Contact: Barbara Yeager, Director of Operations
Partnership for Philanthropic Planning
(317) 269-6274 or
byeager@pppnet.org
Tanya Howe Johnson, CEO
Partnership for Philanthropic Planning
(317) 269-6274 or
thjohnson@pppnet.org
RE: The Partnership releases Valuation Standards for Charitable Planned Gifts
News for release Monday, April 5, 2004
The Partnership for Philanthropic Planning (Indianapolis, IN) has
released standards for determining the value of all types of planned
gifts to charitable organizations. The Valuation Standards for
Charitable Planned Gifts have been posted in PDF format
here.
A printed version of the standards will be available from the
Partnership in the
near future.
What are the Valuation Standards for Charitable Planned Gifts and
why are they needed?
Valuation is the process of determining, in today’s dollars, what
a planned gift will accomplish when received and used for its intended
charitable purpose. Valuation does not seek to provide a comparison
between an outright gift and a deferred gift. All things being equal,
the outright gift is always more valuable to the charity. But if an
equivalent outright gift isn't an option for the donor, then it is
helpful to both the donor and the charity to consider the relative
value (i.e., purchasing power) of the planned gift. Valuation is an
essential component in helping donors and charities understand how to
maximize the impact of charitable planned gifts.
Charitable organizations have had varying levels of guidance in
accounting for planned gifts (Financial Accounting Standards Board
procedures), determining the charitable tax deduction for planned
gifts (US Treasury regulations) and counting planned gifts for capital
campaign reporting by educational institutions (Management Reporting
Standards of the Council for Advancement and Support of Education).
Jeff Comfort, chair of NCPG’s task force for valuing planned gifts,
noted that, “These methodologies are valid and useful for their
intended purposes. However, none are intended to estimate the ultimate
value of a planned gift to the charity that will receive it. In many
cases, the accepted methods for accounting, counting, and determining
the charitable deduction substantially underestimate the value of
planned gifts. The valuation standards help charitable organizations
and donors understand the value of a planned gift in terms of its
present purchasing power. That present value is reached by considering
real-world data, including the standards of the Prudent Investor Rule
and historical indices of investment performance and inflation.
Valuation data can be used by charitable organizations to:
- Evaluate costs and benefits of
planned gift fundraising.
- Determine financial effectiveness
of an organization’s current investment in gift planning.
- Allocate appropriate resources to
a gift planning program.
- Set planned gift fundraising
expectations within a comprehensive fundraising program or campaign.
Assess the effect of certain variables (e.g., term of the gift,
investment strategy) on the ultimate value of the gift to the
organization.
Because valuation is based upon
information that may be unique to each charity, the valuation
standards are not generally intended to be used for comparing one
organization’s fundraising performance to that of another
organization. (Comparison might be possible if a group of
organizations agree to use the same default values for that purpose.)
How are planned gifts valued?
The Valuation Standards for Charitable Planned Gifts use mathematical
formulas to arrive at the present value of a planned gift—its
purchasing power in current dollars. The process involves two steps:
- Payout rates, donor life
expectancy or term of the gift and assumed investment returns are
used to determine the value of the gift at its projected
termination.
- The total future value is
discounted backward to the present using a discount rate that is
based on expected cost rise rates.
There are four variables that must be
factored into the valuation process: term of the gift (often related
to the donor’s life expectancy), investment return, expenses, payout
and cost-rise rate. For organizations that have not maintained their
own data on investment performance and expenses, the Partnership provides default
values based on historical indices.
How are revocable gifts valued?
Existing standards for counting or accounting for planned gifts do not
include revocable gifts. However, these gifts—bequest intentions,
charitable remainder trusts with revocable remainder interests,
retirement account designations, etc.—are a significant component of
most gift planning programs. Excluding these commitments from program
evaluation significantly understates the contribution of the program
to the charitable organization. At the same time, NCPG urges that any
report of these gift values include a full disclosure of the revocable
nature of such commitments.
In general, revocable gifts are valued in light of the probability of
receipt. The present value of the gift is further discounted by a
probability factor, which is based on what is known about the gift and
donor. If the donor has a close relationship to the organization, the
amount of the gift is specific, there is a legally enforceable pledge
and the estimated value of the estate is 20 times or more than the
intended gift amount, then the probability of receiving the gift might
be set at 95%. If the donor has no gift history or documented
relationship with the organization, a life expectancy of more than 30
years and it is impossible to estimate the value of the estate, then
the probability of receiving the gift might be as little as 5%.
Organizations with well-established planned giving programs may elect
to calculate their own probability factors through careful analysis of
the facts of each gift where larger commitments are involved.
Organization-specific probability factors might also be based on a
review of past experience, comparing previously known expectancies to
actual receipts of specific bequests over time. Organizations with
less planned giving history may choose to base probability factors on
a model provided by the Partnership.
Who was responsible for developing
the Valuation Standards for Charitable Planned Gifts?
A task force of twenty gift planners from all types of charitable
organizations and the various financial and legal advisor professions
developed the standards over a three-year period. The standards have
been extensively reviewed and approved by the Partnership Board of Directors.
Comments were solicited from Partnership members and the development
community at large, and key areas of the standards were clarified in
response to these comments.
About the Partnership for Philanthropic Planning
The Partnership for Philanthropic Planning® is the professional
association for people whose work includes developing, marketing, and
administering charitable planned gifts. Those people include
fund-raisers for nonprofit institutions and consultants and donor
advisors working in a variety of for-profit settings. The mission of
the Partnership is charitable giving made most meaningful. The
Partnership represents approximately 10,000 gift planners
who are members of the Partnership or its affiliated planned giving councils.
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