Posted September 1st, 2014

Has a Bequest Boom Begun?

by Robert F. Sharpe, Jr. 

Giving USA’s recent report shows a rebound in bequest giving in 2013 after a period of stagnant or even negative growth during and immediately after the Great Recession. What caused the recent decline and will bequest gifts continue to be a reliable source of giving in the near future?

In the wake of the Great Recession, Giving USA’s report on charitable giving in 2013 (released June 2014) highlighted strong progress toward recovery in overall giving.

In fact, if current trends continue, it is possible that full recovery in inflation-adjusted giving may be achieved this year or next.

Of particular interest is the fact that growth in bequests led the way in 2013 with an inflation-adjusted increase of 7.2 percent. This compares to a 2.7 percent growth in giving by living individuals, a 4.2 percent rise in gifts by foundations and a decline of 3.2 percent in corporate giving.

Based on Sharpe Group’s observations, the reported growth in bequest income has not necessarily been experienced across the board. Some nonprofits have enjoyed large increases in bequests in recent years while others have seen flat levels of income from estates, or even declines.

Residuary bequests impacted by Great Recession.

Many of the largest bequests received each year take the form of residuary gifts, which can amount to all or a portion of what remains in an estate after bequests of specific amounts to family members and others are satisfied. In difficult economic times, estates can become depleted during the settlement process, leaving little or nothing to fund the intended residuary charitable gift.

For instance, when home and investment values were at their lows in 2009, executors needing to sell a home before closing an estate often found the market unfavorable. In some cases, bequests that would normally have been distributed a relatively short time after a donor’s death were delayed a year or more, leaving less to draw from when it came time to distribute bequests.

Fortunately, this negative impact on residuary gifts has recently reversed to a large extent. Bequests distributed in 2012 and 2013 increasingly came from the estates of donors who died following the rebound in real estate and investment market values. With a stock recovery and stronger real estate values now being experienced in many parts of the country, the Great Recession’s drag on bequest income may be largely behind us.

The importance of the final will.

For more than 50 years, Sharpe consultants have gathered and analyzed data about bequests received by a large number of America’s nonprofits. Information contained in the Sharpe KnowledgeBaseSM indicates that nearly half of bequests each year come from estates in which the final will was executed by an older person within three years of death. This means many of the bequests received in 2011 and thereafter resulted from wills executed after the 2008 crash.

Through close study of the wills that distribute bequests to our clients, Sharpe experts have noticed a marked decline in the number of wills containing charitable bequests that were execut­ed in 2008, 2009 and to some extent 2010.

We believe this is explained by the fact that a significant number of donors who completed their final wills between 2008 and 2010 may have decided there would not be enough left in their estates to provide for both their family and their charitable interests. These donors may have reluctantly removed charitable bequests from their final estate plans or failed to include new ones.

For donors who have since passed away, the impact of those decisions can never be reversed but should lessen over time. Fortunately, with bequests received from 2012 to 2014, the number of recently executed wills appears to have returned to historical norms.

Organizations that receive a large portion of their philan­thropic support in the form of bequests may wish to examine how this phenomenon may have affected their results. It may also be wise to step up focused bequest marketing efforts to help influence changes as donors revise the wills executed during the Great Recession.

The effect of demographics.

There are also demographic factors in play that are now revers­ing course and are beginning to have an impact on the growth in bequest income.

Over the past decade, the number of deaths in America has been flat or down year to year, due in part to declines in birth rates during the Depression and World War II. Because bequest donors tend to pass away in their late 70s to early 90s and beyond, the lower death rate has had a definite impact on the number of bequests received.

However, preliminary data from government sources indicates the number of deaths in America is now beginning to rise owing to the nearly 90 percent uptick in births between 1935 and 1955. This trend should further accelerate over the next 20 years as baby boomers begin to pass away in larger numbers.

Maximizing future bequests.

Given the relatively positive environmental factors now underlying future bequest potential, what steps can be taken today to help ensure maximum growth in bequests going forward?

We believe ongoing efforts to encourage bequests should, as always, revolve around paying close attention to donors who meet the time-tested profile for bequest giving.

The Sharpe acronym “FLAG” can be helpful in guiding these efforts. FLAG stands for [F]requency, [L]ongevity, [A]ge and [G]ender.

Frequency and longevity.

Those experienced in bequest development efforts know the size of a donor’s lifetime gifts has relatively little bearing on whether or not the donor ultimately leaves a charitable bequest. Instead, the frequency and longevity of giving have proven to be stronger indi­cators of which donors are most likely to make gifts in this way.

When donors include a charitable interest in their estates, they are, in effect, elevating that charity to the status of a family member. Donors of any age who make their first gift in November will probably not include a bequest to that charity when their will is redone a month or two later.

It normally takrecognition for bequestses time to build the donative intent necessary to sustain a bequest commitment. The best prospects for be­quest gifts are typically those who have given frequently over a relatively long period of time. In fact, it may be best to exclude the most recently acquired older donors from bequest marketing efforts until they have had time to become “rooted” on the file.

Age is also an important factor to consider for those who wish to spend their bequest marketing dollars and allocated staff time wisely. Studies by Sharpe and others have consistently revealed that as many as 80 percent of bequests typically come from do­nors who make their final wills after the age of 75.

Other studies have shown that over half of bequest donors wait to include charitable provisions until the final will that ulti­mately leaves the charitable bequest. As Dr. Russell James ob­served in the December 2013 issue of Give & Take, “Two-thirds of all charitable estates and over half of all charitable estate dollars came from those who reported having no charitable estate plan within five years of their passing.” For more on Dr. James’s find­ings, see his longitudinal study tracking older adults and their es­tate plans, American Charitable Bequest Demographics.

For this reason, while it is important to communicate on the subject of bequests to as broad a group as budget allows, many charities with large donor bases have found it most cost effective to primarily target bequest promotions to consistent donors over the age of 70.

For most organizations, regardless of mission focus, some 70 percent or more of bequest donors are women. Women’s longer life spans mean that they are often the second spouse to die and are thus responsible for the final distribution of the couple’s combined assets.

In other cases, bequests will come from older women who were married with no children or who were never married. For this reason it is always a good idea to include older women with a “Miss” salutation in bequest marketing efforts as they will normally be childless and among the best prospects for a charitable bequest.

Bright prospects.

We believe the recent Giving USA report is a positive sign and that charitable bequests will continue to be an important and growing source of funding for America’s charitable communities. Efforts to encourage additional bequests should, however, be thoughtfully pursued in carefully conceived and cost-effective ways as part of an organization’s overall fund development strategy.

Editor’s note: For more on planned giving marketing, see “Perspectives on Planned Giving Marketing Trends” in the August issue of Give & Take

The publisher of Give & Take is not engaged in rendering legal or tax advisory service. For advice and assistance in specific cases, the services of your own counsel should be obtained. Articles in Give & Take may generally be reprinted for distribution to board members and staff of nonprofit institutions and other non-donor groups. Proper credit must be given. Call for details.

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