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Gifts in Perpetuity

Wooing, educating, maintaining annual gifts for Charitable Institutions is “tough business” for the thousands of fund raisers working desperately to meet ever increasing costs. Most annual gifts are the product of endless meetings, dinners, phone calls, tours and creative discussions.

Once a donor has bought into the needs of the institution, there is an annual romancing necessary to maintain or increase the gift. If successful the donor tends to increase the annual gift over years as his ability to give increases and as his support for the charity deepens.

But what happens when the donor dies? Years of building collapses unless “Gifts in Perpetuity” becomes an integral part the Fund Raising Plan.

Annual donors whose gifts are sizable and have been contributed for many years should be encouraged to endow their gifts. The $50,000 annual giver should be asked to set up or leave $1,000,000 to perpetuate his annual gift. It can be accomplished through a life insurance policy that creates the endowment at the donor’s demise.

To encourage a giver who may not want to contribute an additional $44,981, the charity informs the person “your gift is so important that our endowment committee will annually pay ½ the premium to set up Gifts in Perpetuity” in your name, thus the cost after tax to the illustrated donor will be less than $14,000.

But the Endowment Committee has to agree ….

Why would an Endowment Committee Buy into Gifts in Perpetuity?

  • Encourage gifts that grow the endowment.
  • For every dollar invested by the Endowment Committee from their “Fixed Dollar Account” they will be accruing a greater return than could be earned if the dollar were left in the Fixed Dollar Investment Account because donor is adding to the Endowment Account. At the end of the first year, the $22,491 invested by the Endowment Committee is worth $39,267.
  • Ten year Treasuries have averaged about 2.5% over the past 52 weeks. Assuming the fixed account earned 4.5% (the assumption of interest earned by an insurance company) for $22,491 contributed each year to equal $1,000,000 would take 25 years.

Based on a 4.5% earnings by an insurance company, the value of the policy, that gives a death benefit of $1,000,000 on day one, projects a death benefit of $1,667,643  in the 25th year (and a projected cash in value of $1,588,232 – a 7.3% return).

Each year the Endowment will grow faster with Gifts in Perpetuity than its fixed account. Whenever death occurs, the gain will provide an even greater gain. 

Assumptions:
  • Donor is healthy
  • Donor’s age is 66

 

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