Charities Need Fairer Ways to Count Deferred Gifts in Capital Drives

As capital campaigns are practically perennial activities these days, charities should be savvier about how they count deferred gifts toward the amount they tell the world they plan to raise.

Too many charities exaggerate their totals by including gifts that will not materialize for several years, often several decades. The bad economy has put even more pressure than usual on charities to give full credit to donors who make deferred gifts, since that makes it easier to reach a campaign goal. But doing so can lead to trouble.

Concerns about inaccurate reporting prompted the Council for Advancement and Support of Education in July to revise its reporting standards for deferred gifts. For instance, a school or college shouldn’t include even a penny from a gift that has been promised but could be revoked at any time, such as a bequest.

To be sure, especially in the heat of a campaign, it’s not easy to create rational guidelines on deferred gifts. To avoid insulting the donor or implying that his or her generosity is second-rate, the charity is likely to count the full amount a donor places into a deferred gift that cannot be revoked — such as a charitable remainder trust — as a campaign gift.

But that is neither accurate nor fair. As much as a charity should celebrate a deferred gift, it does, in fact, require less sacrifice than an outright gift. What’s more, the donor who gives $100,000 in cash is providing money that a charity can put to use right away. The donor who commits $100,000 through a charitable remainder trust, for example, is making a gift where the charity will usually end up with only a fraction of the original amount.

In giving full credit for deferred gifts to calculate a campaign total, charities compromise themselves. If a good portion of a $100-million campaign is raised in the form of deferred gifts, then a good portion of the objectives is deferred as well. That is contrary to the goals of most campaigns, which are usually for immediate needs. Nothing could be more dispiriting to employees who expect their programs to grow than the news that they will have to wait until more donors die.

The sour economy is no excuse for counting a deferred gift the same as an outright gift in a capital campaign. Real dollars in the bank are what matter, and changing that approach just because donors have more difficulty making outright gifts these days does no favors for the charity or the integrity of the process.

Instead of trying to make oranges out of apples, charities ought to clarify some simple things at the beginning that would make it easier to conduct an honest capital campaign.

First, charities — and their consultants — need to acknowledge the role of planned gifts when they are in the early stages of figuring out how much they can expect to raise in a capital campaign. That means intelligently discussing how they will be solicited and how they will be credited.

Second, the charity’s stated goals of the campaign need to differentiate what can be accomplished with outright gifts from what can be done with deferred gifts. For instance, cash is essential to building a new theater or classroom, but a deferred gift, when it becomes available to the charity, typically should be placed in the endowment, its future income used to support a continuing program in which the donor expresses an interest. That means that a charity needs a written policy, approved by its board, outlining the philosophy of accepting planned gifts as part of a campaign and detailing the procedures of how that is done, with a particular eye on explaining how donors will receive public credit for the deferred gift.

But the best way to clear up any misperceptions by donors, a charity’s employees, constituents, and the public is to establish two dollar goals: one for outright gifts and another for deferred gifts, another idea recommended by the Council for Advancement and Support of Education in its revised rules.

Making it clear from the outset how much will be raised from deferred gifts will go a long way toward making sure that everybody has realistic expectations about a campaign. And setting two goals makes it easy to deal with the problem of how to give public credit to the donor, which is an issue quite different from accounting for the donation. If all the deferred gifts are considered together, separate from the outright gifts, then it is fine to report the deferred gifts at their full value. Although the council recommends reporting only a portion of the deferred gifts, the full value is appropriate because it has been segregated from other funds and it is clear to the public that none of the money will be available in the near future.

Charities owe it to themselves — as well as to their donors — to be honest about the difference between outright gifts and the assets pledged for future needs.

Doug White is an independent fund-raising consultant in Washington, and the author of The Art of Planned Giving (John Wiley & Sons, 1995). His e-mail address is dwhitepg@aol.com.