Part 4

Making It Work
For You

Chapter 14

Creative Fund Raising

Does one fund raise for their child’s trust fund? Why not? Although much of the following information relates to charities raising funds, there are certainly opportunities for families, friends and neighbours to raise funds for a specific person’s trust fund. Although a trust cannot give income tax receipts for most of these contributions to a fund, there are ways to contribute that may reduce an individual’s income tax. Check with your financial advisor/accountant before asking for contributions. Some of the following methods, including the planned giving of insurance policies, stocks and bonds, contributions through wills, etc. can be adapted for a trust fund. Some of the donation projects may also fit well in increasing the assets within a trust fund. Do not be limited by these ideas but rather encouraged to develop your own.

According to Stephen C. Nill, Editor of the American Philanthropy Review, 50% of the parents of baby boomers will be gone in the next 15 years. These parents own 75% of Canada’s personal wealth. As much as $4 trillion will be released in Canada in the next 40 years with half by 2015. Creative fund raising provides strategies and methods to help this group, plus others, maximize their giving (charitable or otherwise) with optimum tax benefits.

This chapter does not examine standard fund raising. Therefore, we will not look at how to organize special events (e.g., bake sales, fashion shows, art sales, auctions). Nor will we look at participating in a local lottery or gambling ventures such as BINGO games, Las Vegas tickets, or raffles (funds raised through such ventures in Ontario, for example, cannot be used for endowments). Lastly, we will not cover direct mail, affinity credit cards (i.e., credit cards with your charity’s name on them and you receive a small percentage of the charges made on the card), telephone or door-to-door solicitations or media events such as telethons. The library, bookstores, government and fund-raising organizations have many books and resources in these fields.

We will look at methods that have particular relevance to raising funds for trust and endowment funds. Since we are dealing with relatively small numbers (less than $5,000,000 in most cases) we will depend mostly on relationship-building methods that involve donors directly in the lives or projects involved.

Before we look at the specifics, it may help you to understand the concepts behind the Rule of 72.

About Interest on Your Investments:
The Rule of 72

Compound interest is an invaluable tool to increase the value of your assets without having to work at it. If you invest your funds and do not remove any of the interest, the interest and principle grows every year. Depending on the rate of return on your investment (e.g., 7%, 10%) your money will double quite quickly. This is true whether you are creating a trust or an endowment fund using investments in GICs, money market bonds, stocks and bonds, income or other investments. Note that the example does not look at the tax implications (e.g., capital gains, income taxes), the costs of maintaining the investments (i.e., management and/or administration fees), the consequences of income generated on any of the person’s income-tested benefits (e.g., government benefit payments), nor on the risks and returns on various instruments which are not fixed. The rule is designed only to give you the overall picture of how funds can multiply over time.

This rule is critical to understanding your investment options. Just mentioning the rule to a financial advisor will impress them with your basic understanding of investment basics.

The Rule of 72 tells you how long it takes to double your investment. It is simple. Take the interest rate you expect to earn on a particular investment and divide that number into 72. Whatever the answer is, will give you an estimate of how many years it will take for your money to double. For the above example, we assume you only invested one lump sum. In reality, you will probably continue to invest annually toward your fund but this will give you some sense of how long it will take without doing anything other than making one, initial investment.

Three conservative examples (i.e., not including the stocks that go up 40-200% in a year). Take the next step. Assume you have $50,000 in RRSPs or other investments that you do not touch for the next 20 years. In the three examples above, you would have:

Investment at 5%

72/5 = about 14.4 years

Doubled after 14.5 years and another $40,000 in the next 5.5 years = $140,000

Investment at 7%

72/7 = about 10.2 years

Doubled twice in 20 years = about $200,000

Investment at 10%

72/10 = about 7 years

Doubled almost three times = about $400,000

Remember, in the examples above, it was assumed that you began with only one initial investment and never added anything to the principal yourself. For most of us who put something aside each year, the above examples would be even more impressive as compound interest plus your own contributions over the years will dramatically increase your assets after 20 years.

In cases where trusts or endowment funds are established with one major investment (e.g., sale of the family home, pay out of an insurance policy, large donation) you could double your fund in about 10 years on average with a 7% interest return each year.

There are two main sources of creative fund raising today:

Planned giving

Special donation projects

The keys to success in fundraising include:

Fulfilling and communicating your mission with emphasis on solving long-term problems rather than alleviating short-term crisis.

Understanding the current tax system and benefits to donors (it changes regularly). People want to make a difference in the world while also reducing what they perceive as over-taxation of their assets.

Focusing on developing long-term relationships with donors, to the degree that donors want, so they see their donations creating real-life benefits to others.

First Steps

After looking at all the fund-raising options outlined in this chapter, you need to start with a gathering of people interested in the financial stability of your loved one or not-for-profit/charity (usually around a good pot-luck supper!). I recommend food be involved in some way as the best community organizations have always centred themselves around the communal meal. Gather around the table all the people most intimately connected with the project. If you have too many people, divide them into groups around several tables. You ask them to bring their personal and work address books with them. Then you ask them to creatively think and write down all the people within their address books who might be even faintly interested in your fund. Ask them to include the spouses, children, parents and friends of those people within their address book. For example, your Aunt Judith’s husband may have a connection at the local steel mill or gas station or your neighbour may belong to the local Rotary Club. Ask people to think beyond the norm and not to censor their selection at this point. This is only a draft list of potential contacts that they will keep (i.e., this list will not be copied and given out to anyone else).

Perhaps at another meeting, ask people to review the list of methods described below (feel free to make copies for everyone beforehand). Have people examine the list to narrow down the type of methods your group wants to use. For a person’s Discretionary Trust, for example, you may begin with more planned giving alternatives such as asking family and friends to consider a bequest in their will to help reduce taxes on their estate.

Out of this discussion you will have narrowed the methods with which you will begin your fund raising. You also have the draft list of initial contacts. Beside the names on your list, write down which method you think will have the greatest likelihood of success. Keep in mind that your funds are probably going to be best served by initiating or continuing long-term relationships with those who will contribute and that you will not build up your fund to its target with only one visit to each person on the list. This will take time but the time is well spent both for financial reasons but also to build commitment within your family and your community to the purpose of your fund.

Secure an Advisory Committee to help you understand what is possible locally. Include trust and endowment fund officers or advisors, legal and tax advisors, a financial planner, people with previous experience in setting up a fund. Use this group (usually by telephone calls and only a few group meetings) to answer your questions that come up throughout this process.

Planned Giving

Planned giving is both a combination of methods to provide assets to a fund but also, in the case of charitable organizations, a way to minimize or reduce income taxes for donors. The benefits to donors will depend on their age, lifestyle, number of dependents and their specific needs and interests in contributing. Donors may give gifts while they are alive or through their wills after their deaths. Once made, most donations cannot be taken back.

Most of the following information applies to both not-for-profit and charitable organizations that want to set up endowment funds as well as families setting up trust funds. The key difference is that charities have the added benefit of providing donors with income tax receipts. Families and not-for-profit groups must rely solely on the good will of donors willing to contribute after-tax dollars, in most cases, although some contributions will reduce taxes as described in the chapter on trust funds.

Have your lawyer prepare different acceptance policies for different types of donations to your trust or endowment fund. For example, your fund may not be prepared to accept donations of real property like a cottage. If you will help donors create charitable remainder trusts (described later in this chapter), then you need a formal contract of agreement between the donor and the fund’s administration. Such agreements give potential donors a clear idea of what is possible through their donation and what restrictions there might be with respect to trusts or donor-directed endowments.

Keep in mind, that governments change the rules on charitable donations regularly. Check with a tax accountant or lawyer to ensure that your plans are consistent with present laws and regulations.

The following are considered charitable gifts: cash, right to future payments such as life insurance, and gifts in kind such as stocks and real estate. NOT considered charitable gifts are time and services (e.g., a lawyer donating their legal work), used clothing or worn-out furnishings, and gifts from which you benefit (e.g., the meal and theatre portion of tickets sold by a charity -- therefore you get a receipt only for the gift portion).

Cash donations are still the most common form of contribution but this is changing. People can make one donation or may prefer to make ongoing contributions over months or years. The longer a person contributes regularly the more likely they are to be interested in some of the other methods listed below. They are also more likely to be interested in the long-term viability of your fund and the purpose of your fund. Note: some companies have a matching-gift programs that doubles an employee’s contributions to a charity. Have your regular donors check their company’s policy.

Another source of cash donations for endowment funds are gifts in memory, or in honour, of someone. Whether it be to honour someone’s silver anniversary or in memory of a loved one who has died, such occasions can be a powerful opportunities to add substantially to an endowment.

For trust funds and not-for-profit organizations, there are no tax benefits to contributing to such funds. The benefit comes in knowing that a donor’s contributions are extending their present good will into the long-term future success of your fund.

For charitable organizations, at present, a person can give up to 75% of their net income to charity and declare that on their income tax returns.  There is an advantage to save your donation receipts (for up to five years after the donation) so they total more than $200 as the federal tax credit of 17% applies to the first $200 and then 29% above that.

Using present-day tax rules, here are the actual costs of donating $1,000 and $100,000 (e.g., from the sale of a home, insurance policy pay out, RRSP) to your charitable organization.

Total Donation                    $1000          $100,000

Federal Tax Savings
First $200 x 17%                        $34               $34
Balance at 29%                           $232            $28,942

Total federal tax credit                $266            $28,976

Provincial Tax Savings
(48% of federal tax credit)            $128           $13,908

Total Tax Credit                           $394           $42,884

After-Tax Cost of Donation         $606           $57,116

Therefore, when someone contributes $1,000 to a charity, they receive a tax credit of $394. The actual cost of their donation, then, is $606. If they contribute $100,000, the actual cost to them is $57,116.

Total tax credit is even greater when savings on federal surtaxes and provincial taxes are factored in.

Cash donations can come in various ways including: simple donation of cash and monthly donations based on automatic withdrawal from a donor’s chequing account. Donors may choose monthly donations that are based on regular income received but not needed. For example, they may decide to donate any child tax credits, retirement income from a RIF or government pension, or from a spousal benefit earned since the death of a spouse. This ‘extra’ income donation may provide the donor with a helpful income tax receipt while also allowing them to give more than they did before.

Pledge donation usually involves larger sums of money and involves either a pledge to donate an amount on a certain date (e.g., after a special event), for a charitable donation before February 28th of the next year to have their donation be considered for this year’s Income Tax Form, or upon their death (through their will).

Publicly traded stocks, bonds, mutual funds can be donated with attractive tax benefits (except in Quebec) since changes were made in the 1997 federal budget. Rather than convert them to cash and donate the cash, people can save half the taxable portion of their capital gain on their income taxes for the appreciated value of their holdings by donating the holdings themselves to the charity. Before these changes, a person donating capital assets were seen as having ‘disposed of their assets’’ for tax purposes with tax implications on the capital gains. If someone had earned $1,000 on their stocks, bonds or mutual funds and donated them to a charity, they would have to pay 75% of that as a tax on their gain. Now the taxation rate is only 37.5% on any capital gain and a donor can still qualify for a charitable tax credit based on the asset’s fair market value. Your broker can transfer the stock electronically or you can endorse the share certificate to a charity. A tax receipt is issued for the shares’ closing price on the day they are transferred electronically or the day the actual share is received by the charity.

An example:

Mary Taylor [Heart & Stroke Foundation of Ontario Stocks fact sheet -- August 2000 -- reprinted with permission] bought $29,000 worth of shares in Company A, which is publicly traded. Today, those shares are worth $50,000 and she would like to donate them to a registered charity because she values their work and for tax purposes. Her combined federal and provincial tax rate is 46%. Let’s look at two ways of donating this asset.

                                    Sell the stock & donate the proceeds        Donate the stock directly to the charity

1. Value of stock                $50,000                                                                    $50,000

2. Purchase price                $29,000                                                                    $29,000

3. Capital gain                    $21,000                                                                    $21,000

4. Taxable gain                   $14,000                                                                    $7,000
                                        (#3 x 66 2/3%)                                                           (#3 x 33 1/3%)

  1. 5.Tax credit for donation

(#1 x 46%)                        $23,000                                                                       $23,000

6. Tax on gain
(#4 x 46%)                        $6,440                                                                        $3,220

7. Net tax savings
(#5-#6)                              $16,560                                                                      $19,780

By donating the publicly traded stocks instead of selling the stock and donating the cash proceeds, Mary Taylor saves more than $3,200 in taxes. By donating the appreciated stocks now, the asset is no longer in her estate that may have positive probate implications for her heirs.

Strip bonds are another financial tool that may benefit your endowment funds. Gary Ursell, of Richardson Greenshields, talked about their value to a meeting of the Greater Toronto Chapter of the National Society of Fund Raising Executives (1996).

Strip bonds are regular bonds issued or guaranteed by the government of Canada, a province or a foreign country. The interest coupons have been removed with the holder of ‘strip’ entitled to a single payment of a fixed amount (the face value) on the maturity date. No interest is paid in the interim. The purchase price (present value) is determined by discounting the amount of the payment to be received on the maturity date by the appropriate current interest rate or yield factor.

Possible benefits include:

Maturity date can be geared to almost any donor’s income.

The only cost is the commission payable to the investment broker or advisor (e.g., $100 for a $25,000 bond). There are no trailer fees on maturity.

Strip bonds are traded on the commodities market where the field is very competitive.

Except if a life insurance policy holders dies suddenly, strip bonds are a better long-term gift to a charity because the maturity date and payment are known in advance and the donor may enjoy seeing the fruits of their donation while they are still alive.

Strip bonds, unlike life insurance policies, can be bought at any age, by smokers or non-smokers, regardless of the buyer’s health.

Gift of insurance is a simple and effective way to make a substantial future contribution. You can either change the beneficiary of a present policy or buy a new policy specifically for this purpose. The annual premiums you pay every year on the policy qualify for a charitable receipt from the charity listed as beneficiary of the policy. Upon the donor’s death, the insurance is paid directly and immediately to the charity. Insurance policies are outside of the donor’s estate so the charity does not need to wait for the will to be dealt with or probated and the gift cannot be contested as in a will. Three options:

A person buys a new policy and makes the charity both the owner and the beneficiary. The donor receives a charitable tax receipt for full premium payment and the beneficiary can never be changed.

A person permanently changes the ownership and beneficiary on an existing policy (which is no longer financially necessary for its original purpose) to the charity. Donor receives a charitable tax receipt for the cash surrender value of the policy and any accumulated dividends within the policy.

A person changes beneficiary of the policy to the charity but leaves option open to change it again in the future. A charitable tax receipt cannot be issued for premium paid nor will the estate be issued a tax receipt.

Donating insurance is a cost effective way to make large contributions to funds. Consider, however, the cost of insurance if your health is not good, the tax advantages of contributing now (if you have the assets) rather than later through an insurance policy, and the need for an insurance policy to cover other needs or tax debts upon your death.

An example: John Jones, [Heart and Stroke Foundation of Ontario’s Life Insurance fact sheet. August 2000, reprinted with permission] 43, would like to contribute $150,000 to his favourite charity but has no capital assets. He can buy a term-to-100 insurance policy on his own life that is guaranteed to be paid up in 10 years. He is a non-smoker and the policy costs him $3,000 per year, or $250 per month.

Total premium paid over 10 years                        $30,000

Total amount of tax receipts over 10 years            $30,000

After-tax cost of policy
(Assumes 8% federal surtax and                            $16,500

    provincial 48% tax rate)

John Jones’ monthly after-tax cost of the policy of $137.50 will lead to a $150,000 donation to his favourite charity.

Bequests of cash or other assets can be made through a will. Less than half of Canadians have a valid will, according to a recent Decima Research survey. Only 15% of those with a will had included a bequest to a charity and of those who did not make such a bequest, 44% said they would include a charity in a will, if they were asked. Yet bequests equal about 80% of planned gifts in the late 1990s. There is a large, untapped pool of income awaiting families and organizations willing to ask for some of it.

It is always advisable to encourage potential donors to speak to you about their intention to make a bequest so you can provide specific wording for their will and special advice about how to make their gift even more helpful in reducing their tax load. In the year of death and the preceding year, the maximum donation that qualifies for a tax credit is 100% of net income, instead of the usual 75%. Keep in mind, that governments have increased this percentage over the years, but they can also decrease it in future budgets. Check with a tax accountant or lawyer.

Bequests can be paid out directly to the person or organization directly upon settling the estate or the bequest can be put into a trust fund with income going to an individual and, upon their death, the remaining assets going to a charity.

Bequests can be changed easily by changing a will so do not count on receiving the bequest as it may not happen. People are less likely to revoke a bequest if they are still involved with the family or not-for-profit/charity. Spend the necessary time and give the attention people deserve whether they end up fulfilling a bequest or not.

If making a charitable gift through a will, the person must write out the charity’s full corporate name to prevent legal battles. For example, if ‘making a gift to cancer’, is the gift for the local, provincial or national cancer society in Canada or abroad? Is the gift for the Cancer Society or for a research organization with cancer in its title or to a hospital specializing in cancer treatment?

Different types of bequests:

A specific bequest is a gift of a specific property, cash amount, stock(s) or other assets.

A residual bequest gives the remaining amount in an estate, after all other aspects of the will are settled, including debts, taxes, administrative costs, to a specific person or organization.

A percentage bequest gives a specific percentage of the estate that goes to a person(s) or organization.

A contingent bequest comes into effect after other bequests cannot be met. For example, if the estate is supposed to pass to a person’s remaining children but they have predeceased the person, the estate could go to a specific person or organization.

Bequests can go to organizations either as:

Unrestricted, i.e., “ be used for the general purposes of ....(name of person or organization);”

Restricted, i.e., “to be used for the establishment or expansion of ‘x’ fund”. With restricted assets, organizations should be notified, in advance, of the donor’s intentions and the following clause (or something similar) put into their will regarding the assets use for a specific fund: “If, in the opinion of the Board of Directors/Trustees of ‘x’ fund, it should become impossible, inadvisable, or impractical to use this gift for the specified purpose(s), then the Board/Trustees may in their discretion use the gift to the best advantage of ‘x’ fund.”

In the Heart and Stroke Foundation of Ontario literature [Bequeswts, August 2000, reprinted with permission] they provide the following example:

Joanne Woods left a $250,000 cash bequest to the Heart and Stroke Foundation. In the year of her death, Mrs. Woods reported taxable earnings of $149,000. Her executors can reduce her taxes payable to zero by claiming $130,000 of her total donation in her last tax return and the balance in the year preceding her death.

Bequest                                                                        $250,000

Income in year of death                                               $149,000

Charitable donation claimed on her last return            $130,000

Income in preceding year                                            $139,000

Charitable donation claimed for preceding year           $120,000

Tax saved for year of death (assumes 1998 tax rates)    $62,498

Tax saved for preceding year (assumes 1998 tax rates)  $57,859

Her total donation, after tax savings was $129,643.

Charitable remainder trust allows someone to transfer property during their lifetime to a trust and get an immediate tax benefit. The donor or another beneficiary receives income from the trust for life. Upon the beneficiary’s death, the remaining assets pass to the charity. This assumes the long-term viability of the charity. There are generally 4 steps to this process:

Donor irrevocably transfers ownership of some or all of their assets into a trust.

Donor establishes the terms of the trust.

Donor claims a tax credit.

The trust capital goes to the charity after the trust’s beneficiary’s death.

Using another Heart and Stroke Foundation of Ontario example [Charitable Remainder Trust, October 1998):

Howard Johnson, 68, establishes a charitable remainder trust by transferring stocks with a cost base of $450,000 and a fair market value of $500,000. He names himself as sole income beneficiary during his lifetime and the Foundation as beneficiary of the remainder of the trust upon his death.

These stocks had given him an annual dividend income of $10,000. Two months after the transfer, the trustee sells the stock and purchases bonds paying 7%. By giving this gift, Mr. Johnson more than triples his cash flow, reduces his taxes, and makes a significant future gift toward heart and stroke research and health promotion.

1. Amount contributed to trust                                                 $500,000

2. Donation receipt (based on 7% discount rate*)                     $164,845

3. Capital gain recognized on transfer ($500,000-$450,000)        $50,000

4. Taxable gain (75% of $50,000)                                                $37,500

5. Tax on gain (assuming 50% tax rate)                                      $18,750

6. Tax credit (assuming a 50% combined credit of #2 x 50%)    $82,423

7. Net tax savings (#6 - #5)                                                        $63,673

8. Capital gain taxed to trust when property sold                        $0

9. Annual income before gift                                                      $10,000

10. Annual income after gift                                                       $35,000

Canada Customs and Revenue Agency has not given any guidelines for determining the discount rate. Usually a prime rate or a long-term bond yield is used. Sometimes the actual rate of return on the property transferred to the trust is used, assuming that the trust will retain the property.

Charitable gift annuity allows a person to deposit capital with a charity. In exchange, the donor receives an annuity -- a tax-advantaged, guaranteed income. The charity receives the remaining capital after the donor dies.

Canadians approaching or past retirement age are familiar with annuities. They deposit capital in return for monthly income. These income payments can be for a specified number of years or for life of one, or joint, annuitants. A charitable annuity has a similar structure but also has tax-free status, which can benefit donors. The benefits of a charitable gift annuity include:

Guaranteed regular income for life.

Freedom from investment concerns (this is handled by the fund managers).

Charitable donation receipt in year annuity is set up.

Monthly income payments combine capital and interest in such a way that there is little or no tax liability.

The asset is no longer in your estate, which may have positive probate implications for your heirs.

This method of creative fund raising is not advisable for people under 55 or for those who must provide a surviving spouse or dependents with income.

For example:

Janet Smith, [Heart and Stroke Foundation of Ontario’s Charitable Gift Annuity fact sheet -- October 1998]who is 75 years old, makes a donation of $50,000 for a charitable annuity to her favourite charity. She will receive a guaranteed annual income of $3,000 for life. Her life expectancy, according to the annual mortality table prescribed by Revenue Canada, is a further 11.25 years.

1. Amount contributed                                                $50,000

2. Annual income                                                        $3,000 (represents 6% of the capital contributed)

3. Life expectancy (1983 table)                                    11.25 years (table stipulated in 1997 to be used)

4. Total expected return (#2 x #3 = $3,000 x 11.25)    $33,750

5. Donation receipt (#1 - #4)                                       $16,250

6. Taxation of Income

  1. (a)Total expected income to donor                              $29,040 (each payment consists entirely of capital return and table stipulated in 1997 to

annuitant (#2 x 9.68) 1971 table                                        be used to calculate this sum)

(b) Amount taxable                                                       $0

# 3 and 6(a) are from Revenue Canada stipulated in the 1997 Corrected Interpretation Bulletin IT-111R2 that the 1983 Individual Mortality Table is to be used for determining the amount of donation receipt (if any) for the life annuities and that the 1971 Individual Annuity Mortality Table is to be used in calculating the captial/income portion of annuity payments.

If Mrs. Smith is in the 50% tax bracket, she would have to earn 12% on her $50,000 to generate the same after-tax income. Even if interest rate go up after she sets up the charitable annuity, she will still have made a good investment.

Canada Pension Plan provides a death benefit. Ask contributors to include a provision in their will directing their executor to apply for the benefit and donate it to your fund.

Permission to use the following chart has been provided with the courtesy of Royal Bank of Canada:

Personal and Estate Planning Considerations
in Charitable Giving


Note: Generally, only money earned in Canada by foreign residents can be tax deducted as a charitable donation by the resident. Therefore, a friend or relative in the USA cannot donate to a Canadian charity and use the income tax receipt on their American tax returns unless those funds were earned in Canada. The charity usually has to qualify in the resident’s own country as a charity.

Special Donation Projects

Special donation projects are ways to help people give in relatively small, consistent ways to an organization or family trust. These types of donations are based upon working with donors who are family members, friends, neighbours, colleagues, acquaintances and people interested in your fund.

Named fund  Sometimes you will find a donor who wants to make a substantial contribution to your fund if you will allow them to name the fund after them or in honour/memory of a loved one. (See the Chapter 1 on General Information for more details on how to do the math for this option so you can have several or many funds.)

Bricks and mortar  People often find it easier to donate when they know their name will be attached to a building, book, or something equally ‘permanent’. That is why capital campaigns (to raise capital to build something or buy equipment) are called ‘bricks and mortar’ campaigns.

Another version of this method is to commission an artist to paint a scene whereby donors contribute to the ‘bricks’ within the painting. The ‘brick’ could literally be bricks within a building or home; or it could be leaves on a tree, flowers in a garden or dots. Each ‘brick’ is worth ‘x’ dollars. Let us use the example of a fund that requires $1,000,000. You can easily multiply or divide this example to reflect your needs (i.e., if you need $5,000,000, multiply example by 5; if you need $250,000, divide by 4). The RCMP have recently used this process to raise funds for an endowment that will preserve their vessel that was the first to go through the Northwest Passage declaring Canadian sovereignty over the north. In their case, they were selling a portion of the large mural that will be painted behind the ship.

Assume each brick costs $1,000. You will need to ‘sell’ 1,000 bricks. Each contributor gets a print of the painting, signed by the artist. Those who buy more than one brick can receive more prints, if they wish, or keep just the one.

A thousand dollars sounds like a lot but it is really only $40 per month for 2 years, or the price of a monthly movie for two with a few snacks. If they are contributing to a registered charity, they will, of course, receive a rebate of part of their contribution through a charitable receipt so your request is for even less money.

By encouraging the sale of ‘bricks’ you allow people the opportunity to contribute for only a two-year period with funds that will last forever in an endowment or trust fund. Some people can contribute the full amount at once while others will use the monthly deduction from their VISA or MASTERCARD or through pre-authorized withdrawals from their chequing account so the giving becomes ‘painless’. Local business and larger corporations can be asked for a one-time contribution to the fund with a promise that you will never return to them for funds again. You can ask them to purchase one, several, ten or more bricks based on their interest in your fund and their capability to donate. Of course, you will keep them informed regularly of how the fund is used so they might contribute again without being asked.

If you need 1,000 bricks and you have 10 people sitting around the table with their contact lists, then you can almost guarantee that each person can personally contribute and get contributions for a total of 10 bricks each. That is 10% of your fund within the first few years, if everyone contributes monthly. If you raise nothing else for 10 years you will have doubled your investment. If you have a longer period of time then that, $100,000 will become $1,000,000 within about 30-35 years. That sounds like a long time until you realize that if you are creating a trust for a dependent child who is now 5, then you will have your fund by the time they are 40. Not many people are millionaires by the time they are 40. If you also factor in a life insurance policy by grandparents or parents and other wise investments, you will have your target long before the person becomes 40.

Small not-for-profit organizations and charities which want an endowment fund to cover operational costs will want a larger fund more quickly, perhaps, than for an individual trust. The principles, however, are the same. You break down the total need into manageable units and ‘sell’ those units. You may already have a donor base from which to work. Your network may already be larger than a family establishing a trust. Your purpose and values may be easier to ‘market’ to this network while providing your donors with tax advantages. You will also help your donors understand that their contributions will lead to long-term stability and accountability for the organization. Every other fund raising method can be tied to this one as each bake sale, auction, campaign drive can be recalculated into ‘bricks’.

Another method of selling ‘bricks’ is to involve one’s own union or community group to ask for ‘x’ dollars (low figure) per member for a one-time donation in return for offering to help establish a similar process for other members’ favourite trust or endowment funds so that the membership appreciates they are contributing to funds that have life-long (and beyond) positive benefits.

Borrowing money to create a fund  You may have identified a person on your contact list who has an excellent, personal or corporate credit rating. You approach this person with the following plan.

Let us assume, again that you need a fund of $1,000,000. This person or company would borrow ‘x’ dollars to invest for a limited time, e.g., 10 years. Their credit rating must be below what is normally available. They give the funds to you, or they invest it themselves (they probably have more experience), with the following conditions:

The principle funds remain untouched for 10 years.

The interest on the loan comes out of the investment earnings.

The difference between interest earned and interest paid off to the loaner remains in the fund for 10 years.

If the interest on the loan at any period during the 10 years is larger than the interest earned, the difference comes out of the fund’s accumulated interest or principle. Alternatively, the person or company may wish to guarantee losses themselves and declare the loss on their personal or corporate income tax return.

At the end of 10 years, the loan is paid off in full and the accumulated interest is contributed to your fund.

The person or company who borrowed on your behalf will not have to contribute any of their own money. The lender has received the same return on investment as they normally would lending money to this person or company. The fund receives sufficient dollars to secure some financial security. Everyone wins!

Let’s put numbers to this example. The fixed interest rate on the loan is 4%. The conservative estimate of return on investing the funds is 7%. The difference is 3% minus any fees. At that interest rate, it would take about 25 years to double the fund. We have only 10 years on this arrangement. Therefore we will need about $3,000.000 in the fund. At the end of 10 years, the net interest will be about $1 million. Remember, no one losses money or uses their own assets to secure this fund. You are using a bank or other lender’s money. With this option, you can continue with your regular fund raising efforts for annual operating costs and, after 10 years, you will have sufficient funds to operate without further fund raising.

Note: The above example would work just as well for a person who wants to use their own assets rather than borrowing funds. The difference would be that they would only have to contribute $1,000,000 to the fund as all the interest would accumulate over the 10 years and the money would double. They would lose out only on the interest of their investment and get their principle back. Such a person might decide that this method was an excellent way to make a long-term difference to several of their favourite charities. They might decide to set aside $1 million dollars to help 3 charities over the next 30 years (they could include provisions in their will to that effect). After helping 3 separate charities over 30 years, the funds could be contributed to a 4th charity as part of their estate planning. Such a person need not be exceedingly wealthy. As David Chilton wrote in The Wealthy Barber, there are many people in modest homes who have accumulated a substantial amount of money through conservative, long-term financial planning. They probably have their name in your address book right now!

Product sales  Aside from ‘selling bricks and mortar’ you may want to consider writing a book, creating or producing a CD with music or poems, helping the person who needs the trust to prepare their autobiography, etc. The types of items you produce are endless. If they are inspirational and a good gift for people to give to their loved ones at Christmas, for birthdays or anniversaries; all the better. You produce them (or have the production donated) and sell the product, with a charitable receipt for the difference between cost and sale, to raise part of the endowment costs.

For example, Frank has a health condition that means he will probably die in the next few years. He is a bachelor. He wants to create a trust for his sister’s daughter who has Down Syndrome. He has led a life of adventure and spiritual searching and wants to record some of those stories on a videocassette including some music he has written. He has also been inspired by his niece’s quest to live a full life in her community and with the gifts she has to offer. He also wants to record the stories of some of the people who have accepted her gifts and who have thrived on their mutual friendship.

Frank has a high school buddy who now owns a small recording studio. He gets his friend excited about this project. Together they produce a 25-minute videotape and call it Frank’s Inspiration. Frank makes a determined effort to sell copies of his tape for $25 to all of his family, friends, work colleagues, as well as to local schools, churches, community groups, cable TV, etc. who might find the stories interesting and helpful in some way. Each tape costs $5 to copy and produce a nice cover. He sells 200 copies and earns $4,000. The tape also asks people to contribute to the trust fund. He receives another $1,000. A few people are inspired by Frank’s story and his efforts to help his niece enjoy the full richness of her life. They ask if they can help sell tapes for him now. They also want his permission to add an epilogue after his death and continue to sell the tape for his niece. They sell a further 200 tapes. That collected donation is now $9,000 and is in the Trust Fund. She is 15 years old. By the time she is 45, the fund will likely be worth over $72,000. At that time, she could use the funds as a down payment on her own home.

To take the example further, if Frank wanted to help even more, he could have named his niece as his beneficiary of his term insurance policy. When he died, she could inherit, for example,  $100,000. Leaving it in the fund until she was 45 would mean an accumulated wealth of about $800,000. Together with his product sales she could begin taking out the interest from the fund of about $59,500 per year or take out whatever principle she might need; e.g., to buy a home.

Another example comes from Carberry, Manitoba where volunteers planted, maintained and cultivated a 40-acre field of potatoes for two seasons netting more than $80,000 to create a community foundation endowment fund.

Several groups helping raise money for each other’s funds In some cultures, children within a family help each other buy a home. The oldest child gets the pooled resources of all the children to buy the first home and so on. Often, the older children will have the younger children live in their homes rent free so they can help save up for the next house to be bought. In each case, the home is bought without a mortgage to the great savings of each child. For example, a home that costs $200,000 will end up costing closer to $500,000 after a 25-year mortgage is paid off.

Endowment and trust funds may require a minimum contribution (e.g., $10,000) to start a fund. Small not-for-profit and charitable organizations as well as families setting up trust funds can do something similar to the families described above. By pooling their resources, their network of interested family and friends, etc. they can pool sufficient principle to establish a fund for one of them first, then the next, etc. Pulling names out of a hat would be one way to choose the order in which funds are opened. The people’s whose funds are opened first will be earning interest first and a portion of that can be contributed to the next fund to be set up. Through thoughtful planning and a contract between families or groups, everyone can begin a fund sooner than they thought possible.

The family cottage  When parents die leaving the family cottage to the children to continue traditions that bind families together, they also leave behind a debt. Upon the death of the first or second parent, there is a capital gains tax payable as if the cottage was sold and paid out of the children’s inheritance. Using good estate planning, these parents can give their children the cottage and give a large donation to their favourite charity.

An alternative is to buy an insurance policy on a joint last-to-die basis which will pay out at about the same time as the capital gains tax is payable. The beneficiary is the estate of the last-to-die parent and through that person’s will, the proceeds of the insurance go to the charity of choice. The receipt will be for the amount of the gift.

Sherry Kushner and Ed Pearce give the following example from their article, Planned Giving and the Family Cottage (1997).

A couple, aged 65, owns a cottage worth about $120,000. Their adjusted cost base (ACB or what the cottage cost them originally in present dollars) is $50,000. They need to calculate what the cottage will be worth, allowing for inflation, to their best statistical mortality. Using 3% (low for vacation property) and 25 years, the fair market value (FMV) at the ‘deemed disposition’ when both parents are dead is estimated at $250,000.

Cottage FMV                    $250,000                        Insurance                        $150,000

ACB                                  $50,000                          Annual Premium            $3,666

Capital Gain                      $200,000                         Pay Period                    10 years

Taxable Gain (75%)          $150,000                         Total Cost                      $36,660

Tax Payable (50%)            $75,000                           Tax Savings*                  $75,000

*The proceeds of the life insurance will produce a tax receipt for the estate of $150,000 (the gift to the charity). At a 50% fax rate, the receipt would save the estate approximately $75,000 in taxes which the estate then pays for capital gains tax on the cottage. The state gets its tax. The family get their cottage without decreasing the value of their inheritance. The charity gets a donation more than twice the size of the premium costs to the parents (therefore, a bigger donation than the family could otherwise make). The parents feel they have organized their estate so that everyone wins, including themselves.

Asking People to Give

Some tips on asking people to give large sums to your fund:

Know your stuff. Spend time within your group coming up with all the questions likely to be asked of you, and generate standard replies that you can modify as needed. Record the standard replies in typical day-to-day, conversational language. You will not read out your answers so they must feel natural to you.

Help people to share your enthusiasm and trust in the positive consequences of contributing to your fund. Understand the person’s present connection, if any, to your family or organization. For example, you must know if they were active members 10 years ago or recently; regular contributors or one large donation 3 years ago.

When possible, the asker should have a similar background, age and experience of the person being asked. A doctor asking a doctor is more likely to succeed just as a senior talking with a senior. They will understand the person’s questions more fully and give more appropriate answers.

Choose whether one or more of you should attend any face-to-face conversations depending on the person’s level of comfort and trust. Rehearse your presentation, your asking and your answers to their questions to feel comfortable with what you are saying. Rehearsing is not about becoming a professional speaker or sale representative with a ‘pat’ sales pitch. Rehearsing is about becoming more comfortable in what you say and how you say it so that the person you are talking to is also more comfortable.

People only hear 20% of what you say and forget 80% of it within 24 hours. Have written or video material that details the specifics of what you are suggesting or asking for. Either bring it with you, or bring it by the next day to show you care that they are truly informed.

Schedule appointments by telephone rather than by mail. You might send a preliminary letter outlining your request for an appointment, but call to set the actual date and time. Do the calling yourself, rather than a secretary or other person. Build rapport as soon as you can.

Schedule appointments that fit the person’s agenda, not yours. Meet them where they prefer, whether that be at home, office or elsewhere.

Ask for a specific amount of money or a specific method of donation. This requires some research as to what may be possible and requires some time with the person to see what might be realistic. Be patient. The longer rapport is built up the more committed the person may be to your fund.

Do not ask for a donation by telephone if you can avoid it. Meet the person personally and work out the details personally. You are building a long-term relationship, where possible, and personal contact will bring better mutual rewards.

Encourage a donor to use an independent lawyer with tax and estate planning expertise. Never let it be said that you coerced a person, without proper independent advice, to contribute to your fund. With large contributions, especially those given through wills, you want to minimize any legal problems with heirs or beneficiaries.

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Copyright © 2002 Harry van Bommel

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