After a recent meeting with a colleague at CCS in Manhattan, I was encouraged to highlight and share some trends and insights that Heaton Smith sees daily in this fundraising area. (CCS recently selected Heaton Smith as its legacy and gift planning strategic partner.) The following questions and data points are drawn directly from a sample of actual donor responses to our questionnaires. I believe most fundraisers will find this information compelling as they evaluate the consequential untapped opportunities in planned giving. Most importantly, the information will help fundraisers better understand what planned giving donors are thinking while adjusting to the new economy.

Q. If you could allocate your estate to beneficiaries at death any way you want among the following choices, (excluding your spouse, if applicable), what is your ideal allocation?
• 90% of donors allocated 10% or more to charity and 65% of donors allocated 20% or more to charity.

Q. To whom do you feel a sense of obligation when it comes to the distribution of your wealth?
• While charity or philanthropy are not options listed in Heaton Smith’s questionnaires, over 26% wrote in charity and/or philanthropy as one of their obligations.

Q. Do you have excess assets or income?
• 36% of donors listed current excess assets and income.

Q. Which statement most closely reflects your view regarding responsibility to conserve assets for heirs?
• 42% of donors answered that they feel no responsibility to conserve assets for heirs.

Q. How much inheritance should you leave your heirs?
• 76% answered that parents should leave heirs enough inheritance to allow them to do most anything they want but would not lose their initiative to work.

Q. Which statement most closely reflects your thoughts regarding the transfer of charitable gifts through your estate plan?
• 64% selected that they would rather make gifts to charity than pay taxes.

Q. What organization(s) would you like to support through your estate plan should you determine to make testamentary gifts?
• 61% list two or more charities.
• 91% included Heaton Smith’s non-profit client in their estate plans.

Q. What is your preference with regard to philanthropic recognition for gifts to charity?
• 7 % prefer ‘naming’ opportunities for donor recognition?

These donor responses and data points translate into meaningful and oftentimes transformational planned gifts for nonprofit institutions. The range of gifts that Heaton Smith plans in any given month include small and simple to large and complex. We are currently working with donors whose gifts range from a $250,000 Expendable Donor Advised Fund to an eight-figure naming opportunity.

President Obama made several attempts at targeting the charitable deduction as a revenue source for the federal government. His proposal was to place a cap that would have limited the deductibility of charitable contributions for those earning more than $250,000, from 35 percent to 28 percent. In addition, some Democrats in Congress proposed limiting the overall tax reduction based on a cap of Adjusted Gross Income rather than limiting the percentage of deduction as proposed by the President. In either proposal, there would have been a loss of tax deductibility for charitable gifts.

Fortunately, Congress did not pass any of these proposals. The charitable sector can happily ring in the New Year with the income tax charitable deduction intact for all taxpayers! This is important for a number of reasons.

First, high income taxpayers are disproportionately responsible for individual gifts to charitable organizations. A recent Congressional Budget Office report on the tax treatment of charitable giving concludes that tax filers who reported Adjusted Gross Income of at least $100,000 in 2008 were responsible for well over half (about 58 percent) of all charitable giving by taxpayers.

Second, the income tax charitable deduction is important to high income tax payers. Approximately 34% of individual taxpayers itemize deductions. Among itemizers, about 80% itemized contributions to charity, resulting in gifts of $170.4 billion in 2008 according to the IRS.

Finally, research by the Indiana University Center on Philanthropy concludes that reductions in the aggregate disposable income of high-earning households would negatively impact charitable giving. Assuming the President’s proposals were adopted, itemized charitable giving could be expected to decline by $0.82 billion in the first year after implementing the new law and decline by $2.43 billion in the second year. So, the cap on charitable deductions for high income taxpayers would cost charitable organizations billions of dollars in gifts.

Everyone serving the charitable sector should closely monitor what happens in Congress in 2012. We must continue to voice our concerns when philanthropy is targeted as a means of dealing with the federal budget crisis. After all, decreasing philanthropic support could create even more problems for our society due to reduced services by hospitals and other important charitable programs.

The foundation submitted the program, Legacy Planning to Fulfill a Vision: Donor-Centered Gift Planning at Kosair Children’s Hospital, to the National Association of Children’s Hospitals and Related Institutions (NACHRI) 2012 Impact Award competition in the Fundraising/Development category. Kosair’s program was selected as one of three finalists in its category. Lynnie and I will present the program to NACHRI’s conference attendees next year, where the winner of the award will be announced. Congratulations to Lynnie and the whole of the Kosair Children’s Hospital Foundation staff. The impact of these gifts on children seeking high-quality healthcare in the Kentuckiana region is consequential in several areas of clinical care at Kosair Children’s Hospital.

In 1991, Scott was consulting with several nonprofit organizations in the area of values-based estate planning and met with vice presidents, major gift and gift planning officers and advised them of the benefits of charitable estate planning.  In addition, Scott met with donors and educated them on legacy and charitable estate planning opportunities.  Many donors got excited about specific opportunities and subsequently met with their respective attorneys and other advisors.  What followed was all too frequent:  their advisors were unfamiliar with legacy planning and the language to guide the discussions with their respective clients.  Hence, in too many situations, executed documents on donors’ behalf did not include charitable planning.

Scott recognized an opportunity to facilitate a program to educate the advisory community on legacy and charitable estate planning.  Therefore, he wrote a values-based estate planning course and began to teach it to the advisory community.  The impact of Scott’s course was measurable:  course participants increased their knowledge in legacy planning, which ultimately made a meaningful difference in their discussions with clients.  Therefore, more attorneys had informed discussions with their clients about legacy planning opportunities and thus executed more documents that included charitable planning.  From this trajectory, The Legacy Companies were born.

Scott recognized that he needed guidance to put language around his ideas and to formalize a planning process.  He turned to the thought leader in this area, Dr. Paul  Schervish, who serves as the Director for the Center on Wealth and Philanthropy at Boston College.  (Dr. Schervish co-authored the ground breaking generational wealth transfer study in the early 2000s.)  Dr. Schervish and Scott developed three questionnaires that combined Scott’s practical work with nonprofit organizations and donors and Dr. Schervish’s academic research and study of families and philanthropy.  In addition, they developed a narrative that brings clarity to what donors want to accomplish with their assets, and a full process through which advisors take their clients to help them articulate their legacies in meaningful ways.  Put simply, the process allows individuals, couples and families to discover their estate planning objectives in accessible language, equip them to make decisions, have intelligent discussions with their advisors, and manage their plan long-term.

As Scott’s work became well known in the nonprofit sector, he was asked in the mid-nineties to speak at a National Council on Planned Giving Annual Conference (renamed the Partnership for Philanthropic Planning) about values-based estate planning.  The response was so enthusiastic that Scott was ranked the number one speaker by conference participants.  Scott was asked back six or seven consecutive years, and each year, his speech was ranked the best.  Even now, I talk to gift planning professionals who remember Scott’s “vigorous and enthusiastic” presentations at (what was then) NCPG conferences.

Sadly, Scott was diagnosed with cancer in his forties and died in September 2006.  He is remembered as a pioneer in the tools and methodology of values-based estate planning, and I am indebted to Scott for his vision and years of work to bring the values-based legacy planning model to the philanthropic and advisory communities.  Indeed his legacy lives on throughout the legal, accounting, insurance, financial and philanthropic communities.  Here, I give credit where credit is due as an advocate and practitioner of the values-based estate planning model.

*Consider reading “Values-Based Estate Planning” by Scott C. Fithian.  Scott wrote the book (now available at Amazon) after executing his planning model for several years.

In fact, President Obama’s fiscal year 2011 budget proposal includes changes to the tax deduction high income households can take for charitable contributions.  This budget proposal for 2011 and beyond includes provisions to reinstate tax rates for the highest income households to the rate in effect from 1993 through 2000 (39.6 percent) and to allow deductions from income to be itemized at a separate lower rate of 28 percent. The income generated for the U.S. Treasury under the President’s proposed provisions is intended, over 10 years, to fund a part of a $630 billion reserve, restricted to improving access to and delivery of health care.

However, charitable organizations are concerned about this proposal that has the potential to decrease the amount of charitable giving in the U.S., which was $306 billion in 2007 (Giving USA 2008). In addition, Gallup released a poll showing that 7 in 10 Americans oppose eliminating the charitable deduction. This strong level of support holds true even when proposed elimination of the deduction is framed as part of a plan to either lower the overall income tax rate or as a way to reduce the federal budget deficit.

The Obama Administration’s proposed tax rate changes would affect taxpayers with $250,000 or more in income. In 2006, 2.9 percent of tax returns, (approximately 4 million returns), had adjusted gross income of $200,000 or more. In 2006, these 4 million returns claimed 43.5 percent of all itemized charitable gift deductions claimed on individual tax returns (a total of $81.26 billion claimed by high-income households out of a total of $186.65 billion claimed). In 2006, these 4 million returns had 31.3 percent of total income on all tax returns.

The Indiana University Center on Philanthropy (Center) looked at the possible impact of the changes proposed by President Obama.  The Center examined how giving would have been affected in 2006 (the latest year for which itemized deduction data are available) if the Administration’s proposals for charitable gift deduction rates and personal income tax rates for taxpayers with income above $250,000 had been in effect at that time. The Center estimates that the two changes combined would have resulted in a reduction of total itemized giving by the highest income households of 4.8 percent in 2006, or a drop of $3.87 billion in itemized contributions by those households. Total itemized giving by households in the highest income categories in 2006 was $81.26 billion.  These estimates suggest that if President Obama’s proposals had been in place in 2006, total itemized charitable giving by households would have dropped by 2.1 percent.

Tax incentives do stimulate more giving and the challenges facing the nonprofit sector in 2011 suggest that this might be a good time to provide additional incentives, rather than reduce the value of the tax deduction for high income households, so that the donors with the greatest capacity to give have more reasons to do so.

Future Blog Posts: Earlier this year, at the request of the former Chairman of the House Committee on the Budget, the Congressional Budget Office (CBO) examined patterns of individual charitable giving and analyzed how the President’s proposal as well as other options for changing the tax treatment of such giving might affect the overall level of donations, the costs to the federal government, and the distribution of tax benefits by income group.  Future blog posts will analyze these options examined by the CBO.

Saint Joseph Health System (SJHS) is a faith-based healthcare ministry based in Lexington, Kentucky with 1012 licensed beds, approximately 5,000 employees, and serves more than 600,000 patients yearly. SJHS provides state-of-the-art care through the latest medical technology. The heart of the Sisters who founded Saint Joseph was their commitment to community outreach to the poor and underserved, which is a tradition that continues today.

During our first meeting, the donor expressed interest in charitable estate planning but also articulated a major concern of his at that time:  His wife was suffering from a degenerative neurological disease, and the costs of her long-term care were unknown. Further still, would he precede her in death?  How long would she live? Given these and other unknowns, the donor was reluctant to have a discussion about charitable estate planning irrespective of his net-worth.

Less than one year later, the donor’s wife passed away.  Subsequently, the donor informed a CHNF staff member that he would like to reconnect with me.  Why?  His principle concern – the unknown costs of his wife’s long-term healthcare – was gone due to her death.  The donor, in his mid nineties, was now prepared to make some final decisions about his family, financial and philanthropic legacies.  Through several meetings with the donor and ultimately his attorney, he made important decisions about his heirs’ inheritance and also decided to make a $1,000,000 unrestricted gift to CHNF.

For multiple estate planning reasons, a $500,000 current gift was made to the foundation in December and the balance of the $1,000,000 gift will be satisfied at the donor’s death through his estate.  Members of CHNF knew of this donor’s giving capacity and his passion for the Foundation, but they never pressed him to make a planned gift due to his concern about his wife’s long-term care.  They were compassionate and professional enough to move at the donor’s pace.  And, the outcome benefited all parties. The donor received income tax relief for at least one year, he reduced the size of his taxable estate, his estate will pay less estate and inheritance tax, and his beloved charity benefits now and in the future. The donor was pleased, his heirs will be pleased, the government will get less, and the hospitals that comprise Community Health Network are providing better care to its patients as a result of this donor’s seven-figure gift.

At the conclusion of our planning meetings, the donor expressed a desire to disclose his testamentary gift. Just a few weeks later, leaders of the hospital system and foundation staff gathered one evening at the donor’s retirement community to honor his decades of service to the foundation and to the Indianapolis community, and his $1,000,000 gift.  In this situation, timing was everything.

* All details above were disclosed to members of the CHNF staff and printed with permission from the Foundation.

Two weeks ago, I sat with donors to a Heaton Smith client, St. Mary Medical Center located in Southern California. These donors, in their late eighties, are in the later stage of their lives. The husband, a brilliant man, had a stellar career in the field of engineering. In his retirement, he chose to never let his inquisitive mind rest, and among other things, taught at a local college.

Unfortunately, the husband had a stroke three months ago, which has compromised his ability to process information. As I visited with him and his wife at a rehabilitation center, he struggled to process our conversation and to communicate his thoughts. His brilliance has not left his eyes, but his capacity to explain an idea or thought in great detail evaded him that afternoon.

Several years ago when I met these donors, I was taken by their passion to help those in need, and in particular, individuals who need the healing ministry of St. Mary Medical Center. In mid-2009, these donors made their largest gift thus far to St. Mary through a multi-six-figure charitable gift annuity. When this brilliant man departs this world, he will leave a legacy of a loving husband and father, an accomplished engineer, one who concerned himself with the less fortunate, and a philanthropist. Fortunately, St. Mary Medical Center Foundation has had the privilege to honor these donors during their lifetime.

During our April visit, I was reminded of how much these donors mean to me personally, the many hours we have spent talking about their planning goals for their family and philanthropy, our discussions about music, books, and whatever subject of the day about which we chose to focus.  I finished my day with dinner with the wife, and we discussed what the future likely holds for her next stage in life. Not an easy conversation to be sure, but I am thankful that our paths crossed  several years ago and that I count these donors as friends. These friends and donors know the legacies they will leave and that St. Mary Medical Center will provide better care to its patients as a result of their generosity.

Saint Thomas Health Services (STHS) is a faith-based healthcare ministry with more than 1500 beds and 6,500 associates serving Middle Tennessee. The system is comprised of four hospitals – Baptist and Saint Thomas Hospitals located in Nashville, Middle Tennessee Medical Center located in Murfreesboro, and Hickman Community Hospital located in Centerville. STHS is dedicated to spiritually-centered holistic care and is committed to serving all persons, with special attention to those who are poor and vulnerable.