Episcopal Church Foundation Vestry Papers - for leading congregations

I noticed something after my first stewardship campaign as a rector: Many of my parishioners were making their gifts through stock transfers, distributions from retirement accounts, or grants from donor advised funds and family foundations. They weren’t just writing checks from their bank accounts like I was.

At first, this all seemed curious but unimportant. Who cares how someone makes a gift so long as they make it? Yet, I soon came to realize that understanding our parishioners’ structures of giving made me a much more effective fundraiser and, frankly, a much more effective pastor too.

I know that the legal beagles at the Episcopal Church Foundation will want me to say here that I am not qualified to give financial or tax advice, so let me say that: I am not qualified to give financial or tax advice. What follows is a parish priest’s summary of what he has learned about his parishioners’ giving strategies and why he thinks that may be helpful for other clergy to understand…

Transfer of Appreciated Securities

Some of our parishioners prefer to give the church marketable securities (i.e., stocks or bonds) instead of cash. There is a tax-based reason for this.

Suppose one of your parishioners purchased a share of stock for $50 and that the value of that stock has appreciated to $80. If the parishioner sells the stock, she will likely need to pay capital gains tax on the $30 increase in value. However, if she gives that stock to her parish church, the church will give her a tax receipt for an $80 charitable contribution (which is likely to be tax-deductible) and she will never have to pay tax on the gain. It’s a win-win situation: She gets a receipt for more than she paid for the stock and she doesn’t lose money on the tax.

Here's how to use this information: When stock markets are running high, it might be a good time to ask your most generous and/or wealthiest donors if they can make an extra gift. They may have a financial incentive to do so.

The 70½ Rule

Some parishioners of a certain age prefer to give to our church through direct transfers from their IRAs or similar retirement savings accounts. Again, there is a tax-based reason for this.

People are generally required to start drawing from their tax-deferred retirement savings accounts at age 70½, whether they want to or not. (These are called Required Minimum Distributions.) However, 70½ is also the age at which people can begin making charitable contributions directly from their retirement savings accounts. (These are called Qualified Charitable Distributions.)

Suppose you have a parishioner who has saved diligently for retirement and is still working in a well-compensated job when she turns 70½. This parishioner will likely be required to start drawing from her retirement savings account, even if she doesn’t need to. And, she will pay taxes on that additional income at her current marginal tax rate, which may be among the highest tax rates she will pay in her working years. Alternatively, she can make a charitable gift from her retirement account directly to the church. In this case, she will get a tax receipt for the full amount and never have to pay tax on the income she used to make the initial investment.

Here’s how to use this information: Check your parish register to see if you have any parishioners who have recently turned 70½ and who may not need to begin drawing on their retirement savings. It might be a good time to ask them for an extra gift.

Pooling Deductions

Coming into rectorship, I knew that some people itemized their income tax deductions and that some people did not. But, I never thought about the people on the margin.

Suppose you have an unmarried parishioner who gives $6,000 annually to your church. Suppose that all of her other eligible deductions amount to $9,000. Such a parishioner could claim a total of $15,000 in deductions this year and, for that reason, this parishioner would likely use the standard deduction of $15,750 instead of itemizing. Over two years, this parishioner will be able to deduct a total of $31,500 from her income taxes – $15,750 this year and $15,750 next year.

Alternatively, suppose that the same parishioner has some flexibility with cash flow and that she can afford pay her entire $6,000 gift for this year on January 1 and her entire $6,000 gift for next year on December 31. (This is called pooling deductions – making two gifts in one year and no gifts in the next year.) In this case, the parishioner could claim $21,000 in total deductions this year and take the standard deduction of $15,750 next year, deducting a total of $36,750 over two years.

Here’s how to use this information: Encourage your middle-income parishioners to speak with their tax advisors about the possibility of pooled deductions and work with your auditors to develop a system for receiving pre-paid pledges for the following year.

Donor Advised Funds and Family Foundations

If you have parishioners who give to your church through Donor Advised Funds (DAFs) or private family foundations, it likely means that they are tax-savvy donors.

This category of giver is tricky: You cannot assume that these people are necessarily extremely wealthy, because there are any number of other reasons why people might give through such vehicles (e.g., irregular income because of bonuses, commissions, agricultural commodities, market performance, etc.) But, you can assume that this category of donors are people who pay attention to the tax implications of their charitable giving.

Here’s how to use this information: I recently wrote an e-mail to most of the people who give to our church through Donor Advised Funds and private family foundations. Essentially, I said that some (though not all) parishioners were finding this to be a particularly good time to make extra charitable gifts and that I’d like to talk with them if it was. Remarkably, several parishioners invited me for further conversation.

The Bottom Line…

When I was in seminary, the common wisdom about charitable giving was that we should preach proportional giving: People should give because of their spiritual need to give, not because of the church’s temporal need to receive.

I have written elsewhere about the complexities of using the tithe as our only standard of giving and about the various reasons that people give. What I would add here is this: Whether we like it or not, our parishioners’ decisions about charitable giving are being influenced by factors outside the church. As the church, we need to meet our parishioners where they are. We need to understand the factors that influence their giving and we need to let that understanding guide our conversations with the people whose gifts sustain the church’s ministries.