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Asset Giving: 4 reasons asset giving changes philanthropy

Asset Giving

Asset Giving: A Transformative Approach to Nonprofit Fundraising

Nonprofits often find themselves caught in the relentless cycle of asking for cash donations. But what if there was a more sustainable, impactful way to secure the financial resources needed to advance your mission? Enter asset based giving—a powerful, yet often overlooked, fundraising strategy that taps into the wealth people hold beyond their checkbooks. When nonprofits shift their focus from traditional cash gifts to asset based giving, they not only diversify their funding sources but also open the door to transformational gifts that can change the future of their organizations.

Asset based giving refers to contributions made through non-cash assets, such as stocks, real estate, art, or even cryptocurrency. While cash donations may come and go, assets represent more significant portions of wealth that are often tied up in investments or property. By educating and encouraging donors to give from their assets, nonprofits can unlock larger, more impactful contributions.

But asset based giving is about more than just receiving bigger donations. It’s about creating a new mindset—one where donors can give in ways that are more aligned with their long-term financial strategies, offering them both emotional fulfillment and strategic financial benefits. In this article, we’ll explore why nonprofits must move beyond the simplicity of cash gifts, the many advantages of asset based giving for both donors and organizations, and how nonprofits can begin integrating this approach into their fundraising strategies.

The Limits of Cash Donations

For decades, nonprofits have relied heavily on cash donations to fund their operations and fulfill their missions. Annual giving campaigns, membership drives, and direct appeals almost always center on cash gifts. While this has worked for many organizations, it comes with limitations. Cash donations are typically much smaller than asset-based gifts, and donors may find themselves constrained by liquidity—unable to give more than they can afford at any given moment.

According to a study by the Lilly Family School of Philanthropy, over 90% of charitable gifts in the U.S. are made in the form of cash. Yet, more than 97% of the nation’s wealth is held in assets. This discrepancy reveals the enormous untapped potential in asset based giving.

For example, many donors may want to make a significant impact on a cause they care about but find themselves unable to give substantial cash gifts due to financial obligations like mortgage payments, retirement savings, or college tuition for their children. However, they may own appreciated stocks or real estate that have increased in value over time. By donating these assets instead of cash, they can make a larger gift to the nonprofit while simultaneously avoiding capital gains taxes—making it a win-win situation for both parties.

Why Nonprofits Must Prioritize Asset Based Giving

1. Bigger Gifts with Less Financial Strain

One of the most significant advantages of asset based giving is that it enables donors to make larger contributions without disrupting their cash flow. Take the example of a donor who owns shares of stock that have significantly appreciated in value. If they sell those shares, they’ll be required to pay capital gains taxes on the profit. However, if they donate the stock directly to a nonprofit, they can avoid those taxes altogether, while the nonprofit receives the full value of the asset.

For example, imagine a donor who purchased stock for $10,000 that is now worth $50,000. If they sold the stock, they’d face a capital gains tax on the $40,000 profit. But if they donate the stock to a nonprofit, the organization receives the full $50,000, and the donor avoids paying taxes on the gain. This enables the donor to make a larger gift without it feeling like an undue burden on their finances, while the nonprofit benefits from a substantial contribution.

The same is true for gifts of real estate or other appreciated assets. By allowing donors to give from their wealth rather than their income, nonprofits open up opportunities for more significant, transformative gifts that go beyond what most donors could provide in cash.

2. Asset Giving Diversifies Funding Sources

Nonprofits often rely heavily on annual cash donations to meet their financial needs. This dependency can be risky, especially during times of economic uncertainty. Cash donations tend to fluctuate with the economy, and during recessions or financial downturns, nonprofits may find themselves struggling to raise the funds they need.

Asset based giving offers a solution to this volatility. By asking for gifts in the form of assets, nonprofits diversify their revenue streams, making them less reliant on cash donations that may dry up during hard times. For instance, a donor who is hesitant to part with cash during a recession may still be willing to donate a portion of their stock portfolio, particularly if the stock has appreciated significantly over time.

Diversifying funding sources also strengthens a nonprofit’s financial sustainability over the long term. When an organization can rely on a mix of cash and asset-based gifts, it’s better positioned to weather economic downturns, capitalize on favorable market conditions, and grow its endowment.

3. Engaging High Net-Worth Donors More Effectively

High net-worth donors—those who have accumulated significant wealth over time—are often looking for strategic ways to support the causes they care about. However, they don’t always have large sums of liquid cash on hand, as much of their wealth is tied up in investments or property. For these donors, asset based giving can be a perfect solution.

By offering high net-worth individuals the option to give from their assets rather than their income, nonprofits can significantly increase the size and frequency of donations from this critical donor group. Forbes reports that the ultra-wealthy often see giving through appreciated assets as a key component of their philanthropic strategies, as it allows them to make larger gifts while maintaining their financial goals.

Take, for example, a donor who owns a vacation home that they no longer use. If they donate the property to a nonprofit, they can receive a tax deduction for the full fair market value of the property while avoiding capital gains taxes. The nonprofit, in turn, can choose to sell the property and use the proceeds to fund its mission or keep the asset if it aligns with its programmatic goals.

By positioning asset based giving as a strategic and tax-efficient way for high net-worth donors to make an impact, nonprofits can build stronger, more fruitful relationships with these individuals.

Steps Nonprofits Can Take to Incorporate Asset Based Giving

Asset based giving requires a shift in mindset, both for nonprofits and their donors. Instead of focusing exclusively on cash donations, organizations need to start educating donors about the many benefits of giving from their wealth. Here are a few ways nonprofits can start incorporating asset based giving into their fundraising strategies:

1. Educate Donors on the Benefits

Many donors are simply unaware that they can give through assets. They may be accustomed to writing checks or making online donations and haven’t considered other options. Nonprofits should proactively educate their donor base about the benefits of asset based giving—both for the donor and the organization.

This education can take many forms. Consider hosting webinars or workshops on tax-efficient giving strategies, writing blog posts or newsletters about the advantages of donating stocks or real estate, and incorporating information about asset based giving into donor materials.

2. Make It Easy to Give Assets

Asset based giving can seem complicated to some donors, so it’s essential to make the process as straightforward as possible. Nonprofits should work with financial advisors and tax professionals to create a streamlined process for accepting gifts of stocks, real estate, or other non-cash assets. This might involve setting up a brokerage account to receive stock transfers or partnering with a third-party organization that specializes in managing complex donations.

The easier it is for donors to give from their assets, the more likely they are to take advantage of the opportunity.

3. Build Relationships with Financial Advisors

High net-worth individuals often rely on financial advisors to help them manage their wealth and plan their philanthropic giving. Nonprofits should prioritize building relationships with these advisors, educating them about the benefits of asset based giving and encouraging them to suggest it to their clients.

By becoming a trusted partner for financial advisors, nonprofits can tap into a valuable network of potential donors who are ready and willing to give from their wealth.

4. Promote Planned Giving Opportunities

Asset based giving is closely tied to planned giving, where donors make long-term commitments to support an organization through their estate plans or other financial instruments. Nonprofits should actively promote planned giving opportunities, such as gifts of stock, real estate, or even business interests, as a way for donors to leave a lasting legacy.

By encouraging donors to think about asset based giving as part of their estate planning, nonprofits can cultivate long-term relationships that result in significant future gifts.

Conclusion: Asset Based Giving is the Future of Philanthropy

In today’s philanthropic landscape, asset based giving represents an enormous, largely untapped opportunity for nonprofits. By encouraging donors to give from their wealth rather than their income, nonprofits can unlock larger gifts, engage high net-worth individuals, and build a more financially sustainable future.

Nonprofits need to rethink their traditional focus on cash donations and start incorporating asset based giving into their fundraising strategies. This shift isn’t just about securing more funds; it’s about creating a more inclusive, impactful, and sustainable approach to philanthropy that benefits both donors and the organizations they support.

To learn more about how asset based giving can transform your nonprofit, visit Nonprofit Freelancers for additional resources and expert advice.

 

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October 18, 2024