[ASK AN EXPERT] What Are The Rules For Using ‘Soft Credits’ In A Donor Database?

Our Ask An Expert series features real questions answered by Claire Axelrad, J.D., CFRE, our very own Fundraising Coach, also known as Charity Clairity. Today’s question comes from a nonprofit employee who wants advice on when to soft credit donors in their database:

Dear Charity Clairity,

I have two questions: (1) Our organization received a check from one spouse, without any paperwork crediting the other spouse. The check didn’t even include the spouse’s name. They’ve always donated together in the past. Can the spouse receive a soft credit for the purposes of consistency? We know they’re still married. (2) We received an IRA Charitable Rollover check from a donor. My supervisor doesn’t want to credit the trustee as the legal donor. She wants the individual IRA owner to get credit, plus she again wants us to soft credit the spouse for consistency.

— In a Crediting Dilemma

Dear in a Crediting Dilemma,

Let’s begin with your first question as to whether to credit a spouse when the donor doesn’t specifically make it clear it’s their intention to be listed jointly. Here’s what I would recommend: ASK THE DONOR.

Even though you know your donor is still married, there are things you may not know. They may be in the process of separating. They may have different philanthropic priorities, and one may no longer consider your organization a priority. It’s even possible one spouse has become incapacitated and is no longer a signatory on the checking account. It’s best not to guess!

• Your first action, whenever you’re unclear as to a donor’s wishes, is simply to ask them. It’s a bad idea to assume anything. Plus, by reaching out, you have an opportunity to learn more about the donor and begin to build a stronger relationship.
• Your best bet is to use the phone. If the donor has a personal cell phone, feel free to call it and even leave a quick message if they don’t answer. Something warm and upbeat like this will do the trick:

Hi Debbie! I’m calling to thank you for your recent gifts—it means so much! You and (husband’s name) have always been so generous. I just want to verify whether this is a gift from both of you, as usual, or just you. For our records, how would you like your name to appear?

• If it’s a home phone, you may not want to leave a message for purposes of confidentiality. If there’s no answer, follow up with an email to the donor letting them know you tried to reach them and then explain what you’re trying to ascertain.
• If you know your donor responds well to texting, feel free to reach out this way as well.
• If you have no phone number or email, send a letter addressed to the donor who sent the check.
• Finally, if you’re totally unable to reach the donor after multiple attempts, do what you think the donor would want. If you have a long history with them, you’re probably safe to deduce it’s a joint donation and credit the gift accordingly.

Now let’s look at your second question. With IRA Charitable Rollover Gifts, donors cannot claim a tax deduction if the income they would have received would have been taxable. Instead, what happens is this income is excluded from their taxable income in the year the direct donation —transfer from IRA to your charity—is made. This is often more beneficial to them than a tax deduction, as it means they won’t jump to a higher tax bracket (which means more income taxes as well as increasing their costs for Medicare and the taxability of Social Security benefits). It’s important for you to be aware of this so you don’t inadvertently thank your donor for their “tax-deductible gift.”

This being noted, the IRA trustee is not the donor because they don’t control the assets. The trustee is bound by whatever the IRA owner tells them to do, making the IRA owner the donor. This means your supervisor is correct here.

It’s worth noting that IRA Charitable Rollover gifts differ from gifts from donor-advised funds in the way they are recognized and recorded in your database. With DAFs, the administrator has ultimate discretion regarding distributions. They accept advice from individual donors (which they usually follow), but they are not bound by it. So, the administrator (for example, Fidelity, Schwab, Vanguard, or a community foundation) is recorded as the donor; the individual who recommended the grant to you receives a soft credit. Think of it in terms of the ultimate decision maker being the donor.

With regard to crediting such an IRA gift to both spouses, legally, each one of them is entitled to roll over up to $100,000 annually from their individual account. So, the legal donor is really the spouse who owns the IRA. Since they could technically have split this donation between their respective IRAs (unless one of them is younger than age 70.5 as of January 1, 2020), if you want to consider this a joint gift, you should ask your donor for permission to credit them accordingly.

What’s your experience with soft credits? Please let us know in the comments below.