Practice Exam Flashcards
Consider the idea of “the tyranny of one number.” Why is it impracticable to hold planned gift officers to one number of dollars raised?
A) Planned gift people shouldn’t be measured by results.
B) Results in gift planning cannot be quantified.
C) The cash element in planned gifts is relatively minor.
D) Planned gifts fall into three main categories: current, deferred, and contingent and deferred. It is not logically possible to add these into a single, meaningful number.
D) Planned gifts fall into three main categories: current, deferred, and contingent and deferred. It is not logically possible to add these into a single, meaningful number.
D. To add apples, oranges, and potatoes to get one number is easier than to add current, deferred, and contingent deferred gifts into one number. Cash is easy to count. Deferred gifts are not so easy. How does a single count today produce an irrevocable remainder interest in a unitrust whose value is going up and down daily? As for revocable deferred, how can you reduce to a number the value of a revocable 50% interest in the estate of a woman aged 52 who is in good health?
Yet, counting is inevitable. For it to be done right, per the “Guidelines for Reporting and Counting Charitable Gifts,” 2nd ed., from the National Association of Charitable Gift Planners (as seen in Assignment 5), we should report three numbers, each at its face amount. The reluctance of boards and business offices to count in this way and their preference for current dollars is part of what is driving the fusion of major with planned gifts, often to the detriment of planned gift officers.
What is the difference between gift counting and gift valuing?
A) Gift counting is the process of determining the number of gifts received; gift valuing is the process of determining the discounted present value of those gifts.
B) Gift counting is the process of determining the nominal value of gifts; gift valuing is the process of determining the discounted present value.
C) Gift counting is for internal fundraising and marketing purposes; gift valuing is for the organization’s internal cash-flow projections.
D) Gift counting is for the comptroller, to determine the value of what the organization has received; gift valuing is for crediting the donor with a specific value for donor recognition purposes.
C) Gift counting is for internal fundraising and marketing purposes; gift valuing is for the organization’s internal cash-flow projections.
C. Gifts are counted (per guidelines promoted by The National Committee for Planned Giving) in a way that is simple to understand for fundraisers and donors and that is incentivizing. In this system, Gifts are counted toward campaign totals and donor recognition levels on a simple, three-part system: outright, irrevocable deferred, and revocable deferred. All gifts are counted at nominal value without discounting for the time value of money or for the likelihood of gifts actually coming to fruition.
Gift valuation, under the valuation standards promoted by the National Association of Charitable Gift Planners, is done for internal purposes, to help the business office predict and value the spendable cash flow from a planned gift. Valuation standards take into account when the charity is likely to realize spendable money, how much it will be able to spend, and the likelihood that the money will actually materialize.
Which of the following endowments is set up to last for only a certain period of time?
A) a true endowment
B) a term endowment
C) a quasi-endowment
D) all endowments
B) a term endowment
B. A term endowment lasts for only a term of years or for a set time period.
Traditionally, the fundraising function in a large organization has been broken down into three categories of giving: annual, major, and planned. In addition, the organization may have short-term campaigns. All of the statements below are examples of what gift planners mean when they write about the fusion of major and planned gifts, EXCEPT
A) The departments may be combined or fused.
B) Fundraisers may find themselves performing more than one role.
C) Fundraisers may ask for more than one gift at a time (i.e., a major gift commitment and a planned gift commitment) in a double ask.
D) Increasingly, fundraisers are being encouraged to fuse their work with that of financial planners and others, who look at gifts as financial and philanthropic strategies within a more comprehensive plan.
D) Increasingly, fundraisers are being encouraged to fuse their work with that of financial planners and others, who look at gifts as financial and philanthropic strategies within a more comprehensive plan.
D. Sadly, fusion is code for cutting planned giving jobs and fusing the staff with major gifts. It has meant spreading the planned giving team out over more cases and getting them to double as major gift officers. It has led to more calls made faster to make sure current dollars come in. This has not been good news to planned gift people.
A capital campaign is used for what purpose?
A) building unrestricted endowment
B) constructing a building or a major new program
C) raising money for current budgets
D) raising gifts from principal (non-cash assets and appreciated securities)
B) constructing a building or a major new program
Generally, the purpose of a capital campaign is to build an edifice — a building or a permanent program (like a center).
When a social investor is said to be “sector agnostic,” which of the following statement(s) is (are) implied?
I. The investor is focused on cost and results, regardless of the sector.
II. The investor is willing to invest in cost-effective solutions in whatever sector these may be found.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
C. The phrase “sector agnostic” is cited here from the work of Lucy Bernholz, who works in the high-tech, entrepreneurial world of Silicon Valley. Such thinkers take business and markets as their primary reference point. They see business as results-driven, and they see themselves as producing innovative and disruptive solutions that get results, whether those results are obtained through business, nonprofits, or governmental advocacy. They believe in dollars in, results out. To them, there is nothing special about the nonprofit sector, other than legal forms.
A charity comes to believe that its role is all about getting money in and putting results out, and it increasingly moves towards being a vendor or service provider for corporations. If the charity is a school, for example, it may do custom research for a company, train corporate staff, or otherwise create benefits to the funder first, and to the students second.
How might the IRS react?
I. The IRS might characterize the income as unrelated business taxable income.
II. The IRS might tax the charity on the earned income.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
C. Advanced theorists with a business perspective like that of Lucy Bernholz are sometimes sector agnostic, viewing charities as machines for creating social return on investment and returns to the social investor. In the process, sectors blur, as if the differences between charities and for-profit businesses were just a matter of quaint terminology, in contrast to the new and up-to-date language of social entrepreneurialism.
The IRS, however, is not sector agnostic and does not embrace blurred lines between what is taxable and what is not, or between what is a gift and what is a business deal or investment. The IRS maintains that a charity exists for a social purpose, and that it has certain tax benefits because it selflessly helps the public. So, when a charity gets into the earned income business, the IRS wants to see that the income is clearly related to the charity’s tax-exempt purpose. Acceptable, mission-related income might include tuition at a school, admission fees for a museum, sales of bread made by trainees at a bakery maintained to help ex-prisoners transition to society from jail, or sales of donated clothing in a thrift shop maintained by a religious organization.
In other cases, a charity may be selling services for the sake of making money unrelated to its purpose; when the charity, in effect, becomes a vendor or a business in disguise, the IRS may recharacterize the income as “unrelated business taxable income.” Such income is taxed to the charity. If that income becomes a very large percentage of total receipts, the charity may lose its exemption.
Which of the following statements is (are) true?
I. A “moves manager” at a charity decides who will approach which donor, how, when, and with whom.
II. The “natural partner” is the person who has overall responsibility for that donor relationship.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
A) I only
A. The terminology goes back to Dave Dunlop, a highly regarded fundraiser. William Sturtevant writes about “moves management” at length in The Artful Journey: Cultivating and Soliciting the Major Gift. The system sees fundraising as a multistep process for several players.
The “moves manager” is a fundraiser who develops a list of potential high-dollar donors and manages the process of cultivating and soliciting them.
The “natural partner” is a person who is well positioned to get an appointment with and influence the donor. The natural partner could be the president, executive director, a board member, or a close friend of the prospect and a fellow donor. The primary player is the natural partner best positioned to make the ask or to support the fundraiser when the ask is made.
Which of the following statement(s) is (are) found in the “Model Standards of Practice for the Charitable Gift Planner”?
I. Primacy of Donor Intent: The principal basis for making a charitable gift should be a desire on the part of the donor to support the work of the charitable institution.
II. Explanation of Tax Implications: Congress has provided tax incentives for charitable giving. The emphasis in this statement on philanthropic motivation in no way minimizes the necessity and appropriateness of a full and accurate explanation by the gift planner of those incentives and their implications.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
C. These are word-for-word the first two of the ten canons in the “Model Standards of Practice for the Charitable Gift Planner.” Donor intent “to benefit the work of a charity” comes first; behind it comes a “full and accurate explanation” to the donor by the gift planner of the tax incentives and their implications.
Consider the approach taken by the following fictional investment advisory firm:
“As a good person, you will not want to invest in firms that violate your values. We will examine your portfolio for stocks and bonds that do not fit your value system, and we will eliminate those.”
Which of the answers below best describes this approach?
A) impact investing
B) investing for social return
C) screened investments
D) social venture philanthropy
C) screened investments
C. This is an example of negative screening. A portfolio is screened for investments that are out of phase with the values of the investor. For example, an investor might object to drinking, smoking, and guns, but his or her portfolio might contain stocks and bonds of companies tied to products and activities to which the investor objects. Negative screening can screen outsuch undesirable stocks and bonds - and positive screening can screen in virtuous ones.
Social venture philanthropy gifts dollars to charities, which are treated almost as if they were venture capital investments (big gifts that are termed “investments” and are accompanied by hands-on attention from the funder).
Impact investing generally seeks out smaller, early-stage businesses that may go on to have a disruptive, innovative, and positive social impact (solar panel manufacturing, oil from algae, smokeless cook stoves for the third world.)
Screened investing goes back to the 1960s and is associated with progressives who wanted to screen out, for example, arms manufacturing stocks. Its earliest roots are in funds held by religious organizations that did not want to invest in “sin stocks.”
Impact investing is a newer style that appeals to business people and younger people who want to make money on their investments and also do actual good, not just avoid evil.
The cost of imprisonment is very high. A country can save a great deal if prisoners do not return after they are released.
Let us say that we have identified a nonprofit program we feel will drastically reduce the number of prisoners who re-offend. We must figure out a way to fund this program. So, we create a for-profit firm that gets investors to pool their money for starting the program through a nonprofit.
We also enter into an agreement with government that will pay the investment syndicate back with interest if, and only if, the nonprofit program gets results above or beyond a specific benchmark.
With respect to this funding arrangement, which of the following statements is (are) true?
I. These arrangements are sometimes called “pay-for-performance” contracts.
II. These arrangements are sometimes called “social impact bonds.”
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
C. These are called social impact bonds or pay-for-performance contracts. Roca, mentioned in this course, is one nonprofit funded in part with these arrangements.
With regard to an endowment that is restricted by board resolution alone and not by the donor, which of the following statement(s) is (are) true?
I. It is termed a quasi-endowment.
II. It is spent as the executive director wishes.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
A) I only
A. These are not “true endowments” because they are not restricted by the donor. They are “quasi endowments” because the board sets the money aside for a purpose they restrict, and they can change or revoke in the future, if they so choose.
The executive director, however, cannot spend a quasi-endowment at will. He or she would have to get board approval to unrestrict the funds.
With respect to Form 990, the nonprofit board must attest that which of these is (are) in place?
I. policies pertaining to whistleblower protection, conflicts of interest, expense reimbursement, compensation, and joint ventures
II. practices demonstrating that the policies are actually followed
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
C. Both are correct. Policies are needed, and lip service is not enough. Practices must also be in place, and the board must attest to both practices and policies.
Which of the following statement(s) is (are) true of planned gifts?
I. Planned gifts are often contingent gifts.
II. Planned gifts are often deferred gifts.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
C. Both of these statements are true of what are termed planned gifts in the jargon of this field. A planned gift is generally a bequest, a split-interest gift, a life insurance policy, or a qualified plan designation. Bequests are often contingent because the will or the arrangement is subject to change. They are deferred. Life insurance and annuity beneficiary designations are contingent, and the money comes in later (deferred). Even a life policy owned by the charity is subject to the contingency that it might lapse if the donor ceases donating the premium amount. A CRT’s charitable beneficiary designation is often contingent. (If the document comes from the client’s attorney, he or she will suggest that the beneficiary be left subject to change.) With a CRT, the charity gets the money later. With a gift annuity, it may be irrevocably going to the charity that wrote it, and the charity is holding the money now, but the residuum is not available for deployment for the charity’s purposes until later. The point overall is that planned gift money is generally deferred and often contingent. This, in today’s world of organizations needing immediate money, makes it hard to sell boards on keeping or growing a planned giving program. Deferred and contingent seems less attractive to cash-strapped organizations than “now money” or irrevocable pledges.
With respect to social investing, which statement(s) below is (are) correct?
I. Impact investments generally go into startups or early-stage ventures.
II. Socially screened funds generally invest in publicly traded securities.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
C. Both are correct. Socially screened funds start with the universe of publicly traded securities and throw out the bad ones, the sin stocks, or the environmentally unsound ones. They might also screen in those that are considered socially conscious.
With impact investing, which is a much newer movement, the emphasis is on starting new ventures that actively seek to do good as well as make money. The impact investing world today is embryonic: few funds are available for retail investors because the startups are so small. Though they may be high tech companies, they are more like Mom and Pop businesses in scale. There is not much there yet for big funds to invest in. Those who fund these startups are, as with Mom and Pop firms, initially family and friends and then, perhaps, an angel investor.
Building out the financial ecosystem to support these startups through the process of getting started, getting first investors, and all the way up to going public is still a work in progress. Impact venture people talk of a “valley of death” between startup and getting initial investors and a “pioneer gap” in getting money beyond family and friends or one or two angel investors.
A donor gives five insurance premiums of $2,000 each to a charity in order to purchase a life insurance policy. The policy has a $100,000 death benefit that is owned by the charity. With regard to the policy’s value, which of the following statement(s) is (are) true?
I. Under the gift counting rules of the National Association of Charitable Gift Planners (CGP), the policy would be credited at face value ($100,000) for campaign totals under the “revocable deferred gift” category.
II. The comptroller will likely value the gift in year one as the premium amount, the legally binding amount of the pledge, or the surrender value.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
C. Both are correct. The CGP white paper, “Guidelines for Reporting and Counting Charitable Gifts,” 2nd ed., makes it clear that counting gifts for campaign totals and for donor recognition is very different from gift valuation for the purpose of the deduction as well as from gift accounting under the accounting standards that a comptroller would apply.
Following CGP Guidelines for a policy in premium-paying mode, the gift is counted at face value in the “deferred contingent” category. How the comptroller reflects the policy on the books, however, is another matter. Although the donor gets credit for a gift of $100,000, the comptroller might recognize only the premium, pledged premiums, or the surrender value as the true value of the gift for the comptroller’s own internal purposes. You might say that the gift should be valued for accounting purposes at the face amount discounted for the time value of money, but what if the donor does not pay future premiums and the policy lapses? In any case, the point here is that gift counting and gift valuing are not the same and can diverge dramatically.
An investor invests $1 million in a charity that works with homeless people, getting them off the street and into gainful employment. The charity commits to saving the local government $2 million of the cost of caring for the homeless. If the charity reaches its goals, the local government agrees to pay the investor $1.5 million.
According to this arrangement, which of the following statement(s) is (are) true?
I. Such arrangements are often called “social impact bonds” (SIBs).
II. Such arrangements are not bonds.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
C. These “pay-for-performance” arrangements are called “social impact bonds,” but they are not bonds as the term is generally understood. They are more like calculated bets. The investor bets that the charity will perform, and places the bet by investing in the organization. The investment is repaid by (for example) a governmental body, with an agreed-upon gain to the investor only if the charity accomplishes the agreed-upon goals.
Bonds, by contrast, are generally a promise to pay the holder a stated interest rate, and they mature at a specific date in the future.
According to the way the term is used by a planned gift officer, all of the following are considered “planned gifts,” EXCEPT
A) a gift to a family foundation
B) a charitable remainder trust
C) a bequest
D) a gift annuity
A) a gift to a family foundation
A. Traditionally, gift officers do not like to have a donor-controlled entity between them and the gift. A gift to a family foundation may require planning, but it is not considered a “planned gift,” as the term is used by most charities. A gift to a foundation does not come to the charity itself. Instead, it goes into a charitable bucket from which the charity may or may not receive a grant in the future.
A nonprofit board is held to a “prudent person” standard.
Which of the following statements best defines the “prudent person” standard?
A) A person must do what an expert would do in the same situation.
B) A person must do what a fully informed, impartial person would do in the same situation.
C) A person must do what a fully informed expert would do in the same situation.
D) A person must do what a reasonable person would do when exercising the average care, skill, and judgment that society requires of its members for the protection of their own interests as well as the interests of others.
D) A person must do what a reasonable person would do when exercising the average care, skill, and judgment that society requires of its members for the protection of their own interests as well as the interests of others.
D. Under the “prudent person” standard, a person must do what a reasonable person would do when exercising the average care, skill, and judgment that society requires of its members for the protection of their own interests as well as the interests of others.
Each of the following statements is true, EXCEPT
A) Capital campaigns have a beginning date and an end date.
B) Endowment campaigns have a beginning date and an end date.
C) Major gift solicitation is conducted as a campaign, with a start date and an end date.
D) Planned giving is an ongoing function without either a start or end date.
C) Major gift solicitation is conducted as a campaign, with a start date and an end date.
C. Annual, major, and planned gifts all are ongoing functions. Campaigns, whether special campaigns, endowment campaigns, or capital campaigns, go from a start to a finish date. The start and end dates may both be a bit soft, but they do not go on forever, and they are considered urgent and time-sensitive precisely because they are not ongoing.
Which of the following is the largest private funder of nonprofits?
A) corporations
B) living individuals
C) bequests
D) foundations
B) living individuals
B. Living individuals (69%) are, by far, the largest funder. Corporations (5%) are the smallest. Foundations (17%) and bequests (9%) make up the balance.
Which of the following is the largest source of revenue for U.S. expressive and service nonprofits?
A) earned revenue
B) government
C) individuals
D) foundations
A) earned revenue
A. Earned revenue is the greatest, then government, then individuals, then foundations. This may seem to be information presented just for the purpose of this exam, but it is also helpful in understanding why fundraising today is under such extreme pressure to generate quick results. Fundraisers work with the individuals who are increasingly expected to take up the slack as state and federal government funding declines.
This is “the play” that Mario Marino sees unfolding today, which will determine the survival of many charities. Fundraising will have to step up as government funding declines, and as foundations are pulled to serve more and more many deserving organizations. These circumstances can lead to desperate, short-term fixes that may work against the CAP® approach.
Which of the following statement(s) is (are) true?
I. 501(c)(4) organizations are increasingly being used for lobbying.
II. Through a 501(c)(4), a donor can receive an income tax deduction.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
A) I only
A. Yes, the 501(c)(4) is becoming notorious as a way for donors to fund political candidates and lobbying. But, no, a 501(c)(4) does not get a tax deduction. The charitable income tax deduction is limited to the “public charities,” a type of 501(c)(3) organization. They are called “public charities” because they are designed to serve the public.
501(c)(3)s contrast with both c(4)s and 527 organizations. Both 527 organizations and, to a lesser extent, c(4) organizations, can support or attack particular candidates for office. Donors may turn to a c(4) or 527 organization to further their own business and personal interests but may also believe that, in so doing, they are steering the country in a better direction.
Salamon lists solidarity as one of the five functions of the nonprofit sector. “Solidarity” isn’t a word most Americans commonly use.
Each of the following is an example of what Salomon means by solidarity, EXCEPT
A) fellowship
B) community
C) impact
D) brotherhood/sisterhood
C) impact
C. Solidarity includes fellowship, community, civic friendship, and brotherhood/sisterhood. It is what leads us, in contexts larger than the family, to call one another neighbor, citizen, brother, or sister.
You might think of the languages of the nonprofit sector as what was once called a palimpsest, a parchment written upon, then written over again layer by layer until the earliest layers are barely legible. The language of love, charity, kindness, fellowship, camaraderie, and solidarity reflects the earliest ages, perhaps before money, markets, or even written language. That layer has been over-written for generations.
Today, for most people in a market society, the language of markets, investment, and business is the primary (or only) language for understanding and communicating who and what we are as beings living in community. Impact, along with social investing, social entrepreneurship, inputs/outputs/outcomes, social return, and social return on investment all represent the newest layer in the palimpsest.
Solidarity also has political implications: arms linked in solidarity, standing as one people, one tribe, or a community of identity.
Salomon is unique in being able to help us see how many of these languages – some rooted in our political traditions, some in our faith traditions, some in our business traditions, some in our expert professional traditions, some in our our traditions of activism, and some in our shared humanity – are still operative in the way we live within the nonprofit realm(s).
With respect to giving as a percentage of GDP, which of the following statement(s) is (are) correct?
I. Giving has remained stable for decades, at around 5% of GDP.
II. Giving as a percentage of GDP rises and falls in proportion to the rise and fall of the markets.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
D) Neither I nor II
D. Actually, giving as a percentage of GDP stays remarkably constant at about 2%, regardless of the markets.
Salamon’s survey includes all the values that make the nonprofit sector unique, EXCEPT
A) a values guardian
B) a service provision
C) an expressive function
D) effectiveness and efficiency
D) effectiveness and efficiency
D. The five values that Salamon found were solidarity, a values guardian, an expressive function, advocacy, and a service provision.
Service provision might connect to effectiveness and efficiency, but the latter terms are drawn primarily from the language and value-system of business. When nonprofits compete with for-profits on effectiveness and efficiency alone, they may lose.
What makes nonprofits special, for Salamon, is that they go beyond effectiveness and efficiency to embody, or live up to, the other values he sees as most characteristic of the sector.
“Anomie” is an academic term for social isolation and the tendency of a community to crumble into a collection of alienated, lonely, fearful, self-regarding individuals who do little for one another. A more cheerful way to describe this is “bowling alone,” which is also the title of a famous book by Harvard professor Robert Putnam.
Putnam cites all of the following as indications that Americans are increasingly “bowling alone,” EXCEPT
A) Fewer family meals are taken together.
B) Attendance at religious congregations is in long-term decline.
C) Many of us are spending hours a day online in social media rather than in face-to-face conversations.
D) Having friends over has declined significantly over the last 25 years.
C) Many of us are spending hours a day online in social media rather than in face-to-face conversations.
C. Published in 2000, Putnam’s book predates social media. In fact, social media may (in the eyes of some, including Lucy Bernholz) indicate that our social instincts are alive and well and have simply gravitated online. Others, however, see the time and attention consumed by social media as another indication of a decline in sociability.
The Peabody Center is reducing violence in the home by providing counselors to troubled parents. Which of Salamon’s four poles does this approach best fit?
A) professionalism/expertise
B) civic activism
C) voluntarism
D) commericialism
A) professionalism/expertise
A. Professionalism/expertise is the best answer. The expert will help the parents. The best analogy might be to compare this practice with a medical cure; as a doctor is needed to treat illness, a counselor will assist the parents with their troubles in order to reduce domestic violence.
With respect to cost per dollar raised, which statement(s) below is (are) correct?
I. Donor acquisition cost in year one for direct mail exceeds dollars raised.
II. The cost per dollar raised for events is generally higher than the cost per dollar raised for planned gifts.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
C. Both are true. The data cited from BoardSource is shown below.
Cost per dollar raised
Direct mail (acquisition) $1.25 – 1.50
Direct mail (renewal) .20 – .25
Events .5
Volunteer solicitation .10 – .20
Capital campaign .10 – .20
Planned giving .20 – .30
Historically, what organization(s) has (have) succeeded in planned giving?
I. a large, stable organization, with access to an older donor base of “loyals”
II. a young organization, with access to affluent, younger donors and their advisors
A) I only
B) II only
C) Both I and II
D) Neither I nor II
A) I only
A. Advisors may initially find it counterintuitive that planned giving does not generally work out well with donors who are younger and organizations that are newer. Planned giving is not defined as gifts that require advisors to plan them, but as a list of specific tools, the most important of which is bequests. Bequests generally are put in place by older donors and come in when death occurs. Beyond those, planned gifts are generally comprised of split-interest gifts that provide the donor with income (CRTs and gift annuities, in particular). These appeal to an aging donor base. Since planned gifts are often deferred, it takes an established, successful organization to undertake a new program. The organization must be willing to invest time and money now for a future result that remains uncertain. The older and more established the organization and the older and more loyal the donors, the better.
In gift-planning circles, what is meant by the term, “the spend”?
A) the annual gift planning budget
B) the annual cost of hiring vendors
C) the dollar amount or percentage that can be spent from an endowment
D) the amount spent in acquiring a gift
C) the dollar amount or percentage that can be spent from an endowment
C. The “spend” or “spend rate” refers to what can be drawn from a restricted or endowed gift to support programs. A $1,000,000 restricted, endowed gift might throw off a spend of 5% or $50,000 that can be spent on the delivery of a program.
Considering this course as a whole, each of the following factors drives the fusion of major and planned gifts, EXCEPT
A) a desire to reduce costs and staff
B) the urgent need for current dollars
C) adverse demographics
D) a preference by boards and leadership for a predictable process and results
C) adverse demographics
C. The demographics of the aging baby-boomer population actually favor planned giving. The other factors are driving organizations to pull back from staffing a full-time, planned giving function because it is costly, takes time to get results, and the money flow is unpredictable in the short term, with gifts that are often contingent and deferred.
What is meant by the phrase, “the fusion of major and planned gifts”?
A) Planned gifts are becoming larger (more major).
B) Major gifts now require more planning.
C) Major and planned gifts are solicited as part of a lifetime giving plan.
D) Planned gift officers are being merged into the major gift role and asked to raise current dollars.
D) Planned gift officers are being merged into the major gift role and asked to raise current dollars.
D. Unfortunately, the trend, based on bottom-line pressures, is towards fewer planned gift officers, with greater emphasis on short-term results through transactional asks.
Consider the course as a whole. Which statement(s) below is (are) accurate?
I. Highest-capacity donors increasingly demand a personalized gift-planning process.
II. Boards and senior nonprofit leaders increasingly demand short-term results.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
C. This is a collision between two powerful forces. The big winners may be advisory firms who cater to the wealthy donor/client. Ideally, certain gift planners will be able to pioneer donor-centered planning in a way that respects the organization’s need for current dollars while also planting the seeds of much larger gifts to come.
Regarding the responsibilities for governance and management of a nonprofit, which statement below is true?
A) The board manages; the CEO governs.
B) The CEO manages; the board governs.
C) The CEO and the board jointly govern.
D) The board governs and manages.
B) The CEO manages; the board governs.
B. The board governs and should not manage. It hires, evaluates, and can fire the CEO, but the CEO manages.
The one core area a board must actively engage in is fundraising. It does not manage fundraising but delegates through the CEO to the head of advancement. Fundraising cannot succeed if the board has a ‘hands-off’ approach. The board must go beyond approving a plan. Board members are part of the plan as donors, referrers of possible donors, centers of influence, and players who may go on calls or even make an ask.
All statements below are true regarding stewardship and accountability, EXCEPT
A) Stewardship is an ethical concept.
B) The term “stewardship” was used often in an earlier era of mutual goodwill and loyalty between a donor and a nonprofit.
C) Accountability is a term drawn from finance and law and implies potential legal responsiblity.
D) Stewardship is the preferred way of looking at the responsiblity of the charity in the eyes of today’s largest, self-made donors.
D) Stewardship is the preferred way of looking at the responsiblity of the charity in the eyes of today’s largest, self-made donors.
D. A takeaway point from this course is that stewardship remains very important, but the donor is less trusting today and less likely to rely on a good feeling, a moral sentiment, or vague reports. Baby Boomers, Gen. Xers, and Millennials are much less trusting of organizations than the World War II generation.
The term “stewardship” is important in expressing an ideal of gifts taken and used in good faith, but it is increasingly archaic. What donors want today are results, transparency, and accountability, just as they do in their investments or business dealings. If they don’t get accountability, they may resort to the courts, and they may win. Gift agreements for restricted gifts are increasingly being subjected to litigation.
What is mission drift, and how can it be a result of a donor-restricted gift?
A) The donor’s mission may be in writing in a gift agreement, but the donor’s mission can shift and drift over time.
B) The organization may sign a gift agreement with the donor but can drift from it over time.
C) The donor and charity may agree on a restricted gift, but that gift can lie outside the charity’s core mission.
D) Both donor and charity have missions, and both can drift together or apart.
C) The donor and charity may agree on a restricted gift, but that gift can lie outside the charity’s core mission.
C. This question is meant to flag an important point that surfaces from time to time in CAP®. We try to take a donor-focused perspective or encourage personalized philanthropy. Yet, the risk is that, in serving the donor and bringing in a large, restricted gift, the fundraiser may hurt the charity by putting the charity off mission.
In the charity’s eagerness to get the gift, hit campaign totals, or keep an important donor happy, the charity may make promises it cannot keep (promises that can lead to law suits). The charity may find itself putting its energies and even its own funds into a donor-restricted and perhaps underfunded program of little relevance to its purpose. These are sometimes called “gifts that eat.”
Dr. Steven Meyers is emphatic that, though he engages in personalized philanthropy to serve donor’s highest aspirations, he works for a specific charity. A good gift must meet both the compelling interests of the donor and the compelling needs and capacities of the charity. If the gift causes the charity to drift from its mission and flounder in performance, then it is a bad gift, no matter how large it may be.
What are the three categories used to report and count gifts in the “Guidelines for Reporting and Counting Charitable Gifts,” 2nd ed., by the National Association of Charitable Gift Planners (CGP)?
A) current, future, and contingent
B) small, medium, and large
C) annual, major, and planned
D) outright, revocable deferred, and irrevocable deferred
D) outright, revocable deferred, and irrevocable deferred
D. The underlying issue here is “the tyranny of one number,” as Steven Meyers calls it. Often you will hear that a campaign raised $100 million dollars or some other amount, but, if you break it down, that number might consist of apples, oranges, and marshmallows. For example, it could consist of $10 million in cold cash, $40 million in irrevocable future commitments, and $50 million in revocable deferred money. Perhaps $50 million is in a life insurance face amount that might lapse, bequests that may never happen, and CRT designations that can be changed.
How much did the campaign raise? Who knows? Yet, can we say that the $50 million revocable deferred is trivial, funny money, or not worth mentioning? The way these questions get answered affects the job duties, evaluations, and security of planned gift officers (who are the ones raising the deferred gifts and deferred revocable gifts). It is important to count the gifts raised in this way, but it is clearly impossible to add those gifts to cash and get one number.
The right way is to report the three numbers by category. But, admittedly, that is more complicated and less inspiring to the board and external constituencies who are more impressed with the $50 million number.
Consider the following scenario:
Twenty years ago, a donor, Sam, funded a chair in psychoanalysis at his medical school with $3 million. Today, fewer students specialize in psychoanalysis, and the medical school would like to reposition the dollars or the chair’s duties.
The vice president says to the dean, “Just do it. I looked at the gift agreement, and it was all done on a handshake, with some letters back and forth about Sam’s goals, with a very clear agreement detailing Sam’s financial obligations to us but nothing about our obligation to him, other than naming the chair. He made a gift; he got a deduction. It is now our money, and we have to use it for the betterment of our medical school and our students.”
The dean asks, “What will we tell Sam?”
The vice president answers, “He is 87; just send him a holiday card, or whatever.”
With respect to the position taken by the vice president, which of the following statement(s) is (are) true?
I. The courts sometimes enforce donor intent, even in the absence of a gift agreement, if the intent is clear from the solicitation process and materials.
II. The school has a moral obligation (stewardship) to fulfill an understanding with the donor or to renegotiate it in good faith.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
C. This scenario raises a host of issues that you will find coming up in any number of cases during your career.
Perhaps the gift should never have been accepted (mission drift, a gift that eats). Perhaps the gift was once a good gift, but times have changed. Perhaps the school has a divided responsibility: to their mission and to the donor. Maybe those responsibilities have become more difficult to meet. Perhaps the donor would be willing to renegotiate, and perhaps not. Perhaps the charity can ignore the original mutual understanding, since it was not in an iron clad agreement, and perhaps the charity can get away with it. But the risk to reputation is real, and the agreement or mutual understanding may, in fact, be enforceable, even if it is based only on the history of the solicitation and that informal paper trail. A moral person must be careful in making promises.
For both the donor and the charity, it might be wiser to think about how the gift can be reworked, if times change. Or perhaps it would be wiser to have the gift for a program run for only a term of years. Alternatively, if the donor demands perpetual performance and does not trust the charity to provide it, perhaps the money should be held in what Steven Meyers calls a virtual endowment, a foundation donor-advised fund or their account held by the donor and paid out over time as the charity performs.
Under appropriate circumstances, which of the following legal doctrines allows restricted gifts to be respositioned?
I. cy pres
II. the Uniform Prudent Management of Institutional Funds Act (UPMIFA)
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
C. Both offer some limited circumstances in which it may be possible to reposition a restricted gift.
Cy pres applies when it is no longer possible to meet the terms of the gift (a scholarship for apprentice typesetters, a maintenance fund for a building that has been torn down, medical research fund for a disease that has been cured, and so on). Then, the gift may be repositioned, with permission of the court, to something that is “near enough” or “as close as possible.”
UPMIFA provides for limited relief, when the gift is old enough and cold enough. “Old” is over 20 years since inception. “Cold” is a small fund of less than $25,000.
“UPMIFA adds a new provision that allows a charity to modify a restriction on a small (less than $25,000) and old (over 20 years old) fund without going to court. If a restriction has become impracticable or wasteful, the charity may notify the state charitable regulator, wait 60 days, and then, unless the regulator objects, modify the restriction in a manner consistent with the charitable purposes expressed in any documents that were part of the original gift.”
—”Uniform Prudent Management of Institutional Funds Act,” by the National Association of College and University Business Officers (NACUBO), https://www.nacubo.org/Topics/Endowment-Management/Uniform-Prudent-Management-of-Institutional-Funds-Act
The best advice for charities wishing to reposition other larger gifts is to renegotiate with living donors or the heirs.
