Bequests and Charitable Gift Annuities

It should be such an eye-opener that the second most popular planned gift is so far behind the most popular one. That's why it's a shame that some organizations (usually smaller ones or ones without a designated planned giving professional) see their planned giving campaign as just a gift annuity marketing program. They rarely if ever seek bequests.

Yet, just about any adult person can leave a bequest to their favorite charity. It's incredibly easy if that person is already doing some estate planning. If a will is already in place, they can add a codicil or make changes whenever they want. If they don't yet have a formal document in place, they can still leave something to charity by making the nonprofit a designated beneficiary of a life insurance policy or a financial account or retirement plan, etc.

The fact that it is so easy is one of the reasons leaving a bequest is so popular. Letting loyal committed donors know you're interested in this kind of giving, and the potential impact of their gift, is very often the most you have to do, unless you make it even easier by providing sample bequest language too.

However, this is not the first type of charitable gift that pops into someone's head so you generally have to ask several times before any action is taken. This is also pretty easy; in fact the more you ask, the better you get at it (because practice makes perfect).

The most difficult part of bequest campaigns, in my opinion, is getting people to let you know once they've taken the necessary steps. It's believed only about 1/3 of the people who make testamentary gifts will self-identify in advance.

Needless to say, this makes it harder to draw conclusions about a planned giving campaign's success early on in the process. It's also a factor in why so many nonprofits focus their efforts on gift annuities rather than bequests. Gift annuities are easier to count.

Years ago, charitable gift annuity programs were much easier to establish, even in "high statute" states like New York. Nowadays, there's more paperwork involved to get a permit including board resolutions, many more contract formats, higher reserve requirements and establishing pre-funded segregated accounts. Not to mention that more states are setting requirements or tightening those that they already have in place.

Also, there are more types of charitable gift annuities than when I first started working with them. In addition to immediate and deferred, "one life" and two kinds of "two lives", there is now a flexible annuity for each "flavor" and who knows what's coming down the road. It's definitely more time consuming and difficult to set up a gift annuity program now.

Once a charity has met all the regulations and has a permit to issue gift annuities, the process becomes smoother because at the end of the day, it's just a contract between contributors and a nonprofit in which the donor makes an irrevocable gift in exchange for a lifetime income, which is guaranteed by all the nonprofit's assets.

Even though it is only appropriate with certain age restrictions, a gift annuity is still the easiest lifetime income gift for a donor to set up with a nonprofit. That's one reason I like them so much. Another is that all the regulations make them a more secure transaction (hopefully). Third, it enables donors who might not otherwise be able to make the gift (because the principal produces income) to be generous. It may even improve their current cash flow or future savings. And that's a major point!

Charitable gift annuities pay an attractive income, which theoretically (and actuarially) results in approximately 50% of the original contribution for the organization when the annuity ends.

So, with all the extra work in setting up the program, and the extra expense of investing and administering the program, the nonprofit is left with only a portion of the original contribution, unlike a bequest where the entire gift goes to the charity.

Even though gift annuities require a lot of extra time and effort to set up, my thinking is that some development professionals prefer to market them instead of ask for bequests because annuities are collected up front. They're easy to count because there's no waiting and hoping to know for sure if a bequest is coming through or for how much.

But what the less experienced fundraiser doesn't realize is that there's really no way to tell what will be left for the charity with the annuity because it is set up on assumptions.