Donor Wealth Events

Major gift fundraising lends much of its success to building strong and trusting relationships with donors. Transformational donations are often the result of being in good standing with a family who is going through a "wealth event," which is just a life event that results in a large transfer of wealth. Taking the long view with these donor relationships and patiently waiting for a bigger opportunity based on these events can be a good strategy. Here are some examples of life events that can yield large donations when a solicitation is well-timed. 

Downsizing / Sale of Property

As donors get older their space requirements and travel preferences evolve, and they might transition to a smaller house and give up their seasonal or weekend getaway cottage. Eventually, donors might give up homeownership entirely and join an assisted living facility. Having a close relationship with donors and learning about an upcoming desire to downsize is key to incorporating philanthropy into this wealth event. 

Important considerations include marketability - the property must be in good condition and a desirable location so that the charity is confident they will be able to sell. It should also be debt-free. Donors can donate the property directly to your organization to avoid capital gains from the appreciated asset, or they can donate to a donor advised fund and distribute the proceeds on their own timeline. 

Inheritance

This is one of the most common wealth events for the average individual and depending on their financial circumstances, they may be well established in their careers or retirement and receive more funds from the passage of their parents or other family members than they need. You might be surprised at how often and casually donors will mention that they expect to receive an inheritance and that they would like to donate a portion of it. It's important to be patient for these gifts as donors will be busy grieving, conducting memorial services, and settling their family's estate, which can take 6-12 months or longer depending on the assets and probate in your state. 

Donated cash from an inheritance is tax deductible, and donated assets will not be subject to capital gains tax. The capital gain from inherited property or stocks is only calculated from the "stepped-up" cost basis - the fair market value of the assets at the time of the original owner's death. Therefore, if a donor quickly sells the assets, they will incur minimal capital gains. Some states impose an inheritance tax, and estates are taxed on assets exceeding $12.92M in 2023 - if these tax exposures are a concern, it would be better to list the charity as a direct beneficiary in the parent's will. 

One way to approach a solicitation that depends on an inheritance is to ask how a gift to your organization could honor the memory of the donor's loved one or establish their legacy. This conversation can make for a more meaningful donation, perhaps by establishing a scholarship or endowing a program, and unlock the greatest possible level of support.

Sale of a Business

When donors of any age decide to sell their business, they have a large capital gain and may become interested in incorporating philanthropy into the transaction. A business often represents the highest achievement of a lifetime of hard work - the proceeds of a sale will carry a lot of personal pride. It's important to be gracious in soliciting a donation of privately held business interest. There are many direct benefits to the donor, like minimizing the capital gains exposure for the portion they donate directly to charity. Also, donated business interests are deductible at fair market value for up to 30% of the business owner’s adjusted gross income (AGI) when given to a public charity. 

Timing and stakeholder considerations are very important in this type of gift. Once the owner enters into a legally binding contract to sell their business interests, it may be too late to incorporate charitable giving. Other interest holders and partners may have rights of first refusal that need to be waived to permit a charitable transfer. An independent appraisal needs to be obtained no earlier than 60 days before the date of the donation, but it can be obtained afterwards if it's within the same tax year. Finally, it's vital for the charity to confirm a buyer so that they can immediately sell the private business interests they receive. 

Most donations of privately held business interest will come from donors who have incorporated charitable giving into their business for many years, and have a trusted relationship with your organization. This could include in-kind services, sponsorships, cause marketing agreements, and other forms of partnership. There are many opportunities to leverage a private business as an opportunity for philanthropic impact long before the business is sold. 

What other wealth events do your donors experience that enables them to make a major gift? What kinds of questions do you use to learn about these wealth events before they have passed? Please reach out to me to discuss this topic if you're interested.