issues. As one of my colleagues said, “Emotion is the river upon which logic flows.”

  7. Theresa Boyer says:

    Greg – a point of clarification. The 1.5% was likely referring to federal estate tax. In my state, Washington, we have a state estate tax with a $2 million threshold (not portable) with the tax rate ranging from 10%-20%. There are 15 states, including DC, that have a separate state estate tax.

  8. Scott says:

    I’ll chime in with a few additional thoughts.
    While a small percentage of estates are subject to federal estate tax, those are the people with whom we should be working–those with ultra high net worth.
    Washington has an estate tax exclusion of roughly $2M, and Oregon has an estate tax exclusion amount of $1M.
    While most are not subject to the estate tax, nearly everyone is subject to an IRD tax on one of the highest-valued assets they own–their IRAs and other Qualified Retirement Plans. This is easily avoidable with proper planning.
    Russell James’s research demonstrates that, while people SAY that tax savings are not a motivating factor in their giving, it still is. Bottom line, it’s wise stewardship to manage your tax bill. This leaves more for your family and charities.
    Bottom line, as others have stated, the tax savings is often the icing on the cake. The WHY behind the giving is a belief in and passion for the cause.

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