If your nonprofit focuses most of its fundraising energy on donors who can contribute to your mission and programs now, you may have neglected legacy gifts. Such gifts represent a portion of donors’ estates that go to your organization upon their death. Legacy gifts can help position your nonprofit for sustained growth well into the future.

Mechanics of Giving

The vast majority of legacy gifts are made through wills and living trusts as well as with beneficiary designations on retirement accounts such as 401(k) and IRA plans and insurance policies. However, charitable annuities and other more complex estate planning instruments may come into play.

In most cases, your organization does not actually need to be directly involved when a donor establishes gifts through a will, trust, or financial account designation. But you and your development staff should know how the process works and what your nonprofit can do to facilitate matters.

For starters, donors should indicate the following information in a legally binding document (such as a will or trust):

  • Your organization’s full name (no shortened versions or nicknames) and address. Your nonprofit’s tax ID number is helpful, but not required.
  • Details on the gift and a description of any donated property.
  • Any restrictions on the use of the gift.

The gifting process can be made even easier if donors simply name your organization as the beneficiary of a financial account or life insurance policy. Financial institutions involved typically can provide required paperwork for making these gifts.

Your organization can promote the gifting process by featuring information about making legacy gifts in prominent locations on your website, in your newsletter, and in brochures and other promotional materials. Do not assume that only older, long-time donors might be interested (although they certainly are potential participants). Many people may not even consider making a legacy gift unless you educate them that it is an option.

Take Action

Your nonprofit can be reactive and accept windfalls that come your way, or it can proactively pursue legacy gifts. The latter is more likely to provide significant donations. To help ensure you are doing everything possible to encourage these gifts:

Promote your organization. Promoting can be as simple as reminding donors about gift-giving options on your website and in marketing materials. But you should also discuss and acknowledge gifts on social media platforms and during fundraising and speaking events.

Show how you will use the gifts. Most donors will probably expect legacy gifts to go toward special projects or programs rather than your day-to-day expenses. You can help provide ideas for potential special uses, however, you may also want to make the case for a gift to your general operating fund.

Thank gift-givers publicly. Some donors may prefer to remain anonymous, but chances are, your donors will not mind public a thank you. For larger gifts, you might provide a plaque or inscribed remembrance or even name a room or building after the donor. Be sure to follow the same rules for similar gifts.

Point out estate planning pitfalls. Even wealthy individuals may fail to make proper estate plans. They may promise to leave something to your organization, but if they do not put it in writing, state intestacy laws may cause unintended results. Use subtle (and sensitive) messages to get the point across.

Prove your staying power. Donors are unlikely to give legacy gifts to organizations that might not be around in the long term. If you already have a lengthy track record, you have an edge. But even if you do not, you can share detailed plans (including the funding required to meet goals) with potential donors.

Explain the tax impact. Donors may be more likely to make a legacy gift if they understand current — and future — estate tax rules. For example, unless Congress acts, the current generous estate tax exemption, $12.06 million in 2022, is scheduled to revert to $5 million in 2026. So your supporters may want to act before then.

Meet face-to-face. You cannot expect people to create legacy gifts without developing a relationship with your organization. Sit down with donors to discuss their estate plans and your organization’s mission. The more they embrace your cause and feel a personal connection to it, the more likely they are to commit to a legacy gift.

Observe Legalities

Many legacy gifts come with strings attached — for example, they are earmarked for an endowment, scholarship, or other passion project. Be sure to observe the legalities and keep legacy gifts separate from regular funds. If you do not know how to handle a particular gift, or a donor wants to use a complicated trust or other sophisticated arrangement, contact our nonprofit team for help.

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© Copyright 2022 Thomson Reuters. 

Disclaimer of Liability
Our firm provides the information in this article for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this blog are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability and fitness for a particular purpose.




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