Give a legacy gift that replicates
Updated: Dec 12, 2021
Donors love a matching gift donation. Your gift goes so much further. But what if you could set this up for yourself?
Let me propose here a way for donors to make large donations at the end of life that are repetitive - potentially matching the original legacy gift every fifteen years.
Charities love repeat donors
The most coveted charitable donors are those who give annually. Every business or charity knows the best way to grow is through repeat customers, who typically contribute two-thirds of most yearly revenues.[i]
For charities, donors who give repeatedly are motivated by their values, experiences and stories that align with the cause. Interestingly, annual donors also are the core of any charity’s legacy gift-giving. A legacy gift is one made at the donor’s passing.
Legacy gifts are typically much more significant than annual donations. Creating legacy gifts as endowments can spread more considerable gifts over time, smoothing out and strengthening their impact. Therefore, legacy gifts often go into private or public foundations or Donor Advised Funds, as endowment-type funds for annual giving each year after passing away. These endowment-type funds payout from about four to twenty percent annually of the original gift made.
Since donors only die once, no additional legacy gift donations appear later as repeat gifts. If legacy donors could become repeating donors after they pass away, they could create a whole fresh new source of multiple endowment revenues instead of creating just one endowment.
Why are repeating legacy donations important?
End-of-life gifts often contribute more than ten percent to annual revenue streams. Any program that could augment this revenue would be helpful.
To arrange and secure end-of-life gifts takes considerable effort. Awareness campaigns are a good start, like the Will Power campaign going on now in Canada. Fundraising teams scour donor databases and prepare frequent and lengthy campaigns to secure legacy donations.
Legacy gifts are a tricky revenue stream to predict since gifts vary in size, many arrive unexpectedly, the date of death is random, and estate wind-ups require varying amounts of time. For these reasons, any way to augment legacy gifts, once arranged, would be beneficial.
If large donations were a regular repeating event, this would help project revenues and allow for planning. Furthermore, suppose the size of repeating legacy gifts grew to a significant portion of the annual revenues. In that case, concerns about regular donation fluctuations due to impacts of economic cycles or other difficulties donors may face.
How to repeat an end-of-life gift
I propose that donors split legacy gifts in two: portions for now and for the future.
For example, today, if a donor gives one-hundred-thousand dollars at their passing, they are effectively giving all now as a one-time donation. In this scenario, the donor’s estate can typically save forty percent of the gift in an estate-tax reduction.
In contrast to the first case, the donor could delay the entire gift for fifteen years. No tax deduction applies, as this arrangement will be a contracted service. However, donors are motivated by the cause, not solely by tax savings.
I imagine in this second scenario, the donor contracts with a service provider that invests the funds for growth and guarantees to pay out half of the fund value every fifteen years to various charities. The charities would have the legal right to ensure the service provider pays.
After every fifteen years, when the fund has most likely doubled in size (in today’s value, net of inflation) the service provider transfers fifty percent of the fund to the charity. The remaining fifty percent remains invested in the growth fund to replicate. Every fifteen years, as the fund doubles, the transfer cycle repeats.
In the example of a one-hundred-thousand-dollar gift, the fund likely doubles to two-hundred-thousand dollars in fifteen years. Then one-hundred-thousand dollars is transferred to the charities, and one-hundred-thousand dollars remains to grow for a repeat donation in a further fifteen years.
Donors could pick a portion between these two scenarios, say eighty percent now and twenty percent for repetition later. Whichever amount is left for the future becomes the repeating amount.
Consider that if many donors were to do such a repeating donation program, each donor’s start dates would be staggered over the fifteen years, averaging into yearly payouts. Such significant revenues coming into endowments or charities every year would do much to address our current and unfortunately growing funding shortfalls.
Donors today do not have a service provider/investment vehicle to create repeated legacy gifts, but I am working on it. Anyone interested in collaborating with me to build this is most welcome.
If you had the choice, what payout plan would you pick?
All the gift is for today
Split the gift - some for today and the rest for replication
All the gift is for replication
Let me know your choice at Cam@futurelegacies.ca. Thanks!