Until now, people had a choice in regards to their estate: leave it to charity and know that they’d receive 100% of the estate, or leave it to family who’d receive just 55% of the estate while Uncle Sam took the remaining 45%. This was a huge incentive to give to charity.
With the repealing of the estate tax for the year 2010, donors lose that incentive. And, with so many people still suffering from a year of job loss and tanking investments, would-be major donors may be more inclined to give to family than even their most beloved charity. Many optimists will say that philanthropists are generous not because of the tax benefits but because of their commitment to leaving the world a better place.
This sentiment certainly describes a lot of philanthropists I know but it also only paints one part of the picture. Consider this: In 2007—before the bottom fell out—Bank of America and the Center for Philanthropy at Indiana University studied the motivations for giving of America’s wealthiest people. They found that if the charitable deduction were reduced to 0%, less than half of those worth $5 million or more would give the same amount; 56% of those worth between $1 million and $5 million would do likewise.
The Grim Reaper's Weekend Wear
The message is clear: any change to the incentive a donor has to give to charity will have some effect on giving. Even among our most benevolent donors.
So, what can you do?
1. Strengthen your Case for Support. Your Case for Support isn’t just for campaigns anymore! Savvy donors want to know just what their philanthropic dollars will support. If you don’t have a thoughtful, well-articulated, compelling reason for them to give, they won’t. Now, when your needs are competing against those of your donors’ children and grandchildren, your story has to touch them more deeply than ever before.
2. Think big picture. While planned gifts are often your largest gifts, they aren’t your only gifts. People will still give to your annual fund. They will still come to your events and they will still participate in your capital campaigns. Consider this bump in the road an opportunity to tweak your mix of fundraising tools and start expending more energy on reaching a different kind of donor. The great side effect of that is that eventually those annual fund and campaign donors you’re cultivating now will be your planned gift givers someday!
3. Meet your new family! Just because your big donor decides to leave her fortune to her kids instead of to you doesn’t mean that those dollars are lost forever. Data shows that many philanthropists pass this spirit of giving on to their children and, very often, causes are kept in the family for generations. The estate tax repeal may simply act as a trigger, spurring the younger generation into action earlier than they might otherwise have begun giving. So, get to know the families of your most generous donors; the 30 somethings of today are the major donors or tomorrow.
4. Don’t panic. Many in the industry believe that this 0% rate won’t last beyond the year. And, even if it does, Congress may institute a retroactive tax. This is to say, this repeal is not a permanent condition.
Legislation will always affect charities—sometimes for good and sometimes for bad. We just need to be nimble and never put all our eggs in one fundraising basket.
