THE PANDEMIC & WHAT HAVE WE LEARNED AND WHERE DO WE GO FROM HERE? January 2021

By Robert F. Sharpe, Jr. Founder & CEO, Encore

1 The Pandemic & Philanthropy INTRODUCTION of the raging pandemic. In “Philanthropy in America, A History,” Olivier Zunz noted that During the early days of COVID 19 “Not even the deadly influenza epidemic stopped the in the spring of 2020, the impact of the volunteers’ door-to-door solicitations. Because of the pandemic on philanthropic funding seemed flu, 40 percent of collectors in one state had to opt-out random and unpredictable. Some of the of the collection, but the others combed the countryside ramifications are now becoming clearer, and in their Fords wearing gauze masks as they rang certain patterns have begun to emerge. doorbells. Only a few days later, the campaign had gone over the $200,000,000 mark, significantly At the outset, it is important to exceeding its initial goal.” acknowledge the remarkable resilience the nonprofit sector has displayed during this That $200 million raised in just a few days time of historic challenge. Events many of us is equivalent to $3.6 billion in 2020 dollars. remember, such as the Crash of 1987, 9/11, To put that in perspective, it is estimated that and the Crash of 2008 and the ensuing Giving Tuesday 2020 raised an estimated Great Recession, all impacted the nonprofit $2.4 billion in a country with over three times sector, including its sources of philanthropic the 1918 population. support. But we have to go back a century or more to find anything commensurate in This paper will focus on what we now scope and scale to the COVID-19 pandemic. believe we have learned regarding the impact in broad terms of COVID-19 on U.S. Over 100 years ago, the U.S. faced a philanthropy. We include information we public health threat that had a far more believe may be useful to readers who serve devastating impact on the nation than in various nonprofit leadership roles as they COVID-19. The Spanish Flu took the attempt to understand how COVID-19 has lives of 675,000 Americans when the and will affect their funding efforts, and what country’s population was only 103 million. to expect when the crisis eventually recedes, That level of mortality would translate into and we attempt to cope with its legacy. 2.1 million deaths given the current U.S. population, nearly seven times the number All or parts of this paper are intended of COVID-19 deaths as of mid-December for development executives, marketing and 2020 as vaccines began to be administered. advancement officers, government and The country was also engaged in World War relationship managers, in-house I and encountered a post-War recession a legal counsel, investment managers, program year later. management personnel, board members, Historical accounts reveal that and other volunteer leaders. An executive philanthropy rose to meet that challenge. summary of this paper and a version of the In November 1918, during the height of content intended for professional advisors the fall surge in the flu epidemic, a national published in the October 2020 issue of Trusts door-to-door campaign was mounted to raise & Estates magazine are available at www. $170,500,000 to meet social needs brought consultencore.com/covid. on by the Great War despite the impediment

2 The Pandemic & Philanthropy Our observations set out here are based Charities whose missions are not closely on input from many charitable organizations related to the effects of COVID-19 have across the country engaged in various service generally experienced more significant sectors and professionals who advise non- economic challenges. This is not because profit clients and philanthropically inclined their donors are not making charitable individuals. during the pandemic, but rather these organizations and institutions are losing After careful analysis of this input by a “market share” to charities whose mission is team of Encore consultants and associates, more COVID-19 related. five primary factors have emerged that we believe help define the impact of COVID-19 Another group of charities has been on various sources of funding for the affected across the board by job losses or nonprofit sector. In this paper, we consider other economic factors due to the pandemic, these factors and their role in determining regardless of the nature of their missions. the impact of the pandemic. For example, consider a food bank located in a beach resort community typically It is important to note the factors we thronged by summer vacationers that saw summarize may all be relevant to varying the loss of the bulk of a season’s revenue degrees, depending on the weight placed on decimated by COVID-19 shutdowns. Where them in each instance. As in the case of a COVID-19 has severely eroded a large kaleidoscope, a change in the extent to which portion of a community’s economic base, each factor plays a role in relation to others charities are more likely to have had difficulty can dramatically change the picture one maintaining funding and to find recovery observes. more challenging even as the need for their services grows. 1. NATURE OF MISSION Those charities that do not engage One of the most important factors in in COVID-19 related activities but can understanding the impact of COVID-19 on characterize their mission as an “essential” philanthropy is the nature of the mission of societal service have, in some cases, been an organization or institution. Regardless more successful in reducing the negative of other pertinent factors discussed below, impact of COVID-19. in most cases, the mission factor has had the greatest influence on the impact of the Others whose missions may not necessarily pandemic on philanthropy. be deemed essential in times of a pandemic, such as admission fee-based cultural In cases where an organization’s mission institutions that have seen their program is directly or indirectly related to addressing revenues fall precipitously, have nevertheless the human and economic consequences of been successful in appeals for funds to ensure COVID-19, efforts have typically their survival with messages such as “imagine been less impacted. a world without X.”

3 The Pandemic & Philanthropy It is important to note that some nonprofits Many of the charts that have been widely whose missions were already being questioned distributed in the media have focused on total due to other economic, demographic, or numbers of cases and deaths on a state-by- sociological factors are experiencing an state basis. For our purpose of our analysis, acceleration of what was already looking both cases and deaths may be better viewed to be their ultimate fate. For example, some in per capita terms. educational institutions were already under stress pre-COVID-19 due to trends toward online learning, concerns related to tuition costs, and lower birth rates, all of which have been putting pressure on traditional demand. The addition of the impact of COVID-19 to the mix has served to exacerbate these challenges for some institutions.

A study published in July 2020 evaluated 442 colleges and universities ranked by U.S News & World Report and assigned them to categories labeled “Thrive,” “Survive,” “Struggle,” and “Perish.” (The initial “Perish” category was subsequently renamed to “Challenged.”) A total of 50% of the institutions were listed in the “struggle” or “challenged” category because of COVID-19. 1

2. GEOGRAPHIC LOCATION Thus far, the impact of COVID-19, as in the case of the 9/11 attacks, economic recessions, and other events that have challenged the finances of the non-profit sector in the past, has varied greatly depending on geographic factors.

The first cases of COVID-19 in the United States occurred in late January 2020. Since that time, it has become increasingly clear that the impact of the virus in terms of numbers of cases and mortality has, to date, been experienced unevenly across the country.

4 The Pandemic & Philanthropy For example, as of mid-January 2021, the reflected in regional economic activity, incidence of death from COVID-19 in New including the nature and extent of charitable Jersey (the state with the highest number giving. of deaths per capita) was one out of 442 residents. Compare this to one of 1,271 The uneven distribution of the effects residents of California and one of 3,949 in of COVID-19 across the U.S. means Vermont, where the chance of dying from that nonprofits that raise funds locally or COVID-19 was one-eigth that of New regionally in areas where the impact of Jersey. The national average at that time was COVID-19 has been less severe have not faced the same extent of reduction in funding one out of 863. that’s been experienced by those in harder-hit Only 17 states had experienced above- areas of the country. This will undoubtedly average mortality rates. Their combined influence the timing and extent of recovery population amounts to 33% of the total U.S. from this unprecedented health crisis. population, but these states accounted for Not surprisingly, organizations that raise 181,000 of the 379,000 total deaths as of funds nationally have experienced mixed mid-December, a disproportionate 48% of results that in the aggregate reflect where the total.2 their primary clusters of support are located, One might speculate that those 17 states with those with less exposure to the hardest- may have experienced higher mortality hit areas experiencing less severe impact. due to their older populations. In reality, the percentage of residents over 65 in those states averaged 16.6% compared 3. FUNDING METHODOLOGIES to a national average of 16.4%3. Several Another factor that has significantly of the hardest-hit states actually have a influenced the extent of damage to nonprofit lower percentage of older residents than funding by COVID-19 is the way in which a the national average, so other factors such nonprofit is funded. as ethnicity, poverty, access to health care, population density, etc., must be in play. Charitable organizations and institutions Those influences will no doubt be ferreted enjoy revenue in different percentages from out by others in future research. a number of sources, including individual contributions, a variety of types of special In coming months with the introduction of vaccines and the benefit of knowledge events, corporate support, foundation grants, gained regarding the treatment of government funding, bond financing, other COVID-19, the remainder of the U.S. may forms of borrowing, mission-related revenue, or may not experience the level of impact of and income from endowments, intellectual COVID-19 thus far suffered by a minority property, and unrelated businesses they may of the population. We have, however, to own. As in the case of physical location and date, witnessed a highly disparate impact scope of operation of a , the pandemic of the pandemic when examined from has had an uneven effect on these sources of a geographic perspective. This has been funding.

5 The Pandemic & Philanthropy Individual giving responses to “donate now” buttons embedded in online content that sheltering individuals’ Individual giving in the form of lifetime value and decide to support. gifts and those realized at death amounted to nearly 80% of voluntary private support of Time will tell if this represents a U.S. charities in 2019.4 temporary shift in donor behavior or whether the pandemic has permanently accelerated Even in the best of times, the amount trends that were already underway. As one of individual giving per charity varies client put it, “we have seen what might have greatly based on many factors. The impact been 20 years of evolution come to pass in of adding COVID-19 to other elements nine months.” determining the level of giving by individuals appears to have depended largely on the age Gifts from the estates of deceased donors and wealth of a given constituency. do not appear to have been significantly impacted by the pandemic. Organizations As in the case of giving during the Great with large concentrations of donors in Recession,5 the impact of COVID-19 the 80-and-older age range that typically appears to be based to some extent on the depend on a substantial part of their annual age distribution of a nonprofit’s support revenue from bequests have, as a result, base. seen less downward pressure on their overall For example, donors in the 55+ age range philanthropic support. are either already retired or have, for the For one large national organization I work most part, not been swept up in the waves of with, income from estate distributions and COVID-19 related job losses. These donors direct mail gifts from donors over 65 were the are, therefore, less likely to have experienced only revenue sources that met goals for their reductions in available funds from which to fiscal year that ended June 2020. make gifts. Contrast this with organizations that Couple that with the fact that older depend largely on relatively younger donors individuals are now more likely to be at home who may have suffered greater job losses reading and listening to communications or the impact of hiring freezes and have from charities, and it is not surprising that consequently experienced a greater reduction organizations with older donor bases are in individual gifts. more likely to have experienced less impact from COVID-19 than those that rely more This age-related impact may be partially heavily on group events that traditionally or fully offset by gifts from younger appeal to relatively younger individuals. individuals who are still employed but are working from home. In many cases, these A surprising COVID-19 related donors are enjoying substantial increases phenomenon has been increased response in discretionary income as expenses for rates experienced in some cases from donor commuting, childcare, and clothing, and acquisition efforts in the mail and broadcast other work-related expenditures have media. This has also extended to more dropped dramatically.

6 The Pandemic & Philanthropy Add to that the income not being spent Anecdotal information indicates that in restaurants and on leisure travel. The some wealthy supporters of nonprofits are restaurant industry grossed an estimated continuing to make large non-COVID-19 $863 billion in 2019,6 and leisure travel related gifts but are foregoing increases. In reported $512 billion,7 for a total of $1.38 some cases, they’ve decided to increase their trillion. overall giving but direct the bulk of additional amount to funding COVID-19 related In comparison, individuals donated some missions. 23% of that amount, or $310 billion, to U.S. charities in 2019.8 Suppose individual giving The wealthy also appears to be shifting declined 20% as a result of COVID-19. If their philanthropic dollars away from brick just 5% of the $1.38 trillion spent on travel and mortar and other infrastructure projects and restaurants were redirected to charitable toward funding increased operational purposes, this would more than make up spending. Some high net worth donors who for that 20% decline in individual giving. had made previous commitments restricted Consider that four dollars per working day to particular projects have subsequently no longer spent on designer coffee amounts removed those restrictions and allowed the to over $1,000 a year that could be directed funds to be redirected where most needed.10 to a local food bank. It should also be noted that in many The relative wealth of a donor instances corporate support—in the form constituency has also proven to play a major of sponsorship or donated products or role in the impact of COVID-19 on levels of services—is also an important component giving. When an organization enjoys a broad of special event fundraising to be discussed base of support from upper-middle- and below. It may be possible to stem special higher-income individuals, we’re seeing less event losses to some extent by asking impact on fundraising even in areas where companies to maintain their support even there has been greater economic dislocation when anticipated events are cancelled or leading to a larger number of layoff and postponed due to COVID-19. business closures. Cash and other assets committed to DAFs The wealthiest individuals are reportedly in prior years are now being unleashed to continuing their giving but are in some cases fund nonprofits of all types, but reports shifting a portion of their support to local indicate that a disproportionate amount is organizations that have been more heavily being directed to those organizations involved impacted by the pandemic. This seems to be in direct relief of hunger and other negative particularly true of arts organizations, which social consequences associated with the have in some cases seen program-related pandemic.11 funding dwindle to a survival-threatening extent. Other organizations, such as food Finally, regardless of age and wealth, banks that are directly serving those most thoughtful stewardship efforts have been the impacted have experienced increased giving key to many organizations minimizing the from wealthy individuals due to exponential impact of COVID-19 on their fundraising. growth in demand for their services.9 While it is important to ask donors for gifts

7 The Pandemic & Philanthropy at the right time for the right amount using programs possible who may be sheltering in the best property, it is equally important, place, and also having difficulty procuring especially in the current environment, to masks on their own. master the art of “making the thank.” They received many calls and notes from This includes not only thanking donors the mask recipients thanking the organization for what they are giving today, but also for thinking of them, along with unsolicited recognizing what they have done in the past. gifts. In late November, the charity received a Now may be the time to call donors of any $7,000 check from a family foundation at the amount who have given for more than 5, 10, direction of a 74-year-old woman who had 15, 25, or even 50 years. It can also be wise received masks. Her largest previous was to acknowledge donors who have reached $150. a particular cumulative giving milestone, whether that be $1,000, $5,000, $10,000, Foundations and corporations $100,000 or more. Foundations accounted for some 17% of These contacts serve to remind donors giving in 2019.12 Their giving appears to have of the length and cumulative impact of been less affected by COVID-19 due to the their support at a time they may be making combination of the federally mandated 5% choices of where to continue giving from annual payout requirement and investment what may be limited funds. markets on which those payouts are based reaching record levels despite the pandemic. These stewardship contacts may be a way This has served to lend relative stability to to employ the time of staff who are unable foundation funding. to travel, manage events, provide program services or the fulfillment of their primary Some foundations have reportedly role has otherwise been impeded by the shifted their funding priorities to charities pandemic. that are working to alleviate the health and economic impact of COVID-19 or Also, take advantage of creative ways to have disproportionately suffered due to the reach out to donors whether or not they have pandemic. made a recent gift with a contact that is not perceived as an overt “ask” for support. Others are also directing more funding to organizations and institutions that are taking In one case, a client that had incorporated steps to address long-term societal challenges the distribution of face masks to those it that were illuminated and or exacerbated by served in its programs decided in April COVID-19, and this has resulted in charities to also send two face masks each to long- that are seeking more traditional grants facing term, older donors. Included was a message new challenges when pursuing foundation that the organization was not only making funding. masks available to those in the community who could not obtain them, they were also As in the case of high net worth providing them to donors who made their individuals, many foundations have also

8 The Pandemic & Philanthropy pledged to remove restrictions on previously deemed essential societal needs have yet to committed grants and allowed the funds to see broad cuts and may be augmented by be devoted to payroll and other uses to help additional federal relief packages. grantees weather the COVID-19 storm.13 Borrowing and asset liquidation Corporate support amounted to 5% of charitable gifts in 2019.14 This source Borrowing in times of historically low- has largely been unaffected where the interest rates presents a viable alternative for nature of a business has insulated it from some charities seeking to address the cash significant impact. Other businesses such as flow impact of COVID-19 in whole or in part airlines, restaurants, and other components by leveraging strong balance sheets. of the hospitality industry have been disproportionately damaged by COVID-19. Others have begun to raise cash by selling or otherwise liquidating the non-mission- Some charities depend more on corporate critical real estate and other assets. Some philanthropy than others. An example of charities have used creative combinations a negative impact is a national charity that of borrowing and the sale of assets. We benefits from a major corporate partnership anticipate that future campaigns may be with a restaurant, airline, hotel chain, or launched to reduce or eliminate COVID- other business that has seen its revenues related debt that will, in some cases, include decimated by COVID-19. The corporation the use of carefully structured blended gifts may honor current commitments but may or designed to meet the financial needs of both the donor and the charitable recipient. may not renew them at the same level.

It should also be noted that in many The role of endowments instances corporate support – in the form of Overall, endowment assets have sponsorship or donated products or services experienced record growth in recent years - is also an important component of special and have generated additional income that event fundraising to be discussed below. In has not yet been significantly reduced by some cases, it may be possible to stem special COVID-19. In some cases, charities have event funding losses to some extent by asking also tapped capital gains that have accrued in companies to maintain their support even recent years as a source of operating funds to when anticipated events are cancelled or help weather the COVID-19 storm. postponed due to COVID-19. Some institutions have encountered Government funding challenges as a result of large amounts of endowment raised during the historically Government grants and contracts unprecedented round of comprehensive represent a significant source of funding for capital campaigns in recent years. Much of a segment of nonprofits. These funds are this endowment was restricted by donors for coming under closer scrutiny as the impact use in funding research, chairs, scholarship of COVID-19 erodes the tax base in many funds, and other long-term needs, making jurisdictions. However, grants for what are it extremely difficult or impossible to tap

9 The Pandemic & Philanthropy these funds to meet shortfalls in general as a result of COVID-19. Charities that fight operational expenses. disease and other nonprofit organizations that generate a large percentage of their Other charities that have in the past annual philanthropic revenue from special voluntarily placed unrestricted bequests events have experienced deep reductions in and other excess funds in reserve accounts income that have only been partially replaced that could be tapped to meet current needs by moving events online or other solutions, when necessary have benefitted from this resulting in extensive budget reductions, institutional foresight during the pandemic. program cuts, and staff layoffs.

An example is a four-year liberal arts COVID-19 has less severely impacted college with a large store of unrestricted nonprofits with a multifaceted portfolio of reserve funds as part of its endowment. It fundraising methods. They have been able to has used a portion of those funds during pivot more easily to solicitations that do not the pandemic to avoid cuts in essential staff involve in-person contacts such as direct mail, and other spending, including the payment , and online meetings with board of professors whose positions were not members and major donors. As a result, they otherwise endowed by dedicated funds. have fared better than those entities that have disproportionately relied on special events.

Mission-related revenue Some nonprofits that have in the past Program fee-dependent nonprofits are raised large sums through person-to-person among those under the most significant stress contact have been better able than others due to economic and social dislocations to shift their major gift fundraising online caused by COVID-19. This source of because they had invested in thoughtful and funding has been severely strained or, in well-executed stewardship efforts before the some cases, evaporated completely. Examples pandemic. include educational and cultural institutions and others that derive a large percentage of their revenue from tuition, admission fees, 4. A GREATER ROLE FOR ticket sales, gift shops, and other program- ALTERNATIVE GIVING frelated income. The loss of sports revenue METHODS has also posed a major problem for some of As noted earlier, estate gifts have proven the nation’s largest universities. to be a resilient source of income for organizations that have engaged in focused Special events and sustained efforts to encourage gifts Special events such as galas, walkathons, through wills, trusts, and deferred gift vehicles marathons, concerts, golf tournaments, and over time. As individuals have continued to other such activities that require large groups pass away during the pandemic, gifts from of people to congregate in close quarters estates have been relatively unaffected apart have also been heavily impacted or rendered from pandemic-related delays in notification, completely ineffective by social distancing settlement and distribution of these funds requirements and sheltering in place orders due to court and law firm closures, and

10 The Pandemic & Philanthropy interference in the performance of trustee gifts of cash of up to 100% of their AGI and executor duties brought about by made directly to charity in 2020. This made COVID-19. it possible for wealthy donors with large amounts of cash on hand, but relatively As investment markets have recovered limited amounts of AGI in relation to and real estate has held its value or increased their asset base, to make gifts that would in many areas of the country, we have not completely eliminate their federal income yet seen a widespread reduction in the tax bill for 2020. It was also possible for average value of bequests when they are a wealthy individual to effectively exceed eventually received by charities on account the $100,000 QCD limit by withdrawing of diminished values of estates. whatever amount of cash they desired from a qualified retirement account and donate it Another benefit of strong investment in 2020 with no limitation on the deductible markets has been growth in the value of amount. many donors’ individual retirement accounts (IRAs), 401(k) plans, 403(b) plans, and other Legislation enacted by Congress on qualified retirement accounts. December 21, 2020, and signed by the President on December 27, 2020, his For donors over 701/2, making cash signature, included an extension of the distributions from IRAs known as qualified suspension of the AGI limit for gifts of cash charitable distributions (QCDs) can make through 2021. This bill also extended the it possible for older donors to make the above-the-line deduction for gifts by non- equivalent of tax-deductible gifts whether itemizers through 2021, and clarified an or not they itemize their deductions for tax ambiguity in earlier legislation by explicitly purposes. providing that an individual could deduct $300 for a gift of cash directly to charity, A major incentive for these gifts is the while a couple could deduct $600. fact that they count toward the required minimum distributions (RMDs) traditionally On another positive note, additional bi- required to be taken by donors over 701/2. partisan legislation introduced in Congress in An unexpected suspension of RMDs the fall of 2020 would increase the amount of for 2020 contained in COVID-19 relief qualified distributions from retirement plans legislation that increased the age when to charity from $100,000 to $130,000. This RMDs must be made from 701/2 to 72 has opportunity would be expanded to include reportedly resulted in decreases in charitable distributions from 401(k) plans and other distributions from IRAs in 2020. plans in addition to IRAs.

On the other hand, some donors with The bill would also allow a one-time substantial assets and relatively low amounts funding of a charitable gift annuity or of reportable adjusted gross income (AGI) charitable remainder trust with $130,000 are also taking advantage of the opportunity directed from a qualified retirement account. provided by pandemic-related tax legislation These would be welcome changes but could that made it possible for taxpayers to deduct be tempered somewhat by another provision

11 The Pandemic & Philanthropy in the proposed legislation that would and Jobs Act of 2017 (TCJA) is slated to increase the age for required minimum “sunset” at the end of 2025. Internal revenue distributions from 72 to 75. It is unclear what guidance has indicated there will be no the net effect of those two provisions may be “clawback” of benefits for assets given to if that legislation is enacted. others under current exemption levels prior to the scheduled sunset.15

Non-cash gifts Given the current economic and political Many organizations have also recognized environment, it now seems more reasonable that there may be a silver lining in the to believe that the sunset is more likely to COVID-19 cloud by taking advantage of occur at some point as a method of raising economic and political factors that can revenue to help offset the enormous cost of be used to spur completion of larger gifts funding COVID-19 relief spending. This other than outright gifts of cash in this creates a new sense of urgency to act sooner environment. than later on plans to transfer assets to heirs immediately or on a deferred basis. Record stock market values despite COVID-19 have also resulted in wealthier Depending on the makeup of Congress donors making more and larger gifts in the in 2021 or following the 2022 midterm form of appreciated securities. elections, it is possible that the TCJA increase in the federal estate and gift tax exemption Some have also begun to express greater from $5 million to $10 million (as adjusted for interest in donating art and other valuable inflation) could actually be reduced before the gifts of tangible personal property and what automatic rollback in 2026 provided for in they consider to be excess real estate holdings the TCJA. in the form of outright gifts or deferred gifts that result in immediate tax benefits and in Consider, for example, the case of an some cases a source of additional income. individual in his late 60s who has not yet used the $11.58 million unified estate and gift tax At the same time, historically low-interest credit available as of 2020. Through the use rates have increased the attractiveness of a charitable lead annuity trust (CLAT), it’s of a number of tried and true planning now possible for him to place $20 million in a techniques such as grantor retained annuity trust that will distribute its remainder to heirs trusts (GRATs), charitable lead trusts (CLTs), who are now in their mid-30s in 10 years. sales to family members, and other planning In the interim, the CLAT will make fixed tools that benefit from low-interest rates used payments of 5% ($1 million) each year to one to compute the value of transferred assets. or more charitable interests.

Looking to the future with a new Assuming an applicable federal midterm administration and the specter of federal rate of 4/10 of 1% as of November 2020, fiscal challenges for the foreseeable future, this results in a charitable gift tax deduction now may be the time to remind wealthy of $9.8 million and a taxable gift of $10.2 donors that the doubling of gift and estate million to the heirs, which is less than the tax exemptions introduced in the Tax Cuts donor’s remaining unified credit.

12 The Pandemic & Philanthropy After the charitable beneficiary(ies) has more. The trust will make fixed payments of received payments totaling $10 million, 10%, or $200,000 per year, most of which the heirs will receive the remainder of the would be reported at lower capital gains tax trust when it terminates, including any rates. growth of the corpus with no additional gift tax due on the increase. Through this Over the course of the campaign pledge planning approach, the donor has effectively period, they would receive some $1.6 million transferred $20 million (or whatever greater in pre-tax income. This will go a long way or lesser amount that remains in the trust) to toward paying for their daughter’s graduate heirs on a tax-free basis while also donating school tuition and offsetting the $8,000 a $10 million to one or more charitable month they are contributing toward the recipients he named in the trust. support of George’s 85-year-old mother. They’ll be entitled to a charitable income A lower interest rate environment also tax deduction of approximately $475,000 in makes charitable remainder annuity trusts the year of their gift, which can significantly (CRATs) and charitable gift annuities reduce their current income tax liability over (CGAs) funded with cash or appreciated, low a period of as many as six years. yielding investment assets more attractive for older, charitably inclined donors whose risk If the trust earns an average net return of tolerance is appropriate for these sources of 5% over its term, the trust should distribute relatively high fixed income and immediate just over $1 million at the end of eight years tax advantages. and fulfill payment of a “balloon pledge” of that amount. George and Mary execute We expect term of years charitable a pledge agreement at the outset of the remainder trusts, particularly annuity trusts, campaign that includes a provision that they to assume a greater role in the post-COVID will “backstop” the charitable remainder by environment, especially if investment market making up any amount eventually distributed values and real estate values maintain by the trust under $1 million. If the trust current levels. distributes more than $1 million, their campaign credit will be adjusted upward For example, consider the case of accordingly. George and Mary, both age 60. They have been asked to make a $1 million gift to an Consider the win/win nature of this gift endowment campaign for which gifts are in which the donors enjoy a predictable credited at full value if received before the source of additional income to help serve expiration of an 8-year pledge period. as an 8-year “bridge to retirement” they plan at age 68, while the charity benefits They decide to fund a charitable from a significant gift at the end of a regular remainder annuity trust using $2 million pledge period. Contrast this with a bequest worth of securities with a cost basis of commitment that may or may not come $500,000 that yield only 2%, or $40,000 to fruition decades from now, or with a per year. The combined state and federal charitable remainder unitrust that would tax liability on the $1.5 million in gains if make significantly lower and less predictable they sold the securities could be $300,000 or payments, and the charity would receive

13 The Pandemic & Philanthropy nothing until the end of George and Mary’s by quickly addressing their weaknesses and joint life expectancy of an estimated 32 years playing to their strengths. under current health care standards. For example, one opera company was In the case of a gift annuity in today’s faced with no revenue from its canceled environment, lower interest rates reduce the performances and no practical way to stream value of the charitable deduction associated them. Its leadership decided to rent flatbed with the gift but more of the payments will trucks and outfit them with generators be received free of tax for the period equal and sound equipment and provide live to the donor’s life expectancy. This results in performances for outdoor summer more spendable income than would be the gatherings of socially distancing individuals case in times of higher interest rates. celebrating a birthday, anniversary, or other group occasions. In an environment in which fewer seniors itemize tax deductions, the increased The opera company has generated after-tax income will more than offset the substantial replacement revenue from these reduction in the amount of the income tax performances but, perhaps more importantly, deduction in many if not most cases. provided a welcomed break from the stress of the COVID-19 environment to those in These are just a few examples of how attendance. This creative solution will also careful planning of larger gifts can make help build its brand and will undoubtedly it possible to achieve both personal and pay great dividends when the pandemic philanthropic goals while providing cash flow passes while also helping provide funds to that can be used by charitable recipients to keep its talent engaged and at least partially help offset funding losses experienced during compensated. and in the wake of COVID-19. CONCLUSION 5. MANAGEMENT FACTOR Finally, despite all the ways COVID-19 It is impossible to overstate the has changed the philanthropic funding importance of strong leadership during landscape, the fundamental fact remains that the COVID-19 crisis. Organizations led the United States has long led the world in by highly motivated executive teams and voluntary funding of philanthropic causes. volunteers who are willing to think outside the box have tended to fare better than History reveals that depressions, others. Instead of folding and retreating pandemics, terrorist attacks, natural into survival mode, these staff and volunteer catastrophes, and wars have periodically board leaders have carefully considered the presented extreme challenges to our nation’s unique calculus presented by the various nonprofits. Still, in the end, the sector has factors outlined here and skillfully played the always rallied and exhibited creativity and hand they have been dealt. In so doing, they ingenuity that allowed it to survive and/ or have diminished the impact of COVID-19 thrive and have an even greater long-term positive impact on society.

14 The Pandemic & Philanthropy Endnotes 1 www.businessinsider.com/scott-galloway- colleges-must-cut-costs-tosurvive- covid-2020-7

2 www.worldometers.info/coronavirus/

3 www.prb.org/which-us-states-are-the-oldest/

4 Giving USA 2020: The Annual Report on Philanthropy for the Year 2019, a publication of Giving USA Foundation, 2020, researched and written by the Indiana University Lilly Family School of Philanthropy, www.givingusa.org

5 Robert F. Sharpe, Jr., “Charitable Planning During and After COVID-19,” Trusts& Estates (April 2020).

6 www.cnbc.com/2019/08/19/americans- putting-more-of-their-budgettoward- eating-out. html

7 www.ustravel.org/system/files/media_root/document/Research_Fact-Sheet_ Domestic- Travel.pdf

8 Giving USA 2020, https://givingusa.org/ giving-usa-2020-charitable- givingshowed-solid- growth-climbing-to-449-64-billion-in-2019-one- of-thehighest- years-for-giving-on-record/

9 www.nytimes.com/2020/06/26/your-money/ philanthropy-pandemic- coronavirus.html

10 www.barrons.com/articles/in-response-to- covid-19-u-s-donors-mademore- unrestricted- grants-01599088282

11 https://www.philanthropy.com/article/giving-from-donor-advised-funds-surge- as-pandemic-spreads/?cid2=gen_login_refresh&cid=gen_sign_in

12 Supra note 8

13 www.cof.org/news/call-action-philanthropys- commitment-during-covid-19

14 Supra note 8

15 www.northerntrust.com/ united-states/insights-research/2020/wealth- management/wpi-lifetime-exclusion-amoun

15 The Pandemic & Philanthropy ABOUT THE AUTHOR Robert F. Sharpe, Jr. is a nationally recognized leader and authority in the field of philanthropy. During more than three decades of service to thousands of America’s nonprofits, he has consulted with educational, health, social service, arts, and religious organizations and institutions in the planning and implementation of their major, planned gift and endowment development efforts. He has mentored many of the nation’s leading nonprofit executives whose efforts have raised tens of billions of dollars that have helped fuel the transformation of the American experience.

An honors graduate of Vanderbilt University and Cornell Law School, he served as a development officer for a liberal arts college prior to practicing law with a major law firm specializing in taxation and estate planning.

Robert has been a pioneer in the area of “blended gifts” beginning in 1995 when he coined the term as part of a presentation at the national conference of the National Association of Charitable Gift Planners (CGA).

Robert is chair of the philanthropy editorial board of Trusts & Estates magazine and co-author of the CGP Model Standards of Gift Valuation. He has served on the board of Giving USA and on a number of strategic task forces for the CGP. He currently serves as an Advisory Council member for the Alliance for Charitable Reform in its efforts to preserve and expand favorable tax treatment for charitable gifts.

Among other publications, his remarks have been featured in The Wall Street Journal, The New York Times, Newsweek, Forbes, Smart Money, The Chronicle of Philanthropy, Trusts & Estates and Kiplinger’s.

He is a sought-after speaker at local and national gatherings of fundraising executives, financial officers and others. He was co-creator with David Dunlop of the CASE Conference “Inspiring the Largest Gifts of a Lifetime,” and has served on its faculty for over 20 years.

He is a recipient of the CASE Crystal Apple award for excellence in teaching and has received the Lifetime Achievement Award from the Philanthropic Planning Group of Greater New York, the David M. Donaldson Distinguished Service award from the Planned Giving Group of New England and has been inducted to the CGA Gift Planning Hall of Fame.

16 The Pandemic & Philanthropy