Michelle S. Gollapalli, a fundraiser in Philadelphia, wrote to ask for advice about a challenge her organization faces as it runs a capital campaign.
We have had some really dedicated donors who made gifts through a charitable gift annuity. Unfortunately, with annuity payouts being what they are, we are receiving a lot less than intended in the level of gift. For example, an annuity that would have formerly generated $10,000 for us is now generating only $2,000. How do we appropriately recognize donors who have given a charitable annuity and steward them in a manner befitting their generosity?
First, some organizations value a charitable gift annuity simply by using the amount of the charitable deduction taken by the donor for the gift.
However, the charitable deduction may understate or overstate the true value of what will ultimately be left in the annuity for your charity. For more information, see the valuation standards and guidelines issued by the Partnership for Philanthropic Planning.
Second, every campaign, before it begins, should have a gift-counting policy for such donations, and that policy should be used in stating the value of charitable annuities in your campaign totals. The fact that the gift value may go up or down after the gift is made should not be considered in reporting campaign returns.
I think you may be worried about how much of the gift can be applied to your campaign goal. That should be the amount recorded under your gift-counting policy on the date the gift was transferred. The donor should be treated exactly as those initial valuations dictate.
So if a person set up a gift annuity that you valued at $100,000, the donor needs to get credit for that amount, even if the gift has since declined in value. Similarly, if the gift increased in value from $100,000 to $110,000, the donor should receive credit for a $100,000 gift.
When you take annuities as gifts, you take the risk that they may fall in value. There have been some unfortunate cases in which annuities declined in value by so much that the institution has had to use its own funds to meet payment obligations to the donor.
When annuity values fall, one option is to go back to the donor and try to get another gift. If I were in this situation and had a donor giving me an annuity that declined in value, I would not fret too much over what I cannot control. Instead, I might ask the donor for an additional gift, especially if the loss is not due to poor money management on the charity’s part but reflects a severe market downturn, such as we’ve had in recent years.
Wherever possible, a nonprofit should provide an annual report to donors about its annuities and how they performed, in addition to providing donors’ annuity payments. This is good business practice, and it may provide an opening for further gift discussions. If your organization is not doing this, you might want to consider adopting the practice.
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Compiled by Holly Hall