Using the 4 types of planned giving to engage donors

Planned giving provides major opportunities for nonprofit organization growth. In fact, the 2021 Giving USA report found that of the $326.87 billion individuals donated to nonprofits that year, more than $46 billion came from bequests, a common type of planned gift.

While planned gifts are worth actively pursuing because of how lucrative they are, it can take years of careful, personalized donor stewardship before an individual commits to planned giving. Therefore, it’s essential for your nonprofit’s team to thoroughly understand the planned giving process and track all of the steps toward securing these donations. In this guide, we’ll explore the four main types of planned gifts and how your team should navigate obtaining them. 

What is planned giving?

Planned giving is the process of arranging a contribution that will be allocated to a nonprofit at a future date. Because many donors arrange planned gifts through a will or trust, your nonprofit will likely receive the gift after the donor has passed away. This option provides a convenient alternative for donors who may want to make a major gift to your organization but don’t have the financial flexibility to do so during their lifetime.

To cultivate stronger relationships with planned donors and support them as they make arrangements, consider starting a legacy giving program. Making a planned gift often takes time and involves multiple points of contact beyond the donor such as lawyers and estate planners. Legacy giving programs streamline your organization’s long-term efforts to build relationships with donors and manage all of the legal and financial touchpoints required in planned giving.

What are the types of planned giving?

The type of planned gift a donor wants to make determines how your team will build a relationship with that donor and what information you’ll need to manage. Planned giving most often takes one of four forms: bequests, charitable gift annuities, trusts, and pooled income funds.

Bequests

More than 90% of planned gifts take the form of bequests, which are legacy gifts left to a nonprofit after a donor has passed away. Donors usually make a charitable bequest via a will or estate plan. 

Charitable bequests fall into three categories:

1. Specific amount: These cases involve a donor allocating an exact financial contribution to your nonprofit.
2. Percentage: Instead of designating an amount, the donor plans to gift your organization a set percentage of their total wealth. For example, they’d specify 5% of their estate’s worth at the time of their death, rather than $50,000.
3. Remainder: In this situation, a donor plans to have a nonprofit receive any money remaining in their estate after all other bequests are paid out.

Although the bequest donation process is the most straightforward of the four types of planned giving, dedicated donor cultivation is still essential to convince donors to commit to a bequest.

Charitable gift annuities 

Charitable gift annuities are contracts between a donor and a nonprofit in which the donor gives a large amount of money in exchange for the nonprofit’s promise to pay them a fixed annual income for life or another mutually agreed-upon length of time. 

Donors are eligible for a partial tax deduction at the time of their original gift, and the annuity is usually paid out on a quarterly or monthly basis. During this time, the nonprofit can invest the donor’s money and earn revenue in the form of interest. Once the pay period ends, the nonprofit retains any remaining funds.

Because charitable gift annuities involve a back-and-forth process that happens over time, your nonprofit should treat them as an ongoing procedure rather than a one-time contribution.

Trusts

Trusts share the basic principle that recipients are given a certain amount of money from the trust annually until it’s fully paid out. There are two main categories of trusts that apply to nonprofits: charitable remainder trusts and charitable lead trusts. 

According to the IRS, charitable remainder trusts pay an irrevocable, annual income to the donor for life or another fixed period of time up to 20 years. After the payment term ends, the remaining trust funds are transferred to a predetermined charitable organization. The donation must be at least 10% of the initial net value of the funds placed in the trust. 

Charitable lead trusts are essentially the reverse of charitable remainder trusts. The annual payments go to the designated nonprofit rather than the person who established the trust, and the remaining funds are transferred to the donor or their designated beneficiaries at the end of the trust term.

Pooled income funds 

A pooled income fund is a trust established and maintained by a public charity. This type of planned giving operates similarly to a charitable remainder trust in that individual donors or a family make irrevocable contributions to the fund.

These contributions are combined for investment purposes, and the fund’s net annual investment income is distributed among fund participants proportionally to their investment. The distributions occur throughout each donor’s lifetime, after which the contributions attributed to that donor are removed from the fund and transferred to the organization.

Tracking different types of planned giving relationships 

Planned giving is a complex process, involving long periods of time, multiple points of contact, and ever-evolving donor relationships. To run an effective nonprofit planned giving program, nonprofits need software equipped to handle the nuances of stewarding planned giving relationships.

There are three common scenarios in which a nonprofit staff member should track planned gift developments in a donor relationship:

1. The donor is a planned giving prospect and the staff member wants to create an action plan to manage their cultivation strategy.
2. The donor requests information about planned giving, usually in response to other outreach efforts.
3. The donor included the nonprofit in their will but didn’t notify the organization in advance, so a check for a bequest comes without warning.

Your nonprofit will need to track, cultivate, and execute several different types of planned giving deals to take full advantage of these funding opportunities. Depending on your organization’s size, your planned giving team can comprise a small group of staff members or an entire department. Being prepared with the right tools and expertise is essential. 

A final note about planned giving

Planned giving is a growing area of focus not only for nonprofit fundraisers, but also for donors who want to leave a legacy of support for causes that matter to them. While cultivating the various types of planned giving requires careful management, they can become a valuable part of your nonprofit’s long-term fundraising strategy.

Ready to start building a planned giving program for your organization? Watch our complete planned giving video!