Posted January 1st, 2008

Setting Reasonable Expectations for 2008 and Beyond

For planned gift development efforts to be successful, expectations must be reasonable. Due to the inherent nature of planned giving, senior managers sometimes have trouble developing realistic expectations about what level of success is possible for a particular organization or institution.

If expectations are unreasonably high, management will never be satisfied. This results in low morale, greater staff turnover, and frequent changes in marketing and other vital components of a program.

If expectations are too low, staffing and budgetary support will not be available and staff may not be motivated to produce the highest possible results.

Four areas critical to setting reasonable expectations are:

  • External input
  • Potential based on the nature of the constituency
  • Following the appropriate planned giving program model
  • Appropriate budget for staffing and other resources
  • External input

External input can come from board members who assume that your organization can do the same thing as another charity on whose board they serve. The constituency and mission of one group can be different from that of another, with very different potential. The same thing can occur when a CEO sees a similar organization doing well with planned giving and thinks that his or her group should be doing equally well. The success of any organization today reflects a lot of work that may or may not have been done in the past. This is a fact not often understood.

In some cases, a major contributor to incorrect expectations is the much publicized 1998 intergenerational transfer of wealth study. While this “Wealth Transfer” projection was greeted with high expectations, the reality has simply not kept up. This may be one of the first expectations that needs to be corrected.

There is indeed going to be a major transfer of wealth over time. However, the vast majority of this wealth will not pass until the baby boomers begin to pass away some 20 years from now. In fact, nearly everyone reading this article will have retired or expired by the time the transfer has largely occurred. Why? Simply put, the full “Wealth Transfer” was based on a 55-year period that included three different generations passing away.

The original study’s mid-range projections stated that during the first 20 years charities would receive $2.2 trillion in bequests. Giving USA reported $23 billion in bequests in 2006 and a total of $190 billion from 1997 to 2006. Reaching the $2.2 trillion projection means bequests must average $200 billion annually for the next 10 years. That’s over 10 times the amount that has been received each year on average for the past decade!

Clearly, the original projections are not realistic. The wealth transfer will certainly come to charities. However, it will take longer and require far more work than many had rightly or wrongly assumed from this study.

There is one interesting statistic underlying the full 55-year, midlevel “Wealth Transfer.” To achieve that level, bequests must grow by a compound rate of 8%. How does this compare with the past?

Using Giving USA figures from 1963 (the year Sharpe was founded) through 1998, the average compound rate of growth was 8%. From 1963 through 2006, it was also 8%, so to reach the mid-level projection over the entire period of the wealth transfer requires no greater growth than the average over the past four decades.

While there is no reason to believe the growth in bequests will change over time, there are factors in play that may impact that growth rate over the next few years.

People are living longer than in the past and there is much more competition for planned gifts than there was 10 years ago. Death rates are essentially flat for the next few years before beginning to increase again.

Another external issue to examine is birth rates: not today’s, but 1924’s. Why 1924? Numerous Sharpe consulting studies show that bequest donors pass away, on average, at age 83. The year 1924 (84 years ago) was the high point of live births. From 1924 through 1933, the number of live births in the United States dropped by 23%. Not until the end of World War II did rates return to the 1924 levels.

If fewer people were born 84 years ago, logic suggests that fewer will be here to pass on. This means fewer making planned gifts in the near term. With more charities seeking planned gifts from fewer donors, the competition for planned gift funds will be intense! While the best managed programs will no doubt outperform others, the knowledge that there will be fewer donors passing away in the case of some organizations may need to be built into program performance expectations.

Other external forces that will impact planned giving in various ways include fewer marriages, fewer divorces, and more people living alone. It means more childless couples, more IRAs and 401(k) plans, and fewer people paying into Social Security. The nature of your organization’s mission will also impact your ability to attract planned gifts. Organizations with more emotional missions can generate planned gifts quickly and at an advanced age, while those groups with other types of missions must take a different approach.

The nature of your constituency

In order to determine your planned giving potential, look closely at your constituency. What is the age breakdown of your donors? Obtain good age data on your donors. Without it, setting realistic projections about your long- and short-term potential is impossible.

Planned giving works best with older (over 65 or 70) donors, while major gift programs tend to work best with relatively younger (age 45 to 65) donors.

If your constituency is largely baby boomers or younger, planned giving may not be the best place to invest a great deal of money. Adjusting your planned giving expectations in this case is important. While you may have substantial long-term potential, your program should invest more heavily where results can be expected within a reasonable time period, say the next 10 years. Keep in mind that a 65-year-old woman typically enjoys a life expectancy of nearly 20 years.

While some suggest marketing planned gifts to donors in the 50 to 70 age range, this will not result in any significant increase in bequest income for decades, at the earliest. It is not unusual these days for persons to live to age 100 or beyond. You can safely bet that far more planned giving donors will be in this group of “centennial” seniors.

Donor age also relates to the investment you can afford to make. One dollar invested today at 8% will be worth $43 in 50 years. Before investing very much planned giving marketing money in younger donors, think carefully.

What is the gender and marital status of your donors? Some subsets of donors have nearly a 50% probability of making charitable bequests.

Do you have a large number of long-time, frequent donors, or do your donors tend to make a few gifts and drop off the file prior to the time when they are making their final estate plans? Do you generate a large percentage of bequests from non-donors? Some organizations do, while it is a rare occurrence for others.

Do your donors generally have living family members or are they mostly childless with few family members remaining?

Do you have a particularly wealthy constituency? Did most of them make their own fortunes or inherit them?

What about taxes?

Is there a sense that with the reductions and currently planned repeal of the estate tax, bequests will go down? Is that a realistic concern? Our nation has a long tradition of philanthropists who made charitable bequests with no tax benefit because there was no tax code: John Harvard, Leland Stanford, Benjamin Franklin, John D. Rockefeller, and John Smithson all made big gifts without tax benefits. Today, in similar fashion, over 95% of bequests come from those who receive no estate tax savings at all.

Program models: one size does not fit all

Over its 43 years, Sharpe has observed at least eight different models that include efforts
to encourage planned giving to a greater or lesser extent.

Here are the models that we typically see:

Model 1: Executive Director, no full-time development director.

Model 2: A full-time development director, but no full-time planned or major gift staff.

Model 3: One or more full-time planned giving staff members, but no major gift specialist.

Model 4: One or more full-time major gift officers, no planned giving staff.

Model 5: At least one full-time major gift officer and one planned giving officer.

Model 6: At least one person who is responsible for encouraging both planned and major gifts, and perhaps several.

Model 7: Centralized support for major and/or planned gifts. This model is common within universities and national groups with local affiliates.

Model 8: Capital or “endowment” campaign planned or in progress. In this model, other infrastructure is subordinated to capital structure. Model 8 can occur in the context of any of the other seven models.

Which model is appropriate depends on any number of factors, including the size of the constituency, age and wealth distribution of donors, the nature of the mission, and geographic factors.

Budgetary considerations

A good rule of thumb for an effective program is for staff and marketing expenses to be roughly equal. When an inordinate amount is spent on staff, there is little left with which to market and the long-term results will be limited. Those investing heavily in marketing and little in staff to cultivate relationships will lose out to groups that will gladly steward your donors—and the gifts they will make.

Beyond the specifics of a planned giving budget for a given year, a more critical issue is the level of consistency from one year to the next. Are efforts to encourage planned gifts steady, or does your institution have a history of “bursts” of activity that yield great results for a period of time in one to three years, then tend to fall off?

This “roller coaster” approach to planned giving is all too common, but it is also inefficient and wasteful over time. Each time the effort stalls, much is lost and donors who no longer hear from you will go elsewhere with their gifts—and you may not know until it’s too late.

Experience has shown that steady, consistent marketing is the most effective way to build and maintain a successful program. It is critical to follow up and steward donors, but it is also important to include a “drip marketing” approach. Put planned giving and estate planning messages in front of prospects on a regular, frequent basis. You want donors to remember you at the time when they ultimately decide to update their estate plans.

In summary, a good, effective planned giving program must create and continuously maintain realistic expectations for success. Identify the key aspects leading to this success based on your constituency and situation, with a particular focus on the age of your donors. Once this has been done, create a program based on your unique constituency. Make sure that key players understand the model that you are following and why it will work best for you.

Editor’s note: This article was based on a more detailed presentation given by John Jensen at the National Conference on Planned Giving in Dallas in October 2007.

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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