Episode 107: Planned Giving in Inflation and Bear Markets is Critical
Welcome to another edition of "Around with Randall" your weekly podcast for making your nonprofit more effective for your community. And here is your host, the CEO and founder of Hallett philanthropy, Randall Hallett.
Another great day right here on around with Randall. We want to chat today a little bit about something that's taking a back seat. But I think can be really important in allowing our donors to reach transformational levels regarding their intent to make a difference in our nonprofits. And that's the idea of planned giving. There was a recent article in the Chronicle of Philanthropy and I'm going to hold back a little bit because it's probably the next subject of the next podcast about how operations are actually pushing up the cost to raise a dollar. Or increasing our investment, internally, probably is going to increase over the next year, which is pushing more and more need for cash. We have inflation that's pushing our expenses up regularly as well, which is a part of that equation of the article I referenced a second ago, which means we need more cash.
Our investments are down. If we have Investments and as a result less money is coming out from a production perspective or or above the Corpus level, if we're down 10, 15 in the market on our investments that means probably we're not getting as much out of it. Which means we need more cash. Hearing about these things all the time then you step into the industries that we support.
Healthcare is going through a financial situation. Wouldn't call quite crisis, but certainly a blip. So healthcare is on the map with some financial challenges. Education in many areas is going through this and then when you add in things like social service, and we're all seeing financial challenges. And thus we need more cash. At least that's what our boards, CEOs, and CFOs tell us. And yet the greatest opportunity we have to maximize revenue over the long term is planned giving. People's estates, their assets rather than their paychecks. But that brings up two issues.
Number one, it's not immediate, i.e., it's not cash. Number two, it requires the organization to embody or embrace a delayed gratification model, meaning we are okay with not getting the money today and the, beyond the cash the benefits of that from an emotional standpoint for the gift officer, and seeing metrics and numbers being met. We have to adjust those to how we look at our budgeting process, to how we look at using financing. Possibly if we're building something, because someone has an estate gift, planned giving is hugely opportune right now. But yet I think most people are running away from it because of the bear market that we're in. And many people believe that it will continue. And number two, the challenges to our finances and our organizations.
So why am I talking about all this? Well let's start really at the top. What we know is that somewhere lots of estimates, but they all fall in about the same range somewhere between 40 and 50 trillion dollars will be transferred to one gen, from one generation to the next in the next 20 years. I mean, it's the largest transference in the history of mankind, and a lot of it will be happening here in the United States. And I know this much because I've had the privilege of working with people who've been very very successful.
Two things. Number one, they're not going to leave it all to their children. Number two, there are limited options of where they can leave it. You can't burn it. You can't be buried with it. You can't send it to space. There's only three places that a charitable post-life gift can go or however you want to call it. It can go to the government and I don't know anybody that says woohoo can't wait to leave my estate to the government. It can go to individuals and we're hearing more and more people say I don't leave my children something but I'm not leaving all of it. And then there's the third, they can go to charity, go to a nonprofit. So if we have an immense amount of money transferring hands with people who don't want to leave it to their kids, don't want to give to the government, want to give to the charity where are you, and this requires an understanding of not only why this is important but what are the instruments that are important.
So let's start with kind of some basics of planned giving. Highlights is that we know that your best gift opportunities in planned giving come from those who are your most consistent donors, those that provide you a connection to them in a meaningful way. I believe it's Stelter out of Des Moines that's done some of the best research on this, that it's not the highest donors in terms of dollars. It's your most consistent donors who are those hundred, two hundred, five hundred dollar donors that give to you every single year. I talk about my experiences, my wife and I probably more me than her but we do it together, I am incredibly appreciative to the law school where I went for my legal education. I had to kind of take a step away for 10 days to two weeks because of an illness in the family and they got me through it. Wasn't a great semester in terms of grades but I got through it. I'm eternally grateful. I am where I am in many ways because I think my legal education provided me professional benefits I can hardly articulate. I give to them every month and I have a planned gift for them. Who are your most regular donors?
The other thing to realize is that we need to kind of know some details as to when people make their decisions. Again Stelter out of Des Moines does a fabulous job in data collection in the planned giving arena. We know that the average is about 53, but we're watching many people in their 40s make decisions for the first time in their estates, and even earlier depending on when they have kids. And that we know that people who first write an intent somewhere about 40, meaning a charitable intent, in their state are likely to keep that person or keep that entity, excuse me, in their will. Meaning there is an emotional connection if they do it at 25. Life can change but somewhere about 40 or thereafter it's going to be very consistent. It's also very hard to get a charity out of someone's intent. There has to be something that's really huge that pushes them into removing a particular nonprofit from their charitable thoughts in their estate planning. It can happen but it's tough.
All of this money is being pushed towards the idea of making the world a better place the question becomes how do we execute this in a challenging period of times. And let me talk to you for the next few minutes, and by the way this is all going to lead to the tactical series of questions at the end, of what are you doing about all this. So the first is the concept of, or the tactic of a blended gift. I've talked about this on the podcast and I certainly talk about it a lot with clients that if you're not talking about a blended gift opportunity every gift that you're working with in terms of a major gift, then you're missing out opportunity.
So what is a blended gift? For those that don't know, that's a gift that melds the idea of one instrument with another. Give you the easiest example. Somebody says they want to make a gift of a million dollars but they don't have the cash to do it. Maybe they pledge half of it over five years, so that's a hundred thousand dollars per year for five years. And the other five hundred thousand dollars is a charitable instrument, or asset, or declaration in their estate. You're blending the cash and the planned giving and there's no rule as to what you can and can't do. It's about you your organization, culture, and need. And most importantly what the donor wants to do and can do. But blended gifts are an underplayed, dramatically underplayed instrument or conversation that we don't have with donors. Most of the time it drives me crazy.
I'm going to talk about one story coming consistently through a couple of examples here. This is true. It happened in the last two weeks. A client asked me to help them kind of with a very large gift closing in on eight figures, and the donor was intent, heart, emotion. Is there, they want to make the gift all-in but the question became how to do it. And the conversations I had, we had several where I was brought into kind of lead a discussion about what's possible, involved all the concepts I'm going to talk about.So blended we talked about. Well you don't have to do it all at once. This is a highly sophisticated financial person. Someone who has lawyers and estate planners and financial planners, is a financial analyst in his career himself. This guy knows money. He had no idea what we were talking about. So one of the things I want to impart upon you is, don't assume just because someone has money they understand money, and particularly in plain giving. My experiences is just the opposite.
So when I started talking about these options the first one was blended. You know we could do some cash now and look at some other options. He looked at me through zoom and said you can do that? I said absolutely. So just the ability to mention the idea of multiple vehicles to make the gift come to fruition for something he believes in, open up the door to a much larger gift. So the first concept is blended.
The second part is bequest, and with the changing markets we're having more and more people talk about, well I need to make sure my kids are at least somewhat taken care of. And most people think of bequests as specific, meaning I'm going to leave the house to Bob, and I'm gonna leave the cars to Cindy, and I'm gonna leave the the vacation home to Greg. And I'm just making easy examples. It's always more complicated than that, and what I actually recommend is instead of looking at the individual things why don't you look at percentages because that opens the door to nonprofit charity opportunity.
Now if there are specific bequests that someone wants to leave a loved one, and I'll use an example of of my wonderful parents, there are certain things in the house: pictures, silverware, you know, family things that are designated for myself and my two sisters, and we are all aware of that and that's great. But I don't and my sisters don't want their home. We don't want their cars. We don't want, and they have assets that if you pull them all together they're going to create a for lack of a better term a pile of money. Not a big pile, but a good pile. And we're going to divide it out however the will of my parents indicates or in their case trusts.What's interesting is that if you're dealing percentages, it's easier to get a charity involved instead of worrying about well they get the house and it doesn't leave charity anything. Well if we sell the house, we sell the cars, we sell all the assets, would there be room for 10 percent of that total to go to our nonprofit, our charity, rather than all going to your kids. considering you didn't want to do that, it becomes an instrument or a pathway for that to occur. And again, when we talked when I was talking about this with this large donor here recently, he never thought about it that way. He said I was going to leave this, and this, and this. I said do they want that, and the answer was no. Then sell it and you can use a certain percentage of that to fulfill this dream you have of this large gift. So percentages in estates and bequests, in particular, can be highly advantageous to nonprofits.
Another opportunity is appreciated stock, and you might be saying are you insane, have you seen the market? Randall you have no knowledge of what's going on. Yes I do. I know exactly what I'm talking about. My stocks and investment portfolios taking a beating too, but there's a moment when these things happen that I think we sometimes miss and that's the idea of rebalancing. I've recently had a conversation, actually several, with my investment advisor, saying we need to rebalance. he's saying we need to rebalance and what that means is we're going to take money out of one sector and move it into another. He believes, and I also agree, this is not financial advice just Randall's perspective. And what I'm doing, that energy stocks are going to be very advantageous over the next year, technology stocks may not be as much, so we're moving some money out of the other. When we rebalance that causes capital gains. And then on top of that, I don't want to pay taxes, so in a rebalancing situation could I make a gift of appreciated stock, targeted individualized not portfolio-wide, that's done very well so I don't have to pay the taxes on it.
Let me give you a couple examples. If you bought just a basic dollar figure of Apple stock 10 years ago, it's up more than a thousand percent. And if we look in just to the energy sector Exxon is is up nearly 60 percent over the last year. Marathon Petroleum's up 50 over the last year. What we know is that there are individual stocks that have appreciated, that may in a rebalancing situation allow someone to consider a stock gift. It's narrow but people don't like paying capital gains, and as a result it gives you an opportunity.
Another one that we are seeing more of right now and that's the idea of close, closely-held businesses. We know that people are still transitioning from the idea of working into retirement and the largest group of people in the United States is small business owners. I'm one of them. I'm not looking to retire but at some point I got to figure out what to do with my business. And sometimes philanthropy can be a great option for someone who's looking to get out of their business, and it's a perfect place for a charitable remainder trust, and particularly if there's a stock or family buyback process, and you don't have to have a lot of that implemented before. The thought process, or the the goal, begins so another avenue closely held businesses.
I'll give you another one. This is the one with that particular gift that I mentioned came to fruition here as we're kind of finishing this, you know, major gift opportunity with the client. He's concerned about giving all of his money away and not having enough to live, although he doesn't live a big life in terms of expense. And I said well why don't we do an annuity? And he said what do you mean. I said well an annuity allows you to make a gift, get an instant charitable deduction of pretty large size, receive payments on an annual, quarterly, semi-annual, monthly basis, whatever, and a good percentage of that's also tax free and it would guarantee you income. And he just looked at me. Savvy financial person with estate planners, with charitable, with financial individuals, lawyers. He's got all these people and nobody had ever brought it up to him and he says well now that you mention it, I'm selling some land and I didn't know what to do. I said well, annuity would be perfect because you can apply the gains of that land you bought 40 years ago or 30 years ago against the charitable deductions you'll get from an annuity. Less taxes.
My investment advisor told me the story recently of of a 87 year old woman who came running into his office and said I'm so scared of the markets. I want to absolutely get out of everything, and he tried to talk her out of it and he ended up losing. And I looked at him. I said did you recommend an annuity because what she's scared of is not having an income. He just looked at me he says no. This is a really savvy guy, really smart. That's why I trust him. He never thought about it. Annuities, if people are looking for guaranteed income, are critical right now because they can guarantee someone an income. Over time that'll make them feel better and they get to make a wonderful gift to your nonprofit. These are just some examples of creative thinking with the right kind of conversation that can leverage an opportunity for your organization.
The other thing to know, and I want to do this quickly, is what are the reasons that people make changes in their charitable intent in their estates, and the reason people add to their charitable intent in their states is death becomes a conversation at some point or that they become a widow or widower or they have a decline in what I would call their health, they're seeing some health challenges, they go through a divorce, a grandchild is born, they have a kind of a mass increase in assets, or they choose or have the ability to increase the charitable giving. The reasons why people decrease or take out, or remove charitable intent in their estates is they're approaching death, they become a widower, they're diagnosed with a major disease, cancer, heart, stroke, they have their first grandchild, they have their first child. and they exit home ownership. Two things to know ,and by the way this is from the research of Russell James who's a just does a genius job with looking at planned giving. Russell James, Dr, JD, as well is that health things happen in people's lives and it caused them, causes them to think.
Number two, if you're really good at building relationships you should know generally when these things are happening. And I'm not saying take advantage of anybody, but people are naturally thinking about in moments when there is a crisis or a health issue or a change in their finances, what they're going to do. And the more you look at relationships as transformational and not transactional, the better you're going to be at knowing when your donors, your prospects, your people that are closest to you, the people that believe in your mission, are making changes to their life and how it might benefit you and them. To engage them in that moment. The tacticals, what are you doing about planned giving. If you're walking away from it you're making a mistake, that I can promise you.
Don't forget to check out the blogs at HallettPhilanthropy.com. There's an RRS feed. Now you can get them right to your computer. And if you'd like to reach out to me and talk, ask, make recommendations that's podcast@hallettphilanthropy.com. Don't forget what you do is important. It is critical. In a crazy world, crazy times in our community, well no matter what type of nonprofit work you're doing, whatever sector that's in the philanthropy area, you're doing something that's important for people and things that are critical to our community and its longevity in a positive way. Don't forget some people make things happen, some people watch things happen, then there are those who wondered what happened. And you and your donors and your organization are people that make things happen for individuals and things in our community that are wondering what happened, and that's a wonderful calling, and I hope you feel that each and every day. We'll be back to you again right here on the next edition of "Around with Randall" and don't forget a great day.