Strategies to Optimize Year-End Conversations with Donors

When leaders of nonprofit organizations gather, it doesn't matter whether they come from the worlds of education, culture, social services or the performing arts. Despite their diverse missions, each nonprofit shares the same challenge: The need to develop long-term, sustainable relationships with donors.

City National Bank recently held its inaugural Philanthropy Forum, an event that gave nonprofit executives and experts in trusts, estates and wealth planning an opportunity to exchange ideas and share thought leadership.

“Our idea is to bring together nonprofit leaders so they can network and gain access to information that can improve their operating environment – topics like fundraising, board structure and governance," said Brett Lane, senior vice president with the Institutional and Nonprofit Commercial Banking team at City National. “As an institution, it's a privilege to serve nonprofits that provide cultural opportunities, education and health services, and focus on other important issues for our communities."

Wealth and estate planners are intimately involved with their clients' decisions around charitable donations during their lives and as part of their estates.

“People often ask why wealthy clients want to leave their money to charities or to donate to them," said Jason Niell, national manager of trust and estate administration for City National. “Private charitable donations get things done. Our clients want to leave a legacy around causes that are important to them, such as health care, education or art. Many of them say, 'Our kids have more money than they need,' so they want to provide money to support organizations whose work they value."

For many high-net-worth households, values and charity push their philanthropic donations far more than tax mitigation.

“Most people give because they want to, not to reduce their taxes," Niell said. “However, year-end tax planning is often a trigger for people to review their overall finances and their charitable giving. Other triggers can be tax law changes or life events."

For nonprofit leaders, a key message that emerged from City National's Philanthropy Forum was to always ask potential donors about their interests and intentions so that future requests for support can be tailored to their focus. Below, you'll find some additional takeaways from the event.


Inflation, Interest Rates and Charitable Giving

While nonprofit development and advancement leaders don't need to be

economists, it is critical that they recognize the impact of macroeconomic conditions on donations.

“We haven't seen an environment like this in 12 to 15 years, especially because of the losses realized by most investors," said Chris Van Atta, national trust business manager for City National, referring to the economic uncertainty of 2022. “This is an environment when you want to shift your strategy to multiyear commitments and focus less on current donations."

When potential supporters have experienced losses, charitable donations will be a competing priority and getting a tax deduction may be less appealing to them, added Niell.

“Shifting to a multiyear strategy shows that nonprofit leaders are aware of the current economic context," said Van Atta. “This long-term strategy also reinforces a timeline of perpetuity for the nonprofit."

In addition to adapting to volatile markets, nonprofit leaders need to recognize that rising interest rates and inflation change the landscape for trusts.

“CLTs [Charitable Lead Trusts], which are split-interest trusts where charitable beneficiaries are the initial trust beneficiaries, are more valuable when interest rates are low," said Nichole Walker, a senior wealth planner with City National. “Charities benefit from CLTs because they are receiving immediate benefits through trust distributions. However, when interest rates are high or rising, a charitable remainder trust (CRT), which is another type of split-interest trust where a charity is the remainder beneficiary, may be more appealing."

While this tactical advice is something estate planners may share with their clients, nonprofit leaders need to understand that if their donors are changing the structure of their estate plans it could also impact their budgets.

“These outside forces such as fluctuating interest rates, can change the conversation between donors and nonprofits," said Walker.

The shifting economy can also be an opportunity for nonprofit leaders to review their donor rolls and look for those with older CRTs that may be ready to be changed.

“Nonprofit leaders can take a more consultative approach with their donors and ask them about the intent of a CRT and whether that CRT is still meeting the family's needs," said Walker. “Donors may be willing to terminate the trust and distribute directly to charity if the trust is less valuable to them now and has high administrative costs."

There are multiple options for trusts that can simultaneously help families accomplish their goals for intergenerational wealth transfer and philanthropy. While nonprofit leaders don't need to be experts in estate planning, understanding how charitable trusts function and can benefit nonprofits provides an opening for a conversation that could result in a long-term commitment to an organization.


Asking the Right Questions

Nonprofit advancement and development executives understand that nurturing donors takes more than a quick meeting followed by a big ask. Developing a deeper relationship, and understanding the personal and financial goals of their donors can result in multigenerational dedication to a nonprofit.

“It's natural for nonprofit leaders to want to talk about the mission of their organization and the progress they're making, but it's okay to pump the brakes a little and just listen to the donors," said Niell.

There's an art to asking for an immediate donation versus a pledge for a multiyear commitment, added Van Atta.

“For some donors, it may be more palatable to commit to a smaller amount of money over several years instead of a larger immediate donation," said Van Atta. “It may get even more difficult to ask for large donations if a recession hits in 2023, so getting a long-term commitment this year could be a good strategy to pursue."

Asking more direct questions about estate planning may offer nonprofits an opportunity to ask for a bequest.

“Many clients have no idea what they have, especially if they haven't reviewed their will or estate documents for many years," said Van Atta. “Sometimes they'll see a list of charitable beneficiaries from decades ago that don't align with their causes and concerns now."

Nonprofit executives can ask donors about whether anything has changed in their life, their family, their outlook and what's important to them as a way to start the conversation about bequests and pledges.

“The pandemic provided the perfect storm to talk about wealth and estate planning," said Van Atta. “It changed the views of a lot of people about what matters to them most."

When asking for a bequest, it's important to get written documentation in as many forms as possible to make the donor's intentions clear to the charitable organization and to the trust attorneys.


Engaging the Next Generation

The more connections an organization has with the spouses and next generation family members of their donors, the more successful the nonprofit can be at achieving multigenerational support, said Van Atta.

“Sometimes when the donor passes away, the surviving spouse and heirs may not share the same interest in their charitable bequests," said Van Atta. “If possible, it's best to have an open dialog with the heirs about what a charity meant to the family member and how important their legacy was to them. It helps to have conversations with family members and the next generation around donations so that everyone feels ownership over the donation."

Ideally, nonprofits would bring family members and spouses on site visits and to events to get everyone involved and to help them understand the mission. Some families establish a family foundation so they can give to individuals and establish scholarships as well as give to nonprofits. Donor Advised Funds (DAFs) allow for control during the donor's lifetime and can be simple to set up, but the recipients of donations can also be easily changed.

“The important thing is that nonprofit leaders should understand that it is appropriate for them to ask some of the questions we ask when it comes to wealth and estate planning," Walker added.

In addition, nonprofits can seek relationships with wealth planners and trust experts to leverage their expertise as a resource, said Walker.

Keep an eye out for more City National-sponsored Philanthropy Forums in different cities that will bring together leaders from a diverse range of nonprofit organizations to network, learn and discuss relevant topics.

This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.

City National, its managed affiliates and subsidiaries, as a matter of policy, do not give tax, accounting, regulatory, or legal advice, and any information provided should not be construed as such. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations. Any strategies discussed in this document were not intended to be used, and cannot be used for the purpose of avoiding any tax penalties that may be imposed. You should consult with your other advisors on the tax, accounting and legal implications of actions you may take based on any strategies or information presented taking into account your own particular circumstances. Trust services are offered through City National Bank.