Endowing an Annual Gift

There is nothing new about the idea of endowing an annual gift, but the details often get in the way with the necessary decisions, become opportunities for procrastination and/or indecision. To whom and how should one present this idea? Where does money go? How are future years’ “gifts” accounted for? These are just some of the questions to be decided. You may already have such a program and have answered questions. This blog post is for those who are thinking of but have not yet executed this idea.

To complicate matters, the director of the annual fund or annual giving, often a younger person, is usually not empowered or allowed to make these decisions even if the “execution” is often lft up to him or her. Sometimes, the director of annual giving feels such gifts are beyond his or her expertise and/or the ability of phonathon callers to ask for. Regardless, I would suggest getting the director’s recommendations first. This is an opportunity for a director of development, director of planned gifts (If your organization has one.), and the director of the annual fund or annual giving to share ideas and work together.

First of all, perhaps, is the issue of who to ask? I would suggest consistent small donors over age 70. Why? Because larger donors to an annual fund are probably “raising their hand” and should be “saved” for solicitations of major gifts, older donors have usually made up their minds about major aspects of their wills and/or estate plans, and younger donors, even if they have been presented with the “will talk,” may be made more uncomfortable by,  not quite be ready for, or be under-gauged through a face-to-face discussions about a different planned gifts, although a “starter” plan around an annual gift certainly recommends itself (but may be something best broached through social media). Decisions here include what range of gift amounts and what age range to present such an idea to. You will need to decide what is a consistent and a smaller gift and what age range is appropriate or possible for your organization’s constituents.

Then you need to decide how much to ask for? I would suggest an endowment amount—about 20 times—based on the spend-ratio on your endowment averaged over the past 10 years plus any amount deductible for future expenses. The averaging can help ensure that the amount is appropriate for and will last. You may want to use this as an opportunity to ask “target” donors for a stretch gift, perhaps some given now and some later as a bequest.  This “gift” should not take the place of future annual gifts during life, which may present an opportunity to discuss other planned (deferred) contributions. The concept is both to have a gift that will produce funds in perpetuity and, it is hoped, one that will ultimately produce donations that are larger than current gifts: the needs of the organization may and probably will increase. Use past increases to explain the desire for an annual gift endowment that may produce a larger “annual gift” than donors currently make. An annual gift endowment is a “gateway” gift to larger or other planned gifts, if not to a major gift.

Where to put the money? Presuming gift amounts do not meet a new endowment threshold or the donor does not want a new fund in his or her name, where to “park” money received will be an issue. I would suggest a new endowed fund be started to receive future gifts once the first donations are received, even if the fund, presumadly like most or all of your organization’s funds, is part of the endowment. This will be an aggregate fund specifically for annual gift endowments. Having a separate fund will facilitate accounting and allow you to gauge the success and acceptance of the concept.

What about sunset provisions? Your organization may want to specify that per-donor accounting will only happen for so many years from the death of the donor though donations to the annual fund will continue from the fund. In other words, if your organization decides to go with w sunset provision, eventually there will be an amount of the endowed fund unassociated with donors’ name that will generate a contribution to the annual fund. This is, among other reasons, because future individual contributions may look or be small compared to other gifts and there may not be future heirs to witness donations in the name of the descendant, whether or not your organization has their names or reports to them. In addition, a sunset provision may lower expectations and help guarantee that while support may be in perpetuity, an annual gift endowment does not take the place of a larger planned gift and/or a named endowment, such as a scholarship fund.

I would suggest that the concept, once adopted, be promoted in electronic media and, for more “targeted” groups, in face-to-face discussions, perhaps as an initial idea or one among several to be considered. Except with particular donor groups—such as for print-oriented donors who have been consistent in their support through small annual gifts, I would be cautious about incurring direct mail expenses to promote this idea. An exception might be as part of a year-end appeal in situations where response has been unusually strong. 

There are other practicalities of an endowed annual gift for organizations instituting the concept. Is the controller or accountant of an organization, or a current staff member in his or her office, prepared to take on the additional responsibility of endowed annual gifs? Does a new position have to be created? Where will the responsibility for the accounting fall and be placed in job descriptions? (A sunset provision can help ensure the “sustainability” of the concept.) How can descendants of decedent’s be notified about and/or should they be informed about or thanked for such gifts on an annual basis? How does one determine who is deceased? What about situations where a gift has been established during life? And will be added to at death? How are annual expenses met and by whom? (An organization may want to determine that a certain amount will be deducted from the endowed amount, but should inform potential donors of the deduction for future costs. In such cases, the organization will need to determine where unspent portions of such deductible amounts will be “parked.”) It will be best if administrative issues are discussed and determined ahead of time. 

Creating endowed annual gifts is a great way to bridge the concept of annual support and planned gifts, and, with the right groups of constituents especially, can be an effective way to increase overall support for an organization, as well as an effective way to extend the duration of individual donors’ support for an organization. The tricky thing is how to make such gifts effectively fit the needs of an organization without having them diminish levels of future support. If the latter is a particular concern, then the idea of an endowed annual gift might be best as one started with or “pioneered” for a group from which larger endowed and/or planned gifts are unlikely. In other words, they might be an idea reserved for face-to-face discussions that are not likely to lead to other results

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About marklofstrom

Baby-boomer aged guy who's a lawyer/fundraiser with colorful experiences, solid background, great education and more. Gay and in a relationship with a past and a future, on the go.
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