4 Steps to Fund an Endowment With Legacy Giving

Has it been one of your New Year’s resolutions — for more years than one — to ramp up your legacy giving program? This year, just do it!

Why? It’s the best way to become your own source of reliable funding over the years. Legacy gifts (aka “planned gifts”) are well worth the effort. An average annual online cash gift is $128. An average planned gift, according to FreeWill, is $50,424.

It’s not difficult. Simply take it step by step. Here are four steps to help you build an endowment with legacy giving.

1. Craft a Compelling Case for Legacy Support

This is not the same type of case statement you pitch to donors about the essentiality of your mission. It’s about the benefit of having both a checking and a savings account. Most people, on a personal level, readily understand the benefit of a rainy-day fund. Your organization should be equally prudent.

Any nonprofit that’s been around for 10 or more years needs to build an endowment. With that type of longevity, it’s likely people have come to count on you. By being successful, you’ve earned the privilege — and responsibility — to fundraise. People would miss you if you were gone. 

How big does your responsible endowment need to be? In my 30 years of fundraising in the trenches, I learned it should be at minimum two times the size of your operating budget. It’s a benchmark that is also useful to share with boards. But if that seems daunting, there are other ways to sell your board and/or donors on the need for an adequate cash-reserve. 

You need a corpus large enough that the income it throws off annually could see you through an emergency. In other words, could it replace the income from a grant, major gift or event revenue that was cut off in a given year? Would it be enough to respond to an increase in demand of 10%, 25% or even 50%? Would it help you and others sleep peacefully at night?

2. Get Leadership Buy-in

Once you’ve crafted your case for support, get folks on board to develop a manageable plan to generate that support. Don’t put this off until you feel established enough to begin to build a savings account. You can flesh out your program, adding bells and whistles, over the years. But don’t get distracted by the shiny stuff at the outset. You can accomplish a lot by getting leadership (i.e., executive director, board, chief operating officer, accountant, other development staff and anyone who will be involved in the work) to enthusiastically sign off on prioritizing resources (money and staff time) to this endeavor.

I recommend creating a spreadsheet with an accompanying graph to project an increase in expenses over the next 10 years. Also, project your revenues. Most often, nonprofits will find a sizable gap between the two, with expenses coming out on top. The amount of this income gap is the amount your endowment corpus will need to earn in order to fill the gap.

Credit: Claire Axelrad

Show your graph — and projected annual fundraising shortfall — to your powers that be. This is a fact-based, visually compelling way to begin a conversation about why it is responsible to build an endowment through legacy giving.

Part of your job is to dispel the myth that having cash reserves is immoral for a nonprofit. Responsible business owners — including your board members and donors — 100% understand the need to keep some cash in reserve. Just because you’re a mission-focused rather than a profit-focused organization does not mean it’s any different for you.

Board members have a fiduciary responsibility to ensure you have sufficient financial resources to fulfill your mission both today and for the future. Planning for survival is smart. Period.

3. Identify Top Prospects

First, talk to those most closely identified with and connected to your cause. These are the people with whom your case for support will most readily resonate. They love you and wouldn’t want to see your work compromised or, even worse, extinguished. You know how to reach them. They’ll take your call.

Next, get up close and personal. I recommend beginning with your board and current loyal donors. These people don’t have to be rich — just devoted. You’d be amazed how many teachers, nurses and postal workers have left $1 million-plus legacies. Talk with these connected prospects one-to-one or in small groups. Make the case. Ask them:

• How do you feel about our organization building an endowment? 
• What about it do you think is important? 
• What reservations, if any, do you have?
• Do you have any feedback about how to build one? 
• Have you personally made a provision for our organization in your estate plans?
• If so, how? If not, why not?
• What would it take for you to consider a legacy gift?
• Can we publicly share your testimonial to inspire others to follow suit?
• Would you be willing to talk to others about leaving a legacy?

This methodology yields amazing results. I have personally reached out in this way with multiple organizations, and it always resulted in a positive outcome. For one organization, a full 50% of those whom I spoke made a bequest, beneficiary designation or some other type of planned legacy gift. 

As surprising as this may seem, the bottom line is these donors simply hadn’t considered it before (being asked is the primary reason people give), and didn’t realize it could be so easy or so fulfilling.

4. Focus on Easy, Basic Gifts

Don’t shy away from building a legacy giving program because you don’t understand all the ins and outs of a full range of complex planned giving arrangements. When starting out, don’t worry about charitable trusts or gift annuities. If someone wants to do that, you can find outside advisers to help. Instead, here are a few areas to focus.

Bequests

Bequests make up 10% of all U.S. giving. You need to know just enough about bequests to refer donors to their own legal and financial advisers. You can help by providing sample bequest language or installing an online estate planning tool, such as FreeWill or Giving Docs.

Beneficiary Designations

These can yield big gifts, and don’t require a visit to an attorney. A donor need only request a beneficiary form from their financial institution (e.g., the holder of their checking, savings, IRA, 401(k), 403(b) or other retirement account) or insurer (charities can be primary or contingent beneficiaries of life insurance policies). This is an attractive way to leave a legacy because the gift is made only once the donor no longer needs access to the funds. 

And, little known fact: Since a lot of retirement money has never been taxed (income tax is only paid when it's withdrawn), the IRS will require family members who inherit this money to pay a double tax. That’s estate tax plus what’s known as income tax in respect of a decedent. This means it’s much better to leave this particular asset to a qualified charity (preserving much more of the corpus of the donor’s hard-earned money) and leave other less heavily taxed assets to family and loved ones.

Appreciated Stocks

When you make it easy for donors to give from assets, rather than income, their gifts tend to be much larger, and also offer donor benefits, such as avoidance of capital gains taxes. Research shows organizations promoting and accepting such gifts saw a 55% increase in growth over those accepting just cash. It’s your job to let donors know you accept these gifts, and make it easy for them to give by setting up at least one brokerage account and offering a step-by-step resource telling donors how to make a stock gift.

Build Your Longevity Through Legacy

People and organizations require sufficient assets to weather a crisis, emergency, inflation, recession or unanticipated funding cutback without needing to reduce or eliminate programs, services and staff. Building an endowment is a fiscally responsible approach to planning and management, in contrast to living solely on annual earned and contributed income — aka paycheck to paycheck.

Rather than worrying at the outset about communicating with the masses, or putting up planned-giving landing pages you’ll hope folks will find on their own, reach out directly to folks you know. Ask them what they’d like their legacy to be and make it possible for them to fulfill their dreams, at least in part, through your nonprofit. 

The preceding post was provided by an individual unaffiliated with NonProfit PRO. The views expressed within do not directly reflect the thoughts or opinions of NonProfit PRO.