Plus ça change… Now the economy is a vast challenge for the arts. I stand by this advice, from a talk I gave at a conference for arts philanthropy professionals in 1995. Newt Gingrich’s “Contract with America” had the publicly funded arts in a death-grip, or so it seemed to many at the time.
“Think long-term. Yes, there may well be major changes in the taxation laws. But charitable intent will not disappear off the face of the earth. Keep the relationships going.”
What are the important points in America’s new contract with the arts? What changes can we expect to see in planned giving strategies?
It seems there has always been an uneasy tension in this country between free market approach and government subsidies for the arts. Nowadays, it is probably safe to assume that the arts will continue to require more and more private support.
Incentives for that private support may also be diminishing, just as the government funds are drying up as well. If one of the various so-called “flat tax” schemes makes it through the political process in Washington next year, it is possible that there will be no income tax charitable deduction for contributed cash and/or appreciated tangible personal property. It is even possible estate and gift taxes will be eliminated.
Will this devastate all fundraising efforts for the arts in the future? Of course not. There are too many determined people out there, some of them here in this room, to let that happen.
All of us who want the museums and performances spaces and theater groups and video workshops and internet sites and dance companies and multimedia centers and music programs and educational arts programs for children and adults to continue must put our minds to combining innovation with hard, dogged work.
What does this translate to?
For one thing, I believe creative financial analysis, specific to every potential benefactor’s situation, will become even more important than it already is. If the charitable income tax deduction is not the carrot with which to entice a larger contribution, then there have to be other incentives. Perhaps there are still ways, using clever applications of the basic notion that there is time value in money, to benefit the non-profit arts organization now, and the private beneficiaries (family and friends) – later. Perhaps through the use of insurance, and its continued favorable tax treatment, there are still ways to benefit the friends and family members now, and the charitable recipients later.
Canned formulas will not be the way to go here. (“We’ll pick a trust from column A and a bequest from column B and a life insurance policy from column C….”) Careful, specific fact-finding, followed by careful, specific analysis of those facts, followed by a proposal, often followed by more fact-finding, more analysis, meetings with the potential donor and the potential donor’s tax professionals – these are going to be complex, ongoing projects, some of them very satisfying, some of them heartbreakingly unsatisfactory. All of them will, on a good day, appear to be learning experiences, from which your future projects can benefit.
Estate planning may also emerge as an even more important focal point for arts fundraisers. If the income tax is restructured by the federal government, fine, and that may result in the elimination or reduction of a charitable income tax deduction. However, estate taxation is separate. At present, it only touches higher net worth people. Since estate taxation does not touch the vast majority of people in this country, it will not necessarily be affected by the other changes in the tax code which may be coming our way. You may recall, the last time the income tax was tinkered with, about two years ago, Congress chose not to touch estate tax. That could happen again.
Also, if tax incentives for giving during lifetime diminish, collectors, for example, may choose to wait until it’s time for the will to be administered, to disperse the collection – even if the details of where the works will go were negotiated and agreed on, among friends, family, museums, et al., years previous.
What else is heading our way?
Probably we’ll see more outside advisers and consultants for small and medium sized nonprofits, due in part to the inevitable downsizing of budgets and staff. When our cultural organizations examine the balance sheets and cash flow statements, they try to identify non-essential services and positions to reduce or eliminate. Oftentimes, this affects in-house development staff. This happens, in spite of the obvious and compelling arguments that without ongoing development efforts there will be no organization left to manage. I expect we all know of cultural institutions that barely survive, lurching from one crisis to the next, with no realistic mid-range or long-term planning. How can such an organization get the clarity and objectivity and hope that are necessary to do effective planning? By getting help from entrepreneurs who bring a fresh perspective, sympathetic billing practices, and who require no benefits package and health insurance premiums.
What about trusts?
Trusts are creatures of state trust laws. Trust law is state law, not directly linked to federal taxation law, and it varies from one state to the next, as can the political and judicial processes that can change existing state trust law. I would keep alert to any proposed changes in state trust laws, in any and all states that may be linked to potential or existing donors. Not only is it smart to be better-informed than the person whom you are trying to advise, it may help you to form new ideas in response to other changes in the landscape.
What about non-profit foundations?
They exist now, from state to state, generally governed by each state’s corporation statutes. The state non-profit corporation laws, like state trust laws, are subject to change, through judicial and legislative processes, which could vary widely from one state to the next. I cannot begin to imagine how a coherent policy could be designed on Capitol Hill, much less implemented, which would make major alterations in tax laws and would treat fairly existing (legitimate) non-profit organizations in all the states of the Union. It may be that there will still be a way to split off assets from a benefactor by transferring the assets to an existing or newly created non-profit foundation.
What do these new factors suggest for the future?
Several things, in my view. Here’s a short list of some of them:
- Don’t set your development goals based on getting benefactors to write a check, now. In fact, don’t ask them for money. Ask if you can help them, by providing ideas, by listening to their concerns.
- Build trust, by building real relationships. Don’t sell snake oil. Maybe F. Scott Fitzgerald was right when his character said, “the rich are different from you and I,” but if that’s true, one of the ways in which they are different is that they are so very tired of being approached for money by unscrupulous, driven, art-sharks. Don’t live up (or is it down?) to those expectations.
- Museums and other cultural institutions need non-cash contributions, and they need them now and they need them in the future. Think long-term. Yes, there may well be major changes in the taxation laws. But charitable intent will not disappear off the face of the earth. Keep the relationships going.
- The income, estate, and gift tax rules may be about to change drastically in the next couple of years. Do as much as you can, sooner than later, with donors who are ready to give. You can plan, now, because we know what the rules are, now. If it makes sense for an individual donor to accelerate charitable giving, 1995 is a good year to accelerate. No, we don’t know for sure that the charitable carryover provisions will remain in place, but we don’t know that they will not, nor do we know what, if anything will replace those provisions. Planning into the last 1990’s and beyond is, at this point, almost entirely speculative, to the degree the planning is based on tax incentives.
- Keep up with the changes and proposed changes in the taxation landscape. There is such a domino effect, that knowing which dominos are about to fall can be of tremendous assistance to you and to anyone who asks you for help making plans for their property. Make friends with an accountant and / or a tax lawyer and / or a journalist in the field. (I know of at least one big-six accounting firm which has put together computer programming routines to calculate possible outcomes, based on four different so-called flat-tax scenarios currently in play on Capitol Hill.) Read articles. Go online and look for information there. Then try to think through some what-if scenarios, based on the news you have heard. Talk these things over with your colleagues in fundraising and development.
- Eventually, every wealthy individual will stop being able to enjoy, and control, the assets accumulated over the decades. If you can develop a relationship with such an individual, you may be able to provide real assistance in an area that is one of the most difficult for all of us – accepting the inevitability of death, and planning for it calmly and thoughtfully. If at the same time you can help the arts, through the results of some of that calm, thoughtful planning, well then you can rest a little easier yourself, basking in the satisfaction of a job well done.
Adapted from remarks delivered at “America’s New Contract with the Arts” Westchester Arts Council / American Council for the Arts National Coalition of United Arts Funds 1995 Conference Planned Giving Workshop, Doral Arrowwood, Rye Brook, NY, 30 July 1995.
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