Posted August 1st, 2004

How Much Is Too Much?

As pointed out in the July Give & Take cover story, “Giving Reaches Record Levels,” many organizations that have relatively new planned gift development efforts have experienced rapid growth of their planned giving receipts in recent years as the fruits of their labor begin to pour in. Meanwhile, a number of more well-established, mature programs may be experiencing comparatively limited growth or even declines in total planned gift revenue. This is a fairly new phenomenon as those who have effectively encouraged planned gifts for many years begin to approach natural limits to growth.

Limitations to growth

By way of illustration, it is much easier for a relatively young planned giving program to grow 100% from $500,000 to $1,000,000 than for a mature program to grow from $50,000,000 to $100,000,000 in revenue. In fact, in the latter case, such growth may be impossible. As in nature, there are limitations to growth in bequests and other planned gift income that depend upon a number of demographic, economic, social, and other factors.

What levels might then be considered reasonable? That depends on a number of variables, including the size of the constituency and the age and wealth level of the support base of a particular organization. Many charities receive little or no bequest revenue on a regular basis while others regularly receive a large amount. Giving USA estimates that charitable be-quests account for approximately 10% of giving by individuals each year.

Many leading programs are receiving a significantly higher overall percentage of planned gift revenue from bequests. According to the 2003 Voluntary Support of Education Report sponsored by the Council for Aid to Education and the Council for Advancement and Support of Education, institutions of higher learning have averaged 23% of individual giving from realized bequests over the past 20 years. Over the same time period, the face value of newly completed irrevocable trusts, gift annuities, and other deferred gifts has averaged 12%. The present value of those gifts might be approximately half that amount, which would provide an adjusted deferred gift range of between 5% and 6% of individual gifts to higher education. Thus, bequests and other deferred gifts have accounted for around 30% of gifts by individuals in support of higher education over the past two decades.

A number of the other religious, social, and health-care-based organizations regularly report planned gifts totaling 25% to 35% of gift income.

Should you be concerned?

If planned giving receipts regularly exceed 30% of gift income, this may be as much a reason for concern as if they are slipping far below the national bench-mark established by Giving USA. Unusually high levels of bequest and other planned gift income as a percentage of total revenue may indicate problems in other areas of fund development or a donor base that is rapidly aging and not being replaced by sufficient numbers of younger donors.

It can also be helpful to consider performance in relation to peer institutions and others in their specific market sub-sector. Comparisons with other institutions should be approached carefully, however. For example, within the education sector the average percentage of planned gift revenue decreases as one moves from private doctoral universities to state universities to four year liberal arts colleges to community colleges. A similar trend can also be seen in the healthcare sector as one moves from national disease-related organizations to teaching and research facilities to community hospitals.

Depending upon the type of nonprofit involved, any number of factors can affect the amount of revenue it is reasonable to expect from bequests and other planned gifts. These include the age of the institution and the number, ages, and average educational level of its donors, the emotional context of the mission, the relative wealth of the constituency, the level of commitment or donative intent, the consistency of marketing, the competition, and the skill level and longevity of service of staff members.

Where to begin

When analyzing your own program, the first step is to determine how your current situation compares with your organization’s history. Review annual and other gift reports and compare them to previous years’ results. Then compare those to national benchmarks and comparable organizations. At this point, you can evaluate your potential for maintaining, growing, or resizing your program.

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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