June 23, 2021

Care and Cultivation for Your Planned Giving Programs

By Matt Huffner, Partner, Assurance Services

Care and Cultivation for Your Planned Giving Programs Nonprofit & Social Sector

Planned giving programs are often seen as lucrative ways to increase charitable organizational sustainability. However, in a sense, these seeds of advancement can take many years to grow into viable sources of reliable support. Development, fundraising, and finance departments must actively tend to and care for their planned giving programs in order for them to bear fruit.

Internal Controls

Many organizations will start their planned giving programs on a small scale:

  • One or two people might be charged with developing programs. The organization may begin adding to its gift acceptance policies with paragraphs reserved for helping donors manage their own estates and adding the organization’s name to wills.
  • Others may start adding split-interest and trust acceptance policies.

What matters most is developing a reliable and long-term system of tracking these gifts. A strong, secure database entry will include the following:

  • Relevant donor information – names and ages of donors and beneficiaries (if any).
  • A designation for the type of gift (i.e., will, bequest or type of trust).
  • Regular communication with donors and external and/or estate attorneys, recorded in the database by date.

Development and finance departments should meet on a regular basis (monthly or quarterly at minimum) to exchange information on how the program is maturing and any major developments that may have occurred. Topics for discussion include:

  • New gifts
  • Donor deaths
  • Donor life expectancies
  • Outside communications received regarding gifts
  • Cash flow projections

Morbid discussions aside, the finance department should use this information to process and record gifts in the financial statements when recognition is required.

Revenue Recognition

For most estates and wills, generally accepted accounting principles require that when a promise to give is made unconditionally, it should be recorded as an increase to net assets. Other guidance suggests that simply being included in a donor’s will reflects an intent on the donor’s part to give, and often it is up to state and local probate courts to decide the final beneficiaries.

When an estate has been probated, the rule of thumb is to recognize the revenue at that time. Prior to probate, despite the death of the donor, the gift is considered a conditional promise; the court must lift such conditions through the probate process.

The treatment of revenue from a trust depends on the type of trust:

  • Irrevocable trust income – may be recognized in the books as a beneficial interest.
  • Revocable trust income – not recognized unless and until the time the trust becomes irrevocable.

Depending on whether the organization is named trustee of the assets, there may be a line item added to assets on the financial statements – beneficial interest or trust assets – the former being the case when trust assets are held by a third party trustee and the latter the case when the organization itself is named trustee.

When split-interest arrangements occur (when other parties are also named beneficiaries) if the organization holds the assets as trustee then it may also have to book a separate liability to those third parties. A number of states have laws on the books concerning such arrangements, so make sure to check with an expert who knows their way around state laws relevant to planned giving programs.

A well-planned and well-maintained planned giving program can grow into a thriving source of organizational support. Ensuring proper accounting for such programs is an area of deep expertise here at Marcum LLP. Make sure to contact our tax-exempt professionals for guidance and additional innovative techniques.