Does Congress CARE About You?
Charitable gift reform legislation

Declining Discount Rate & Planned Gift Marketing
How this falling rate impacts your planned gifts

Against the Grain
Pooled Income Funds are not obsolete

Consulting News
New clients and I'll be presenting at the 2004 Mid-Atlantic Researchers Conference

Your Feedback
Good, bad or indifferent, what is your opinion?

What is happening with the CARE (Charity, Aid, Recovery and Empowerment) Act of 2003? That's the Senate version (S. 476) of help for non-profits, and the House proposal is the Charitable Giving Act of 2003 (H.R. 7). Both have an important provision effecting Planned Giving and support charitable giving generally. And both are locked in Congress, despite Senate passage at 95 to 5.

For planned gifts, the drop-dead provision is the allowance of tax-free distributions from IRAs (including Roth) into the life income gifts: Charitable Gift Annuities, Charitable Remainder Annuity Trusts (fixed income), Charitable Remainder Unitrusts (variable income) and Pooled Income Funds.

That has the potential to really make the life income gifts attractive to your prospects. I've had many prospects inquire about making a gift from their IRA. When I tell them they must declare the withdrawal as ordinary income, and may face a penalty depending on their age, they lose interest-despite the deduction they'll earn for their gift.

Tax-free withdrawals for outright gifts, not in a life income arrangement, are also allowed.

The Senate and House do differ on age restrictions, with the Senate allowing the exclusion from taxation at 59 1/2 for life income gifts (70 1/2 for outright) and the House proposing 70 1/2 for both, but they agree on the crux of the help for planned gift donors. That's good news for Planned Giving programs.

Further, both allow non-itemizers a charitable income tax deduction, in addition to the standard deduction, of up to $250 for single filers and $500 for those filing jointly. Donors have to make combined gifts of more than $250 ($500 jointly) to take advantage of the deduction.

As of today, both bills languish. Independent Sector has some advice for contacting elected officials to get these beneficial proposals moving.

The IRS Discount Rate is a key number for Planned Giving. The Service calculates it monthly from other more complex and less interesting numbers. It figures prominently in calculating charitable deductions for some life income gifts and in calculating the amount of tax-free income earned from Charitable Gift Annuities. (Your donors will typically avoid tax on 40-50% of the income received from a gift annuity funded with cash.)

The Rate has been falling. In April 2000 it was 8.0 and this month's rate is 3.8. It has moved up and down in those 4 years but the trend is predominantly downward. It generally moves a couple of tenths of a percent each month—half a percent or more is considered significant. January started off this year at 4.2, February saw no change and last month saw 4.0.

What does a low Discount Rate mean for planned gift donors? Low rates translate into more tax-free income for gift annuity donors and higher charitable deductions for Retained Life Estates and both varieties of Charitable Lead Trust (fixed or variable income paid to your non-profit).

You should include valuable information like this in your Planned Giving marketing materials because it induces prospects to open a conversation with you about the possibilities.

Send me a message if you'd like to discuss planned gift marketing in our current low Discount Rate environment.

Many non-profits are closing their Pooled Income Fund or won't consider adding one to the mix of Planned Gifts they offer. This comes at the behest of Planned Giving professionals and popular wisdom because of low payout rates to donors and rising administrative expenses. I think Pooled Income Funds deserve a closer look and can serve an important function for many institutions.

A Pooled Income Fund, or PIF, pays income for life at the rate it is earned (i.e. variably). At the death of those receiving the income, the initial gift amount, plus capital appreciation and less expenses over the years, transfers to the non-profit. Your donor earns a charitable income tax deduction in the year their gift enters the fund.

Your non-profit will probably get less than the initial gift and you may wait many years for that payoff, depending on the ages of those getting the income. Payout rates these days hover around 2-3% and you have to factor in annual expenses of several thousand dollars. From a strictly financial perspective PIFs don't look healthy.

The value comes in their marketing potential. A robust Planned Giving program offers a spectrum of gifts from no cost, that is, no lifetime cost, bequests (actively marketed, not just available) to high cost charitable trusts, also actively marketed. I fully recognize that smaller non-profits cannot afford a complete Planned Giving program and alternatives abound for them nonetheless.

If you can afford the short term costs of a PIF, including one offers your donors a low cost opportunity to check out your Planned Giving program. Pooled Income Fund minimum gift levels are typically around $1500 to $2000, making them affordable for most donors. You give your donors a chance to see how well you steward their gift, whether they get their quarterly checks on time, whether you spell their name right in letters and recognition materials, etc.

If things go well, they may invest more in the PIF or in another gift vehicle with higher minimums, like a Charitable Gift Annuity, or, perhaps leave a substantial bequest because they've come to trust how you'll treat their gift. The average charitable bequest is around $30,000.

If you have, or can afford, a PIF and a Charitable Gift Annuity program, you've got a winning marketing combination. Many times I've had prospects open a gift discussion with me about their interest in a low cost Pooled Income Fund gift and they ended up making a gift to a gift annuity program (with its $10,000 to $25,000 minimum). They preferred the fixed income of the latter and were willing to increase their gift substantially to get it. The two work together to help you strategically market your program.

Look closely at the much maligned Pooled Income Fund. Make it easy for your donors to try you out, to kick the tires and take your Planned Giving program for a test ride.

I am pleased and proud to have begun new consulting engagements with Baruch College, part of the CUNY system, in Manhattan, and St. Joseph's College in downtown Brooklyn and Patchogue, Long Island. Both have had professional staff split between Planned Giving and one or two other responsibilities. Their administrations recognize the potential in having me take their programs to the next level through evaluation, strategic planning, proactive marketing, prospect identification, cultivation and solicitation and staff training.

In collaboration with the Jenks Group, Fundraising and Campaign Management Counsel, Shirley Jenks, Principal, I am supporting the upcoming campaigns of the Association for Preservation Technology International and the International Center of Medieval Art. Planned Giving is new to both. I'm grateful to have this association with the Jenks Group which celebrates its 10^th year of providing counsel to non-profits nationwide.

In June I will speak at the 2004 Mid-Atlantic Researchers Conference at Johns Hopkins University in Baltimore. I will explain Planned Giving for researchers and explore how Research can support a Planned Giving program. The Conference runs June 9-11 and my session, Get Excited About Planned Gifts & Earn Your Share of the Inheritance, is Wednesday the 9^th, 3:00 to 4:15. Here is the Conference website.

This is the inaugural issue of The Martignetti Report. I hope you will forward it to colleagues with interest in Planned Giving.

You've travailed this far, can you find the strength to transcend the stupor I've induced so as to share your opinion with me? I'd be grateful for your comments, advice and suggestions.

Best regards,

Tony Martignetti, Esq.
Planned Giving Consultant

The Martignetti Report is published every 2 months. If you received this indirectly, would you like to be on the mail list? Instead, do you prefer not to receive The Martignetti Report?