Editors’ note: This article, first published in print during Jan/Feb 2007, has been republished for Nonprofit Quarterly with minor updates.
Legacy giving (also called planned giving) refers to gifts that donors plan to be distributed from their estate after their death. These gifts are generally made by long-time, loyal donors who believe in the need of the group to exist after their own life is over, and more important, who have faith that the organization will continue to do a good job for years and years to come. These are not necessarily major donors; many bequests come from donors who have given small amounts to an organization for a long time.
When I look around at board meetings I attend, I often reflect that in fifty years, people who aren’t even born yet will be running the organization. I will be deceased. What would I need to know about this organization to trust that it will continue to attract people to its board and staff who will continue to do good and needed work? Whatever information that creates that confidence is fundamental to getting donors to consider legacy gifts.
Most groups use legacy gifts to build endowments. An endowment is a permanently restricted fund invested to generate interest. The principal, or corpus, is never spent; it is added to as more legacy gifts come in. The interest income can be used as the organization wishes, if the donor hasn’t created terms restricting how the gift can be used. Interest income is usually allocated to general operating costs, as these are the most difficult to raise money for.
You need a donor base that includes people who have given your organization money for several years and who think of your organization as one they will support as long as they can.
Many organizations think that getting ready for a legacy giving program involves going to seminars and memorizing complicated financial planning language, then identifying the organization’s oldest donors, telling them what you have learned, and watching them sign on the dotted line. In fact, before anyone in the organization begins the process of learning the many different ways to word a bequest, a number of things have to be in place.
First, it is critical that your organization discusses and agrees on the need to exist far into the future and comes to grips with what that means for your overall mission. Second, in addition to deciding how far into the future your group needs to exist, you need to look at whether people trust you to do your work now and understand your need for funds. Does your group have a good reputation — not just for work accomplished, but for stewarding resources, handling money responsibly, and raising money with integrity? Although many grassroots organizations could answer yes to all these questions, they may be surprised at the extent to which their donors have no sense of how their group deals with money. If you don’t put out an annual financial report, if you don’t publish the names of your donors from time to time, and if you don’t regularly talk about how you raise money, your donors may have never thought much about your financial needs. You can start a legacy giving program without people being aware of how your organization raises and spends money, but it will not go very far until that information is more commonly known.
I have known donors who had a favorite grassroots organization to which they made significant donations and for which they volunteered, only to make legacy gifts to their university or another much larger institution. They made this decision because they could not be sure the grassroots group would last long enough to benefit from a bequest or because they did not trust that the organization could manage an endowment. This is a vicious circle, and people in fundraising roles in small organizations need to break it by learning as much as they can about legacy giving and convincing some of their bolder donors to take the leap. Once a few do it, others will follow.
Third, and closely related to the previous point, you need a donor base that includes people who have given your organization money for several years and who think of your organization as one they will support as long as they can. Many groups need to develop their donor base — both in numbers and in donor loyalty — before they begin a legacy giving program.
If one or more of these elements are not in place, do what is needed to build that foundation, then come back to legacy giving in a year or two. (Go to www.grassrootsfundraising.org for articles that will help you build that foundation.)
The first step in a legacy giving program is motivating donors to make a will. The second step will then be to encourage them to name your organization as one of their beneficiaries.
Many organizations that may be ready to start a legacy giving program hesitate to do so because of the almost universal taboo about talking about death. Not only do people feel awkward talking to anyone about their death, they feel doubly awkward raising the subjects of money and death at same time. Such a discussion may seem not only in bad taste but intrusive.
However, it is important to remember that in the United States bequests, which are the most common form of legacy giving, account for nearly 10 percent of all the money given to nonprofits — as much as is given in most years by foundations and always more than the amount given by corporations. If you want people to think of your organization when they are drawing up their estate plans, you will have to ask them in one way or another.
When you ask someone for a bequest you are not asking them to die — as inevitable as that