Loyalty vs. Capacity: Distinguishing Between Planned and Major Gift Prospects

Do you have a major gift program, but not a planned or legacy gift program? Do you focus time and energy on planned giving prospects but not major gift prospects? Or perhaps you have the latter but not the former? Do you wonder if there’s really a distinguishing difference between a major gift and a planned gift, or a planned vs. a major gift prospect or donor? 

I’m asked these questions so frequently I thought I’d endeavor to give you some brief answers:

• How are major and planned gifts, and donors, the same or different?
• Should these types of gifts be approached separately or together?

If you search online you’ll find a lot of discussion on these topics. You’ll find plenty of definitions about terms as well. Not everyone is in agreement. But in my 38 years of practice, I’ve found certain things hold true. And they’re pretty simple concepts.

Why is this important?

I don’t want you to miss out on any potential gifts. And I know sometimes folks will avoid what they don’t understand or are unsure of. You really should be promoting, actively searching for and accepting all sorts of gifts from individuals. Because, combined, outright and bequest giving from individuals accounts for almost 80% of all giving in the U.S. 

When it comes to thinking about the form these gifts take, it’s good to consider the donor’s perspective. Seldom does a donor say to themselves “I want to make a major gift” or “I want to make a planned gift.” Rather, they’ll focus on a wrong they want to right: “I want to stop human trafficking” or “I want to add an arts curriculum in our public schools.” 

People don’t change. Whatever form their gift takes, or whether you call your program “planned,” “deferred,” or “legacy” giving, they are motivated to give by their values – and what keeps them up at night.

So… Let’s cut to the chase!

Most “planned gifts” are major gifts. But not always.  

Lots of donors give what I call ‘token’ or ‘test’ gifts. They give spur of the moment, without a lot of planning or forethought. They’re usually new donors who’ve not yet committed to you in a big way. Or they give because a friend asks them. They’re testing the waters. For them to make a more thoughtful or passionate gift in the future, you’ll need to engage in some thoughtful, consistent wooing. 

Donors who plan their giving generally make larger than token gifts. They think carefully about their gift to you in the context of all their philanthropy and other financial obligations, perhaps by sitting down with family members or professional advisers. Of course, a person could conceivably leave a bequest (which takes planning) for $100. That’s not common however.

Every major gift is “planned.” 

Very few people wake up one morning and spontaneously decide to give away a million dollars! That’s why it’s so important to put a written major gift development plan in place. Unlike minor gifts, they rarely arise as the result of a mailing or email campaign. Generally they take months and months of cultivation; they’re not impromptu.

Some major gifts are made ‘outright,’ while others are ‘deferred.’

Outright means the charity gets the gift today. 

With outright current gifts, the donor gives you cash, stocks or some form of property, and your organization receives the gift immediately. Similarly, they’re generally intended for immediate use. Some outright legacy gifts are intended for use over time. They’re usually earmarked for endowments and should be set up, accordingly, with appropriate language. Often they are set up as ‘Named Endowment Funds.’

Deferred gifts mean the charity gets the gift at some later time — either within a specified period of years or when the donor and/or a beneficiary dies. You might receive them in fulfillment of a donor’s pledge — in which case the deferral period is relatively brief (e.g., a capital campaign gift). Deferred gifts include bequests in wills/trusts, life insurance or retirement plan beneficiary designations, gifts of real property where the donor has a life estate, gifts of personal property by contractual agreement (e.g., works of art), charitable remainder trusts and charitable gift annuities. The most common deferred gifts, by far, are bequests. Most of these are revocable by the donor (unless they sign a binding pledge agreement).

My preference is to call deferred major gifts legacy gifts 

What holds true is folks giving major deferred gifts do so to leave a legacy and ensure their values — and the causes they hold dear — live on. Most often folks make these gifts from capital assets (i.e., assets that would otherwise go either to the government or their designated heirs upon the donor’s death), not income.

Among planned giving professionals there has been ongoing disagreement as to whether to call such legacy gifts “deferred” or “planned.” Some folks call them “endowment” gifts, but that’s a real misnomer since not every gift ends up being restricted to use of income only. I say why not name them for the donor’s intent, and from the donor’s perspective? They want to leave a legacy, so let’s call them legacy gifts.

Whenever you consider why a donor might want to make a gift, you’re going to come out ahead. Because you’ll approach people differently. You’ll ask them how you can help them, rather than simply exhorting them to help you. And, let’s face it, it’s human nature to feel more generous to folks you perceive as giving than folks you perceive as taking.

Much of the work to identify the best donor prospects and secure the gift is the same for major current and legacy gifts.  

Both involve planning, on your part and the donor’s. But you’ll often find prospects for legacy (aka planned; deferred) gifts have different qualities than prospects for outright major gifts. It’s useful to consider these characteristics so you know where to look. The best place to look, of course, is in your own database.

Were you to buy a donor analytics product, they would offer to sell you different predictive modules for Major Gifts Likelihood (MGL) and Planned Gifts Likelihood (PGL).  While both planned and major gift prospects have in common linkage (connection to you), interest (in what you do/values you enact) and ability (financial capacity)  (LIA), they may differ in other ways:

MGL

1. Past history of major donor giving
2. Past history of upgrading giving
3. Income is above a certain threshold

PGL

1. Past history of consistent giving, year-after-year (regardless of the size of the gift)
2. Past history of multiple gifts over the course of the year
3. Volunteer service over a period of years
4. Total assets are above a certain threshold

No one is going to give you an outright major gift unless they have the capacity to do so. 

Major donors generally have high enough incomes that they can afford to direct some of that income towards charity rather than to themselves, family or friends. Alternatively, they may have significant assets in an investment portfolio – enough so they can give you some without adversely affecting their own interests. So capacity (inherent in MGL ratings) rules supreme when you’re seeking major donors. It’s not sufficient standing alone (Bill Gates won’t give to you just because he’s rich; he must be somehow affiliated with or connected to you and have a demonstrated interest in your cause), but it seals the deal. Absent capacity, there’s no major gift.

Legacy donors won’t give to you unless they’re loyal to you or your cause.

Those with PGL may share many of the characteristics of those with MGL, but sometimes they will not be major donors currently. Nor may they have a likelihood to make a major lifetime gift. The most important criterion here is loyalty, either to you or the values your organization enacts. This is why often bequests will come from donors who were never on the charity’s radar during their lifetimes. The stereotype is of the school teacher who lived frugally, saved her money, had no heirs, and ended up leaving a million dollar bequest to the organization where she volunteered. Another stereotype is of the elderly gentleman with no heirs save a dog, no savings at his death, but who did have a home which was left to an animal charity. So don’t be surprised when you discover a planned giving overlay of your database unearths folks who’ve never made a gift to you. They may be a longtime volunteer who owns a house valued at $1million+. They can’t make a major gift now, because they’re living in the house. Once they no longer need the asset, however, their loyalty over time to you or your cause may lead them to leave you the asset in their will or trust. Absent loyalty, there’s generally no legacy gift.

There are exceptions to every rule.

Donor analytics are helpful, but not controlling. You’ll receive major and legacy gifts from folks who aren’t on your radar. That’s a happy surprise! 

However those with MGL generally have likely made major gifts (or gifts that are at least above average and increasing in amounts) in the past. If not to you, then to another philanthropy. And they have capacity to make a major outright gift during their lifetime. Often even from income, not capital.

Those with PGL generally have made multiple gifts to you, even though they may not have been large gifts. They are likely connected to you in other ways as well (e.g., as volunteers, staff, members, clients, or family and friends of other connected folks).

It often makes sense to make a combined capital/endowment/annual solicitation.

When running simultaneous campaigns, I prefer making a single ask rather than multiple asks.  This is especially advised when you will need ongoing funds to maintain the facility you are building. In this case a major gift and legacy ask might be bundled together. Why not? As long as you’ve got your legacy or major gift prospect or donor in the room, and they’re positively inclined towards your project, you may as well make the complete case for support — today and tomorrow. It shows you’re thinking ahead and reassures your donor the fruits of their gift will be maintained in perpetuity.

Don’t forget to bundle in your annual ask as well. Major donors don’t like bait and switch. Nor do they appreciate being nickeled and dimed. If you ask them to give $25,000, and they agree, they may not be thrilled to be asked a month later to give a $1,000 annual gift – even if that’s what they’ve given every year for the past three years. So why not ask them for a total $26,000, clarifying you’ll apply $1,000 to their annual gift and the rest to your capital or endowment campaign?

Every organization can ask for both current and deferred major gifts.

Developing either a major or legacy giving program both boil down to fundraising basics: prospect identification, cultivation, solicitation and stewardship. Just be sure to focus on: (1) the donor’s perspective, and (2) making a compelling case for support that resonates with the donor.

You don’t have to get fancy and put in every bell and whistle. When it comes to deferred gifts, it’s fine to simply promote bequests. You don’t need to become an expert on complex gift vehicles (e.g., charitable remainder annuity and uni-trusts, charitable lead trusts, charitable gift annuities, pooled income funds, real estate gifts, etc.), which actually make up just a small fraction of all deferred gifts. Just be aware of these options should a donor who’s seen them being promoted elsewhere asks you about them; know who to call for help when the need arises. When you’re ready, you can add in other giving options you’ll want to promote more actively.

Summary

What’s in a name?

It depends on your perspective.

Outright,” “deferred,” and “planned” are all organization-centric terms. For that matter, so is “major.” They may be useful to you internally, but they often confuse donors who are simply trying to make a current gift or leave a meaningfully legacy. Compounding the problem is the fact these terms are used differently, or interchangeably, at diverse organizations.

Most important from your perspective is discovering what your donor cares about and is capable of. If they care passionately about your vision, mission and values, can you next determine their ability to turn their caring into either an outright major or a deferred legacy gift?

Stop avoiding putting major and legacy giving programs in place because you feel unsure about the terminology and process. Hopefully you now see the basic concepts can be kept pretty simple. And I don’t want you to miss out on any potential gifts. 

Finally, be sure to let donors know all gifts are appreciated. Whether they are small or large, outright or deferred, restricted or unrestricted, they help you fulfill your mission and make the world a better place. Knowing whether donors can give now or later helps you to more effectively plan and sustain finances and programs.

Interested in learning more, and not missing out on potential future gifts?

Get on the Wait List to grab a spot in the bi-annual Clairification Winning Major Gifts Strategies 8-week e-Course commencing January 28th, 2020. No matter the size of your organization, you need to get serious about investing in major gifts development. They aren’t just for behemoths; they’re for everyone. It’s a commitment that will really be worth your time and effort.

How do you distinguish between your planned and major gift prospects?