Planned Giving: Definition for Nonprofits

Planned giving encompasses charitable gifts structured to take effect in the future — most commonly at the donor’s death. The vehicles range from simple will bequests to irrevocable charitable trusts, and their accounting treatment under FASB ASC 958 differs materially from that of annual gifts.

Plain-language definition

A planned gift is any charitable contribution that requires legal or financial planning before the gift takes effect. Unlike a check written today, a planned gift is typically structured years in advance and often delivers its full value only after the donor dies. The most common forms are a bequest in a will, a charitable remainder trust, a life insurance beneficiary designation, or naming the nonprofit as beneficiary of an IRA or 401(k).

Detailed definition

Planned giving (also called legacy giving or deferred giving) covers five primary vehicles:

Bequests — a provision in the donor’s will directing a specific dollar amount, a percentage of the estate, or a residual share to the nonprofit. Bequests are the most prevalent form of planned giving and require no immediate cash outlay by the donor.

Charitable remainder trusts (CRTs) — an irrevocable trust in which the donor transfers assets and receives an income stream (fixed via an annuity trust or variable via a unitrust) for life or a term up to 20 years. The charity receives the remainder. The IRS requires the charitable remainder interest to equal at least 10% of the initial contribution at a 7520-rate discount, and annual payouts must fall between 5% and 50% of trust assets.

Charitable lead trusts (CLTs) — the inverse of a CRT. The charity receives the income stream for a period; heirs or the estate receive the remainder. Useful for estate planning where the donor wants to reduce transfer-tax exposure while supporting the organization.

Life insurance designations — the donor names the nonprofit as the primary or contingent beneficiary of a policy, or irrevocably transfers ownership of a paid-up policy to the nonprofit. The charity receives the death benefit.

Retirement-plan beneficiary designations — the donor names the nonprofit as the beneficiary of an IRA, 401(k), or 403(b). Because these assets carry embedded income tax that heirs must pay, giving retirement assets to a tax-exempt organization is unusually efficient: the charity receives 100 cents on the dollar; heirs receive after-tax assets from other estate accounts.

How it works

Under FASB ASC 958-605, recognition depends on the vehicle:

• Unconditional bequests — recognized when the gift is measurable and probable of collection, typically after the donor dies and the estate is in probate with a distribution amount estimable.
• Conditional bequests — disclosed in notes to the financial statements but not recognized until the condition resolves (e.g., a contingent bequest that triggers only if a spouse predeceases the donor).
• Charitable remainder trusts — the present value of the remainder interest is recognized on the date the trust is funded, using IRS discount tables.
• Life insurance policies transferred to the nonprofit — recognized at the lower of the policy’s cash surrender value or the total premiums paid.
• Expectancies (informal intentions) — logged in the CRM for stewardship but never recognized as assets regardless of the donor’s sincerity.

When it applies

A nonprofit needs a planned giving program when it has: a donor file with meaningful numbers of individuals aged 65 or older, multi-year donors demonstrating sustained loyalty, and the organizational bandwidth to sustain multi-year cultivation relationships. Size is less of a gating factor than donor profile and staff capacity. Organizations without these elements generate more return by focusing development resources on mid-level annual donors.

Common misconceptions

Misconception 1: A letter of intent creates a recognized asset. It does not. An expectancy is not recognized on the balance sheet regardless of how sincerely the donor intends to follow through. Only irrevocable, measurable gifts meet the ASC 958-605 recognition threshold.

Misconception 2: Planned gifts are always restricted. A donor may bequest assets to the organization’s general operations with no restrictions. The revenue classification depends on whether the donor imposed stipulations, not on the gift vehicle.

Misconception 3: IRA beneficiary designations are complicated. They are operationally simple — the donor contacts their IRA custodian and updates the beneficiary designation form. The sophistication lies in explaining the tax advantages clearly so donors understand why giving retirement assets to a charity and leaving after-tax savings to heirs is often the most efficient estate structure.

Misconception 4: Small nonprofits cannot run a planned giving program. Any organization with a donor database and 10 years of giving history has the raw material. A legacy society does not require a planned giving officer — it requires a CEO willing to have cultivation conversations and a documented process for logging expectations.

Related terms

• Donor-advised fund — another vehicle for structured charitable giving, distinct from planned giving in that the donor retains advisory privileges during their lifetime.
• Net assets with donor restrictions — the FASB ASC 958 classification for gifts with donor-imposed stipulations; many planned gifts create restricted net assets.
• Restricted contribution — a gift limiting use by purpose, time, or both; bequests restricted to endowment purposes create permanently restricted (now “with donor restrictions”) net assets.
• Donor retention rate — high retention over time is the leading indicator of planned giving prospects.

How GrantPipe handles planned giving

GrantPipe tracks planned gift expectancies at the donor record level — recording vehicle type, estimated value, probability classification, and stewardship touchpoints — without recognizing them as revenue until the conditions for ASC 958-605 recognition are met. When a planned gift closes, GrantPipe prompts the user to classify the gift correctly (restricted versus unrestricted, bequest versus trust distribution), creates the corresponding fund transaction, and logs the event in the activity trail. Legacy society membership is a tag on the donor record, visible across the contact timeline.

DEFINITION

Testamentary bequest

A gift made through the donor's will, taking legal effect at death. The most common planned giving vehicle — estimated to represent roughly 80% of planned gift dollars received by nonprofits.

DEFINITION

Charitable remainder trust (CRT)

An irrevocable trust that pays an income stream to one or more beneficiaries for life or a term not exceeding 20 years, with the remainder interest passing to a qualifying charity. CRTs must pay at least 5% and no more than 50% of net assets annually.

DEFINITION

Charitable lead trust (CLT)

An irrevocable trust that pays an income stream to a charity for a period, then distributes the remainder to the donor's heirs or estate. Opposite structure from a CRT — the charity gets the income, not the remainder.

DEFINITION

Retained life estate

A gift of real property where the donor retains the right to occupy and use the property for their lifetime. The charity receives a remainder interest in the deed immediately but cannot take possession until the donor's interest ends.

DEFINITION

Qualified charitable distribution (QCD)

A direct transfer from an IRA to a qualifying charity by a donor aged 70½ or older. The transferred amount — up to $105,000 in 2025 — is excluded from taxable income and counts toward the donor's required minimum distribution.