Be prepared: Tips for donors’ due diligence
As you and your team build momentum implementing your 2024 fundraising plan, keep in mind that many individual donors look at the same criteria used by foundations to determine whether to support a charitable organization. You may not even be aware that a prospective donor is conducting due diligence. Especially when a donor is considering making a large gift or setting up a bequest, gaining the donor’s confidence is key.
The team at the community foundation is always happy to serve as a sounding board as you strive to continuously improve your organization’s governance and operational documentation.
Here are three items you might consider reviewing as you do a little spring cleaning.
Governing documents
Make sure your articles of incorporation are up-to-date and reflective of your current mission. Donors who are considering a large gift will want to see that your legal documents are in ship shape, especially with respect to the language required to achieve Section 501(c)(3) status. If you’re in doubt, consult the IRS’s suggested language. You’ll also want to review your bylaws. Bylaws can become outdated, in some cases due to technology. For example, you’ll want your bylaws to include permission to use up-to-date mechanisms to gain board approval, such as through an online poll in lieu of an in-person meeting.
Tax returns
You’re no doubt on top of the need to file the annual Form 990 tax return. Make it a point, though, to check for consistency between your Form 990 and the Form 1023 you filed (likely years ago) to secure the IRS Determination Letter granting charitable status. Make sure your organization’s charitable purpose is still stated correctly. Consistency across key documents is important to a lot of large donors. Indeed, many donors review the Form 990 carefully before they decide to make a gift. Make sure yours is accurate and compelling.
Gift acceptance policy
Make sure you’ve recently reviewed your policies for how your organization handles the acceptance of certain gifts, especially if they fall in the category of “Non-Standard Contributions” as defined by the IRS. Gifts of hard-to-value assets should not be undertaken lightly. We encourage you to reach out to the community foundation to assist in establishing a gift acceptance policy that will protect your organization and empower your fundraisers to engage in successful conversations with donors. To that end, the community foundation offers nonprofit organizations the opportunity to establish endowments and reserve funds to benefit from the community foundation’s governance and oversight, especially related to accepting complex gifts, as well as relying on the community foundation for all of the policies and administration associated with an endowment or reserve.
We look forward to working with you!
“Planned giving”: Do your donors get it?
It’s common practice for fundraisers and other philanthropy professionals to use the term “planned giving,” but do your donors know what you mean? Certainly, some donors understand the term, especially those who’ve served on your board or who’ve worked with you to establish a bequest. But many donors–and especially prospective donors–could benefit from an explanation that avoids the confusion of industry jargon.
To that end, in your fundraising communications, you might consider providing background to help orient your donors to the purpose of planned giving before you dive into defining it or describing it. For example:
–You could explain that a donor who writes checks or gives stock is making what’s sometimes referred to as a “current gift.”
–You can further explain that many donors repeat these types of gifts every year so that they become “annual gifts.”
–Next, you can draw a distinction between current or annual gifts and future gifts, outlining that well-structured future transfers to your organization are often referred to as “planned gifts” because, well, they require planning!
–Be sure to let donors know that planned gifts are important to help the organization build its endowment and ensure that its mission stays strong for generations to come.
Clear, concise, and simple communication with donors will help your fundraising efforts. Indeed, a new study sheds light on the elements of communication that can help increase donor trust, including emphasizing good stewardship and solid decision-making practices.
Consider adopting techniques to improve donors’ understanding of your message. For example:
–Use genuine, relatable storytelling to demonstrate the importance of your organization’s work, and share perspectives of the most affected people. Because you’re asking donors to consider gifts beyond their lifetime, be sure to illustrate the long-term, unpredictable needs facing the communities you serve and your organization's ability to address them.
–Provide plenty of context, including details that improve believability. Don’t assume that the donor is familiar with what your organization actually does. Illustrate the organization’s commitment to service as a non-negotiable core value that will continue to persist far into the future.
–Live up to your position as a trusted messenger by sharing vivid details and inclusive viewpoints to build transparent relationships. Skipping details and getting straight to the result creates a missed opportunity to educate donors about the level of work required to achieve impact and the need for financial support through endowment and other long-term gifts.
By communicating clearly with your donors, omitting jargon, and sharing stories to demonstrate the value of a donor’s investment, you’ll go a long way toward improving your fundraising efforts to build long-term support for your organization and its mission, especially through planned gifts that demand a high degree of donor trust.
Reminders about non-cash and non-marketable gifts
You’re likely very consistent about reminding your donors about the benefits of giving long-term, publicly-traded securities to support your organization’s mission. Don’t ever stop! It’s so easy for a donor to forget about this and write a check, missing out on the opportunity to avoid capital gains tax.
Non-cash gifts also include assets beyond just publicly-traded stock. Remember that the community foundation can work with you to accept donors’ gifts to your endowment fund of many types of assets, including:
Closely-held business interests
With proper planning, a donor can transfer shares of a closely-held business to your organization’s endowment fund at the community foundation.
QCDs from IRAs
A Qualified Charitable Distribution (“QCD”) is a very smart way for a donor who has reached the age of 70 ½ to give to your endowment fund. A donor can direct up to $105,000 from an IRA every year. Together, married couples can direct twice that amount. The donor avoids income tax on the funds distributed to your endowment fund.
Real estate
Your endowment fund at the community foundation can receive a tax-deductible gift of a donor’s real estate, such as farmland or commercial property, avoiding capital gains tax and reducing the value of the donor’s taxable estate.
Life insurance
For some donors, naming your organization’s endowment fund at the community foundation as the beneficiary of a life insurance policy is an effective way to leave a bequest. And, in the case of whole life policies, it may be possible and advantageous for the donor to not only name the endowment fund as beneficiary, but also transfer the policy itself and make annual, tax-deductible contributions to the community foundation to cover the premium.
And that’s not all! Oil and gas interests, cryptocurrency, and collectibles are among the other assets that can make effective gifts to charity. Please reach out to the team at the community foundation to learn how we can help you accept non-cash, non-marketable gifts into your endowment fund.
This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.