PG Calc presents an excerpt from our white paper, The Stewardship Challenge: Managing Complexities in Gift Administration. If you have thoughts on this paper or recommendations for a white paper topic, please send them to info@pgcalc.com.

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The Stewardship Challenge: Managing the Complexities of Gift Administration (Excerpt)

Perhaps you will recognize the following planned giving program profile:

The Board of a charitable organization has been supportive of a planned giving program. An organizational framework for the program has been developed. Development staff members have been trained to identify and cultivate prospects for planned gifts. The infrastructure is seemingly sturdy, and in many regards, all the bases have been covered. Here’s where the complications arise. Once the organization begins to accept planned gifts and gift administration gets underway, it realizes that its considerations regarding what attributes represent a sound planned giving program must broaden and that closing the gift is just the beginning. At that point, less obvious considerations that are actually critical to the program’s success come to light – gift acceptance policies and procedures, accounting for planned gift dollars according to FASB regulations (and where appropriate, state reserve requirements), and more. It is in these categories that processes need to be in place to ensure that completed gifts are set up properly and managed well on an ongoing basis. These tasks may not be familiar territory for a gift planner or fundraiser, but they should be considering the close relationship that exists between donor stewardship and repeat gifts. This paper outlines both the theoretical and practical aspects of excellent planned gift administration. If you are a development officer, your appreciation of these concepts rises above the academic, even if your organization has chosen to outsource this critical process. What follows is a blueprint of best practices for managing the complexities of gift administration, written for both those whose job is to perform the tasks and those whose primary responsibilities are to raise the funds.

Planned gifts are complex arrangements involving countless details. Life income gift arrangements, in particular, involve a donor, one or more income beneficiaries, and one or more charitable remainder beneficiaries. For purposes of this paper, we will explore the most commonly accepted gift types in planned giving programs – the charitable gift annuity (CGA) and charitable remainder trust (CRT).

We will also cover the pooled income fund (PIF), since many charities remain responsible for administering them even though they may not have solicited pooled fund gifts for several years. The contractual nature of a CGA distinguishes it from other types of life income gifts. For CGAs, the charity is required to make payments directly from its own funds to the annuitant(s). CRTs, in contrast, are trust arrangements; contributions are made not to the charity directly, but instead to a separate legal entity – a trust – which then makes payments to one or more income beneficiaries throughout the duration of the trust. Although a charity may serve as trustee of CRTs, it does not receive any CRT funds until the trust ends. Likewise, until that time, ensuring that payments are made to income beneficiaries is the responsibility of the trustee, not the charitable remainder beneficiary.

A pooled income fund (PIF) is another type of trust arrangement in which, once again, life payments are made by a trust. Even though only one charity can benefit from a pooled income fund, money is not received by the charity until a given payment obligation of the PIF ends.

Planned gifts are long-term arrangements based on either the remaining lifetimes of the beneficiary(s), a term of years, or a combination of both. This means that planned gifts often need to be managed over a period of many years, even decades. Whether or not the charity that will eventually benefit from the gift is a trustee or investment manager, it has a responsibility to ensure that the provisions of each of its planned gifts are carried out correctly throughout its term. In our more than 20 years of experience supporting the gift administration processes of our clients, we have identified six broad areas that contain the key and most frequently troublesome complexities in gift administration:

1. INFRASTRUCTURE

2. GIFT PROCESSING

3. PAYMENT PROCESSING

4. TAX REPORTING

5. COMPLIANCE REPORTING

6. GIFT TERMINATIONS

1. INFRASTRUCTURE

”Success is in the details” is an expression that is true of many processes, but none more so than in the discipline of accepting and administering planned gifts. Planning, documenting, and applying gift-specific requirements to ensure integrity and accuracy are essential to establishing and maintaining a successful planned gift program.

The types of gifts to accept and how to manage them once they're made are key policies that should be in place when a new program is established. However, planned giving programs require a long-term commitment. No matter how well-defined acceptance and administration policies and procedures may be at the outset, periodic review and updating of them are a must.

Organizational Gift Acceptance Policies

Depending on established gift acceptance policies, there are a number of types of gifts and funding assets your charity might accept. Your gift acceptance policies should be clear on what gifts are acceptable. In the context of these policies, you should have documented processes in place that detail what to do with gifts when they are received, including how the various gifts will be processed and the sending of official acknowledgments to the donors.

Types of gifts and funding assets your charity might accept include:

• Cash, including checks

• Payment via credit card (including on-line giving)

• Payroll deduction

• Wire transfers

• Marketable securities

• Closely-held or illiquid securities

• Non-cash "in-kind" gifts

• Gifts of tangible property: art works, valuable items, real estate

• Estates, bequests and outside trust arrangements

• Deferred gifts, such as CGAs, CRTs, and PIFs

All departments involved with planned gifts should participate in the creation and periodic review of gift acceptance policies in order to bring different perspectives to bear. For example, making gift annuity payments on donor birthdates may seem like a good plan until the business office points out the high administrative costs of issuing payments on any day of the year. Trustees, Board members, and others outside the Development office who engage in high level contacts with donors also need to be aware of the policies in place.

Gift acceptance policies should spell out how your charity will deal with the inevitable exceptions. Who will be responsible for reviewing and accepting/rejecting gifts of non-standard assets, such as a stamp collection, an antique car, or a limited partnership in a shopping center? Who will decide whether your organization will accept a gift with an unusual restriction? Are there circumstances when restrictions can be relaxed in order to close a particular gift? No set of gift acceptance policies can anticipate all the possible gift situations that may come up. They can, however, anticipate that exceptions will happen and establish procedures for handling them. Having these procedures defined ahead of time will enable your organization to handle exceptions smoothly, leading to more satisfied donors, better gifts, and more effective use of your time and that of your colleagues. If your charity does not have established gift acceptance policies and procedures, or its existing procedures and policies have not been reviewed and updated within the last year, it is time to work on them. There are a number of resources that can be helpful in this process. The Partnership for Philanthropic Planning (www.pppnet.org), CASE www.case.org), and the Association for Healthcare (www.ahp.org) all have online resource centers that include information on gift acceptance policies and procedures. Membership may be required to gain access to some of these resources. Consultants can also help you wade through the complexities of fashioning effective and complete gift acceptance policies.

Keys to Success in Infrastructure

1. Include all personnel involved with planned gifts in the dialogue regarding gift acceptance policies.

2. Create and maintain a clear written statement of gift acceptance policies and procedures. This statement should be a joint effort involving the development office, business office, and legal counsel. Gift acceptance policies and procedures should be Board-approved and include the types of gifts accepted, acceptable funding assets, and exception handling.

3. Revisit gift acceptance policies annually.

Potential Pitfalls in Infrastructure

1. Omitting to establish criteria and decision-making authority for exceptions can result in hasty, ad hoc decision-making in the midst of gift negotiations. The best programs acknowledge that exceptions do occur, and provide proper authority for handling them.

2. Assigning gift administration tasks without great care may result in the wrong combination of staff and responsibilities. When creating the right infrastructure for gift administration, it’s important to add these functions where the proper skills, talent, and supervisory responsibility lie.

Read more! Download the entire text of The Stewardship Challenge: Managing the Complexities of Gift Administration today.