Posted August 1st, 2000

Participating in the Wealth Transfer—Don’t Miss the Boat

This article is based on remarks Mr. Sharpe will deliver at the 13th annual conference of the National Committee on Planned Giving in Orlando on October 25-28 of this year. The title of his presentation there will be “Waiting on the Wealth Transfer—Will You Miss the Boat?”

In recent years there has been much discussion about the coming transfer of wealth in America and the importance of nonprofits participating and receiving their share. Up until now, however, America’s charitable community has yet to experience the full impact of the much touted wealth transfer. Because of low birth rates during the depression and World War II, growth in numbers of traditional planned gift prospects has actually slowed in recent years. For example, there are now fewer Americans born 65 years ago than any other age.

Over the next twenty years, however, this trend will dramatically reverse as some 70 million persons surpass age 65 at the same time many programs will be seeing a decline in the number of younger donors. For these reasons and others, America’s nonprofit community must, as never before, master the area where philanthropy and financial planning overlap.

Importance of planned gifts

As noted in the July 2000 issue of Give & Take, income from bequests and other planned gifts is now growing at as much as twice the overall rate of giving in America. It appears that the anticipated wealth transfer is now beginning for charities and can be expected to accelerate in coming years.

Will all charitable entities participate equally? Early indications are that those who have actively encouraged gifts via estates are now experiencing sustained growth rates of 15% or more annually, while others are receiving little or nothing from this income source. Recent government data indicates that as many as two-thirds of America’s nonprofits report no income at all from legacies or bequests. Participation in the wealth transfer is thus by no means assured and should not be taken for granted. Effective efforts aimed at encouraging estate gifts, on the other hand, can yield tremendous dividends for charitable entities.

First things first

First, it is important to examine the sources of planned gift income and balance our efforts accordingly. In the field of higher education, for example, according to the Council for Aid to Education (CAE), planned gifts have averaged some 34% of individual gift income over the last two decades, reaching figures as high as 40% in 1998. Of the total of bequests and other planned gifts, funds realized from bequests have averaged 23% of gifts from individuals while face value of completed trusts, gift annuities, and other irrevocable deferred gifts have averaged 11%. In other words, bequest income has averaged 67% of total planned gift income to higher education over the past two decades. (See the July issue of Give & Take for more information about planned gifts to higher education.)

The base of many of the most successful planned gift programs is the bequest via will. This is true for a number of reasons, chief among them the fact that the will is a plan that most donors can understand and, perhaps more importantly, one that their advisors can easily comprehend and implement without special expertise.

The will as “door opener”

Ironically, many charitable remainder trusts, gift annuities, and other similar plans begin with interest expressed in a simple will. Identifying existing bequest expectancies and those who say they “would consider” a bequest can be the beginning of a relationship that is based on solid donative intent and ends with a more effectively planned gift as a result of the contact initiated around the bequest concept. For this reason, in the future, as in the past, mounting an effective bequest communication effort will be one of the keys to maximizing participation in the great American wealth transfer as it continues to unfold.

Who makes charitable bequests?

Internal Revenue Service statistics and other studies indicate that charitable bequests come from a relatively limited pool of persons who are dispersed throughout the typical donor base. Of persons who died with taxable estates in 1998, some 17.4% used the charitable deduction for a total of approximately 17,000 persons. Other studies indicate that over 200,000 persons, or 5% to 10% of all decedents leave assets to charity at death. This would indicate that the vast majority of those who leave funds to charity come from the ranks of middle class persons who are not particularly wealthy and is also instructive when considering the possible impact on planned giving of elimination of the estate tax.

What bequest donors tend to have in common is a pattern of consistent involvement over a relatively long period of time. Organizations that possess the donor records and the capacity to target communications have found that they can determine and reach the core of bequest prospects using relatively limited target marketing techniques. Others have found that data limitations and other factors necessitate a broader scope of bequest marketing utilizing mass marketing techniques. Regardless of scope, the goal of these efforts is to encourage those who are planning to make charitable dispositions in their estates to consider a particular organization, and to discover those who have already done so in order to gain an opportunity to cement a very valuable long-term relationship with a person who may be a relatively modest gift prospect today.

How to encourage bequests

In considering how to approach the process of encouraging donors to make charitable bequests, it is important to achieve a balance between the “plan” and the “gift.” Too much emphasis is sometimes placed on the “plan” and not enough on the “gift.” It is easy to forget that the “plans” are the same for everyone while the composition of the gift is as unique as each individual donor and your organization. Remember the same hammer can be used to build very different structures. For this reason it is important that bequest communication efforts emphasize not only the importance of prudent estate planning but also why a donor should think of your organization when considering the charitable dimension of their estate plans.

The most effective bequest marketing efforts involve long-term, consistent communications aimed at motivating constituents to keep their plans up to date, while communicating the case for support and asking for gifts via the estate. This can be accomplished in a variety of ways. Most often it is done through targeted communication efforts aimed at a relatively narrow segment of older, long-term donors who are at the point in life where they are making decisions regarding the final disposition of their assets.

It is also important to devise ways to find such persons who may be missed in targeted approaches. One example of an effective way to do so is through enclosures in gift receipts that express thanks for a gift while suggesting ways to include the organization in long-term plans as well. This can be an effective, non-threatening way to reach persons at a time when they have just made a gift, and may thus be most receptive to your message. This “piggyback” approach can also be a way to reach donors you may otherwise miss without blanketing an entire file with additional communications. In some cases, check-off boxes may be added to response devices included with current gift appeals to the mass of the file. Be careful as such references should generally be low-key and avoid mixing current and deferred gift messages. Very different considerations and mission focus may be involved, and commingled messages can sometimes lead to confusion in the minds of donors that can have an unintended negative impact on both current and deferred gifts.

Coming full circle

Don’t forget that one of the secrets to success of many major gift development efforts is an effective program of follow-up with persons who say they “are considering” including your institution in their estate plans. Especially in the case of younger persons, this can be one of the most critical indicators of a very high level of donative intent. In fact, one of the best ways to find budding major donors among the baby boom generation may be to periodically give them an opportunity to tell you they are considering elevating you to the status of a family member through inclusion in their long-range estate and financial plans.

Keeping your perspective

In a time when social policies regarding transfers of assets by the wealthy is being revisited in debates surrounding the future of the estate tax, there may not be a better time to return to basics and emphasize bequests as the final expression of a life of caring and concern. And as you observe the estate tax debate, remember that the charitable bequest—indeed one of the underpinnings of Western civilization as we know it—far predates the estate tax code, and that the vast majority of estate gifts are made by those who have not been subject to the estate tax in any event.

Estate donors will give to your organization or institution because they choose to leave their mark on the world through your work and mission. The deep relationships that surround these gifts will not be altered significantly by the whims of Congress.

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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