Bequest Boom Timing Clues

Has the fuse been lit for the Great Wealth Transfer?

Remember all the talk about the looming great transfer of wealth? In the 1990s, it was predicted that at least $41 trillion in personal wealth would be transferred from one generation to another between 1998 and 2052. Now, two decades after that initial prediction, when can we expect the wealth transfer to really take hold?

The answer rests on population statistics. Figure 1 shows the actual number of deaths in America from 1900 through 2017 followed by the latest Census Bureau projections for 2018 to 2050. Together, they provide a glimpse of the likely timeline for the long-predicted and anxiously awaited charitable bequest boom.

Of particular note is the relatively flat period between 2000 and 2010 during which the number of deaths per year remained fairly steady in the 2.4 million range, resulting in little or no real growth in reported charitable bequest income during that time frame. The lowest number of deaths during that decade was in 2007. Since then, the number of annual deaths has begun to gradually increase again.

The following chart (Figure 2) shows the number of births in America from 1917 to 1997. As with the death rates shown above, birth rates can be closely tied to historic events. The dip during the 1930s coincides with the Great Depression, while the spike in the mid-1940s and 1950s can be attributed to the Baby Boom after the end of World War II. Those Baby Boomers are the source of the much-anticipated wealth transfer that is just beginning to take shape.

When will Baby Boomers yield “ground-breaking” results?

To understand when to anticipate the transfer and how it will affect the nonprofit world, it’s important to understand who is most likely to make a charitable bequest. SHARPE newkirk and IRS research indicates more than 75% of the estates that include a charitable provision are from decedents who pass away at age 80 or older. Professor Russell James underscored that fact in his article “What’s Wrong With Focusing on Bequest Intentions From 40-Year-Olds?” published in the December 2013 edition of Give & Take. The average age at death has been shown to be early 80s by a number of studies of some of the nation’s largest gift planning programs. This may largely explain the relatively flat bequest income reported by Giving USA in recent years. For example, people who were not born in 1933 did not pass away 84 years later in 2017. The upturn in birth rates after 1933 may, on the other hand, be a precursor of increased estate activity in coming years.

Based on mortality projections, it appears we are just now entering the period during which the leading edge of the Baby Boomer decedents will gradually begin adding charitable gifts to prior estate plans. A small number will pass away and augment the estate gifts of the remaining members of the older, but much smaller, Silent Generation and the few surviving members of the GI Generation. As the Boomers gradually age into their late 70s and 80s, their gifts will begin to supply a greater portion of charitable bequest revenue.

By the mid-2020s, the rapid growth of the 80+ decedent population will begin to accelerate the bequest income boom, and it should grow apace from that point before
reaching its peak in the mid-2040s. Keep in mind, however, that these predictions are for the sheer volume of bequests, not dollars received. It is more difficult to predict the amounts that will actually be received as a number of other factors come into play, including the value of decedents’ estates, the percentage of childlessness and the percentage of estates that include charitable provisions.

Beginning in the late 2040s, fundraisers will experience the results of the late 1990s and early 2000s all over again as the death rate, and therefore the number of bequests, will again begin to fall. The smaller Generation X, following the Baby Boomers, will cause another slowdown in bequest growth similar to the first decade of this century.

Practical implications

For the moment, Baby Boomers are still relatively young and, in many cases, haven’t yet entered their prime for current gifts. The oldest Boomers will turn 73 this year while the vast majority are still in their late 50s and 60s. According to many reports, the heart of the Baby Boom Generation now comprises the greatest number of donor households and collectively gives more than any other generation.

While most Baby Boomers are currently in their prime charitable years for regular and special gifts, it is important to keep in mind from a strategic planning perspective that they are still nearly a decade away—at the soonest—from making operative bequest and other ultimate gift decisions.

In the meantime, nonprofits wanting to increase the amount of funds received from estates over the next 10 to 15 years will have to influence those individuals who will
both make their final wills (the ones that are operative for actual receipt of funds) and pass away over that period of time. This means focusing attention on those who are now roughly in the 75-to 90 age range. This group is almost entirely made up of the 23 million surviving Silent Generation members as only approximately 2% of the GI Generation is alive, and all of them are beyond the age of 90.

The Boomer generation certainly shouldn’t be ignored from a gift planning perspective until they reach the prime age for charitable estate planning. It’s vital to maintain good relationships with these donors both now and later.

While focusing the bulk of attention on those who will fund bequest growth over the coming decade, it is important to make plans to help Baby Boomers eventually transition from current to deferred gifts and plant the seeds that will result in the full flowering of the largest transfer of wealth in history in coming decades. ■

 

Will We Ride a Tax Reform Giving Rollercoaster?

rollercoaster

Recent IRS reports indicate tax law changes may have distorted giving for 2017 and 2018.

In June 2018, Giving USA announced total giving of $410 billion for 2017, a new record and the first time in history Americans gave in excess of $400 billion. Outpacing the annual growth of the economy, wages and inflation, individual giving was pegged at $287 billion for the year, an increase of 5.2% over the previous record year of 2016. This was welcome news for America’s philanthropic community.

Even better news?

Historically, the amounts deducted on tax returns closely track the total amount of individual giving. Figure 1 shows the relationship over 21 years between the final amounts of deductions reported by the IRS and the final amounts for those years subsequently reported by Giving USA. Between 1996 and 2016, IRS deductions amounted to 82%, on average, of reported individual gift totals.

In March of this year, the IRS released preliminary estimates of charitable gifts deducted by donors on 2017 income tax returns. This report revealed the amount of charitable gifts deducted for that year increased over preliminary 2016 estimates by 11%, more than twice the individual giving growth rate initially estimated for 2017 by Giving USA in its June 2018 report. If these numbers are confirmed in final deduction figures from the IRS (expected this summer), 2017 may become only the second year since 2004 to see double-digit growth in individual giving.

How to explain the growth differential

The 2018 Giving USA Report will be released in June of this year, and it remains to be seen the change in individual giving that will be reported by this leading benchmark for giving and how initial 2017 estimates may or may not be revised.

Is it possible giving could have actually fallen last year from record 2017 levels due to tax-related timing issues? History reveals that individual giving does sometimes decline in years following major revisions in federal tax laws.

This is especially true when the revisions reduce the benefit of charitable gifts in subsequent years for some donors, especially those making gifts of relatively larger amounts. This phenomenon was most recently observed in 1987. Giving in that year actually experienced negative growth in the wake of 1986 tax legislation that dramatically lowered tax rates (resulting in less tax savings for gifts made by some donors in 1987 than for gifts made in 1986). Figure 2 (top of Page 7) reveals the same reduction and later rebound also occurred following the 1969, 1977, 1981 and 1986 tax reform acts.

Rollercoaster effect

Fundraisers and policymakers need to understand why these declines and rebounds may naturally occur in the wake of certain types of changes in tax laws. The answer may not be as simple as we think. It’s easy to assume that giving drops after tax law changes because the changes reduce some of the benefits of charitable giving. That may be true to some extent, but there may be a more subtle explanation that seems to be borne out by history.

Borrowing from Peter…

Sharpe Group has observed and reported on each of the major tax acts over the past 56 years. Each time the law was changed to limit charitable deductions the following year and/or lowered tax rates in ways that would reduce the value of tax deductions in the future, donors have been urged by charities and tax advisors (and rightly so) to consider increasing their donations in the year preceding the effective dates of the new laws.

Whether referred to as “bunching,” “accelerating” or another term, this advice was extended in 1969, 1977, 1981 and 1986. Not surprisingly, many donors heeded this advice, at least partially causing the rate of increase in giving to hit record or near-record levels for those years. The same advice was widely disseminated in the fall of 2017 following the enactment of the Tax Cuts and Jobs Act of 2017 and may have also boosted growth along with investment market gains and other factors.

In the years immediately following the tax law changes, there was an understandable decline in giving presumably caused to some extent by donors accelerating gifts that would have been made in that year to the prior year. For instance, the 17% rate of increase in individual giving in 1986 was the highest ever to that point and has never been equaled since. The next year, 1987, saw the first decline in individual giving ever recorded in the 32 years Giving USA had been reporting gift totals.

A simple example can help illustrate how bunching deductions could at least partially explain this phenomenon.

Suppose Pamela was a regular donor of $5,000 per year. In 2017, she was told that she would probably not be able to fully itemize her gift in 2018 due to higher standard deductions and that, even if she could, the deduction would be worth less because her tax rate was going down. In December 2017, she was advised to make her gifts in the 2017 tax year, so she wrote a check for $10,000.

As a result, her donor record (and the charity’s gift income) would show a spike for 2017 and a smaller gift or perhaps no gift at all for 2018. Organizations with wealthier and more sophisticated donors may well have experienced this phenomenon on a larger scale than others for 2018.

But the good news is that the impact on giving may just involve timing and not the total amount given. Donors who take advantage of this opportunity are generally looking for a way to harvest additional tax savings for one year rather than reducing their support long term. Regardless, history reveals that giving seems to recover rather quickly after the tax-induced aberration and prior growth trends resume as donors adjust their planning and expectations.

Advised funds may have cushioned impact

One final point of interest: Industry press reported the greatest increase ever in the opening of new donor advised funds (DAF) and the increased funding of existing ones in late 2017 and continuing into 2018. Anecdotal reports indicate that some donors, especially those who normally give larger amounts, may have bunched their deductions in 2017 by making a large contribution to a DAF before subsequently spreading the actual transfers to charity over more than one year.

For instance, in the earlier example, Pamela could have given $5,000 to a charity in December of 2017 while also contributing $5,000 to her DAF. Because she directed a transfer of the second $5,000 to the same charity in 2018, the charity would not have actually realized the bunching occurred despite the fact that Pamela experienced the enhanced benefits of the bunching on her tax return for 2017.

The broad expansion of the use of DAFs in this way may help cushion the cash flow impact that bunching can have on charities over time, and fundraisers should be aware of the possible use of the DAF for this purpose as they interact with donors now and in the future.

In a similar vein, for donors age 70½ and older, making gifts directly from their IRA can also preserve prior tax benefits without the need to bunch gifts. That is because these funds do not flow through their tax return and are not subject to tax whether or not the donor continues to itemize.

Stay tuned for an update on 2017 giving when the IRS releases final figures for that year at some point this summer. ■

Is Your Gift Planning Marketing Reaching the Right Donors?

With more than 55 years working with nonprofits of all sizes and missions, SHARPE newkirk studies confirm your most likely prospects for planned gifts are from generations who still prefer print communications.

According to Pew Research, as much as 1/3 of Americans age 65 and older are not home broadband users, and a large percentage of those age 75 and older do not use the internet at all. Studies by Professor Russell James, J.D., Ph.D, CFP® of Texas Tech University and others reveal that the majority of final bequest decisions are made by people over age 75 at the time the will is drafted. This means the majority of the prime group who will leave bequests and make other planned gifts over the coming decade won’t be reached without a balanced approach including a robust print communication strategy, especially if you have email addresses for a low percentage of your donor database in this age range.

SHARPE newkirk’s print communications support services cover a full range of gift planning opportunities, including wills and bequests, charitable gift annuities, retirement plans, life insurance, life income gifts and trusts. They include straightforward information and examples for donors, as well as helpful technical information for professional advisors.

Our creative services team can customize each publication to suit your needs, personalized to the degree you desire, mirroring the look and feel of your organization. We tailor content to your specific policies and objectives, and our experts will review each piece in light of tax, securities and other applicable laws and regulations.

SHARPE newkirk provides the creative consulting, writing, editorial and other print production services (including mailing services) your organization needs.

Learn more about our gift planning communication materials by clicking here. Or reach out to us at info@SHARPEnet.com or 901.680.5300. ■

Philanthropy Puzzler: Gift of Property

 

The “Philanthropy Puzzler” features gift questions fundraisers may encounter in the field, followed by solutions from our panel of experts. If you would like to send us your own “puzzler,” please email us at info@SHARPEnet.com with “Philanthropy Puzzler” in the subject line.

Philanthropy Puzzler

Karen and Dean would like to make a gift of their home and retain the right to live there for the remainder of their lifetimes. They’ve had several discussions with their advisors and the proposed charitable recipient concerning the tax benefits and their continuing responsibility for property taxes, insurance and maintenance of the home. Their only remaining concern is that at some point in the future they may decide it is best to move from the house to a retirement community. They have asked what will become of their home if that happens.

Puzzler Solution

There are a number of alternatives. Karen and Dean could rent the home and enjoy the income for their lifetimes. If they don’t need the income, they could make a gift to the charity of their remaining life interest. This would entitle them to an additional charitable deduction.

Another option would be to agree with the charity to sell the home. The sale proceeds would be divided among them depending on the home’s fair market value, any repair or closing costs, their ages and interest rates at the time of the sale. Alternatively, the charity could buy the couple’s life interest and then sell the entire parcel or—depending on the value of their remaining life interest, their age and other factors—issue a gift annuity that would provide the couple with payments for both of their lives. This would also result in an additional tax deduction. ■

Celebrating a Milestone: A 50-Year Career in Philanthropy

This summer, Americans will celebrate the 50th anniversary of the historic 1969 moon landing. That’s a milestone Cliff Lura has already reached at the American Heart Association, from which he’s retiring after more than a half century of service. Here Lura shares with Give & Take the insights he has gained through a life’s work at one of America’s leading nonprofit organizations.

Give & Take: Tell us about your career with the American Heart Association.

Cliff Lura: I started at the Heart Association in 1966 as an assistant director at a small chapter covering just three counties in northern California. Then I transferred to Riverside county near Los Angeles and was the executive director there for two years. In 1970, I became the executive director of the Alameda county chapter in the Bay Area. I transitioned into planned giving in 1991 and have been doing it ever since. My current title is Charitable Estate Planning Advisor.

Give & Take: What changes have you seen in planned giving through the years?

Lura: The concept of planned giving has been around for a long time, but it wasn’t always called that. I remember when it was called long-range gift development and then deferred giving. And then, of course, Robert Sharpe Sr. coined the term “planned giving” in Give & Take in 1972.

That’s the same year I first experimented with planned giving. Based on an idea from a training seminar, our chapter decided to produce a newsletter three times a year about the things that were going on in the Heart Association in our area. It was a 24-page newsletter highlighting educational programs and research. In it, we listed the names of everyone who had donated since the last issue and dedicated the back page to planned giving. We had a pretty good response in planned giving from those newsletters, but at that time planned giving was still a relatively small part of our fundraising efforts.

In 1991, when I began working in planned giving full time, I became the director of major gifts and planned giving for all of California except the Los Angeles area and was charged with developing a planned giving program for northern California.

Give & Take: Were you the only person responsible for planned giving in northern California?

Lura: Yes, and I had to start from scratch. I began by putting together estate planning seminars. The first charitable remainder trust I ever handled came out of my very first seminar. It was a complex gift involving appreciated stock and real estate, but we just took it a step at a time. Usually you can find a way to make a gift work if you spend enough time with your donor, and of course you always do what’s best for the donor.

Give & Take: Since the 1960s, America has seen major changes in family dynamics and demographics. How have you seen fundraising evolve in response to national trends?

Lura: Going back to when I started in 1966, for the next 15 to 20 years the Greatest Generation was very generous. The Silent Generation came next, but they haven’t had nearly as much of an impact. I happen to be part of this generation, and there just aren’t many of us. We were followed by the Baby Boomers. They are very different from the Silent Generation and the Greatest Generation. They are interested in more sophisticated gifts such as trusts, charitable gift annuities and so on. They also seem to be more of a “me” generation.

I’ve noticed a lot more interest in having things named after them so they can be identified. It’s a very different mentality than I saw with the Greatest Generation. There aren’t many of the Greatest Generation left, but I’m still visiting as many as I can find.

I’ve also noticed that many more charities now are devoting resources to planned giving. They’ve come to realize how important it is and that they must make a commitment to planned giving over the long term.

On the other hand, I’ve seen a lot of charities begin a planned giving program and then stop. That approach won’t work. A charity can’t make a short-term commitment to planned giving. It requires patience, and it’s well worth the wait.

Give & Take: What advice do you have for people who are new to fundraising and are nervous about asking for gifts?

Lura: It’s important to remember that you don’t “ask” for the gift; you “listen” for the gift. Your listening has to be active listening. Listen to what is important to the donor and evaluate how those things relate to your mission. Then it’s a matter of asking them what they would like to accomplish. Draw them out with questions about what kind of impact they want to have on the world. One helpful tip: make sure you have three or four of those types of questions written down so you don’t get so caught up in your conversation that you forget to ask them.

Give & Take: What do you think you’ll miss in retirement?

Lura: I’ll miss the contact with donors and my interactions with staff. I’ve known a lot of them for a long time. And, of course, there are many new staff members as well, but that’s to be expected. No one stays in one job for as long as I did anymore, but it was a life. It was my life!

Give & Take: What do you love most about your job?

Lura: What we do at the American Heart Association doesn’t just benefit one group of people. Our mission impacts everyone because everyone has a heart.

As far as I’m concerned, working in planned giving is the best job you can possibly have in the nonprofit world. As I said before, we don’t ask for the gift—we listen for the gift, so we end up being good listeners. Everyone loves to tell about their life story. All you have to do is listen. ■

Encouraging Gifts of Securities

SHARPE newkirk offers several professionally written publications designed to encourage gifts of securities and outline giving strategies that enhance both your mission and your donors’ ongoing financial interests. In particular, the popular 16-page Giving Securities booklet contains detailed information to help your donors understand how and why they should consider making securities gifts.

SHARPE newkirk booklets and brochures make excellent:

  • Targeted mailings to major donors, particularly those who have made gifts of securities and large gifts of cash in the past. (Look for larger gifts of odd amounts if not coded as securities gifts.)
  • Informational materials at gatherings of donors or prospective donors.
  • Support materials to accompany gift proposals.
  • “Leave-behind” pieces following personal visits with donors.
  • Inserts in gift acknowledgments and thank-you letters.
  • Educational materials for your board, volunteers and staff.

Publications can be personalized with your contact information and logo on the front and/or back cover. If you prefer, our designers can work with your team to produce fully customized publications as well. Click here or reach out to us at 901.680.5300 or info@SHARPEnet.com for more information or to order. Click here or more information on the importance of gifts of securities. ■

Philanthropy Puzzler

In a new regular feature for Give & Take, the “Philanthropy Puzzler” will feature gift questions fundraisers may encounter in the field, followed by solutions from our panel of experts. If you would like to send us your own “puzzler,” please email us at info@SHARPEnet.com with “Philanthropy Puzzler” in the subject line.

Philanthropy Puzzler

Virginia is in the process of reviewing her estate plan following the recent death of her husband. Her only child, Benjamin, is intellectually disabled. She would like to include a bequest to charity but wants to ensure that Benjamin receives financial support for the remainder of his lifetime. Virginia has considered a charitable remainder trust that would make lifetime payments to Benjamin, but she does not want payments to be made directly to him as he is incapable of handling his financial affairs. She has asked whether there is any other way to structure the trust payout.

Puzzler Solution

Normally, a charitable remainder trust must be payable to or for the use of one or more named “persons.” IRC Code §7701(a)(1) defines person to include a trust, although if a noncharitable trust is the beneficiary, the charitable remainder trust must normally be for a limited time period (not to exceed 20 years). However, where the life income beneficiary is not competent and the only function of the noncharitable trust is to receive and administer payments from the charitable remainder trust, the payments will be deemed as received directly by the beneficiary (rev. rul. 76-270) and the trust can last for the beneficiary’s lifetime. Virginia could therefore have payments from the remainder trust pass to a special needs trust established for Benjamin. ■

Stocking Up on Gifts

The why, how and who of gifts of appreciated securities.

Would you be surprised to learn that about a third of the $249 billion claimed as itemized charitable contributions on individual tax returns in 2016 came from noncash contributions? That equates to roughly $80 billion donated from sources other than cash!

And did you know that each year about half of such gifts typically are contributions of corporate stock, mutual funds and other investments? Gifts of securities are a vitally important source of charitable gifts—actually surpassing the total realized from charitable bequests in many years, including 2016—yet few nonprofits devote more than cursory attention to encouraging these gifts.

Why now is the time

Stock gifts have risen along with the value of directly and indirectly held corporate stock in recent years. As the economy has recovered, so has the net worth of U.S. households, which grew 70% between 2008 and 2018, rising from $58.9 to $109 trillion. The improved economic situation of many donors has translated into increased charitable giving, including gifts of stock and other noncash gifts.

Despite market volatility over the past year, 2019 has seen many popular stock market indices recover to near all-time-record highs. Nonetheless uncertainty surrounds us, and many are anticipating a possible economic contraction, recession or stock market correction at some point in the future. In other words, while the stock market is high at the moment, some worry that these highs may be short lived and are looking for ways to capitalize on their stocks’ current values while they last. Using these stocks to fund outright or deferred gifts such as charitable remainder trusts and gift annuities can be one of the ways to accomplish this goal.

Choose wisely

For those considering larger gifts, there are smart strategies that may enhance the personal and philanthropic benefits of their gifts in 2019. By using appreciated stocks and other securities to fund charitable gifts, donors can reserve their cash to take advantage of future opportunities. Noncash gifts can also provide tax and other benefits to donors that can enhance their personal gift, estate, retirement and financial plans. Combining personal and philanthropic plans in such a way can yield surprising results.

Noncash giving: The “why”

First, let’s examine some specific reasons why certain donors may want to make gifts of appreciated securities.

Some investors may have one or two stocks that have outperformed their other investment holdings and would like to rebalance their portfolio or reduce their exposure to a particular asset class. They might fund gifts with those stocks or combine sales and gifts from those holdings to reduce capital gains taxes.

Others have odd lots or spin-offs from long-term investments and may choose to contribute these holdings to simplify their taxes and other personal accounting matters. Like other transfers of securities for charitable use, these gifts will be deducted at their full fair market value, even if the donor does not know their basis for tax purposes.

Another group that formerly itemized deductions may no longer do so given larger standard deductions and other reduced or eliminated deductions ushered in by 2017 tax law changes. They may benefit from “bunching” gifts into alternate years or perhaps paying a multi-year pledge in a single year when a particular stock hits a target price, thereby reclaiming the right to itemize their gifts and other deductions for one or more years.

Those who are concerned about the future performance of a highly appreciated stock or mutual fund may find it advantageous to “give out of the market.” They might give that security to a donor advised fund to lock in the value, generate deductions large enough to itemize and then recommend gifts over time to their favorite charitable interests.

Noncash giving: The “how”

Now let’s explore a few more specific gift planning strategies that may appeal to donors.

Many people own stock indirectly in retirement plans like 401(k)s, 403(b)s and IRAs. Those with a traditional IRA may find it beneficial to make qualified charitable distributions of up to $100,000 if they are age 70½ or older. This is true whether they itemize deductions or not. These distributions can be funded by selling appreciated securities inside the plan free of tax at the time of the sale. If they instead took distributions of the proceeds of that sale, they would owe ordinary income tax rather than capital gains that would be due on the sale of long-term securities outside the plan.

Similarly, those who are planning on including a charitable provision in their estate plans should consider using beneficiary designations or various defined contribution retirement plans that often include stock investments to make their charitable bequest because of the income tax exposure and possible impact of estate taxes if those balances are left to individuals.

Speaking of retirement planning, many Baby Boomers are now beginning to retire, and others are making plans to do so. Those who own highly appreciated stock or other investments may wish to use a portion of those assets to fund a charitable remainder trust that will result in a significant gift while also providing them with a fixed or variable income for life or other time period they can choose. Depending on the size of the trust, such a gift may provide “instant itemizer” status for up to six years.

Those who are older and already retired may find that highly appreciated growth stocks that pay little or no dividend may also be ideal assets to fund a charitable gift annuity and, depending on their income, the capital gains portion of payments may be taxed at as low as 0%.

Noncash giving: The “who”

Those who are most likely to make larger noncash gifts, including stock, mutual funds and other investments, tend to have six-figure incomes and be 65 and older. The next best age group is those who are between 55 and 65. More than half of these donors have incomes between $100,000 and $500,000. As might be expected, the largest gifts often come from those with even higher reported incomes.

Be sure not to overlook opportunities with business founders and corporate insiders who may have already become or may soon become instant millionaires as a result of an IPO, merger or acquisition. The timing and structuring of gifts of appreciated stocks and/or cash can be used to minimize income and capital gains tax over time.

With a little effort directed at the “how” of major gifts in addition to researching the “who” and “why”, you may find that you will see a major boost to your gift income in 2019 and beyond. ■

Is Your Bequest “Bucket” Leaking?

SHARPE newkirk experts discuss some of the most commonly asked questions about estate settlement.

The gift planner’s job isn’t over once a donor who has provided for an estate gift has passed away. Estate settlement can be one of the trickier aspects of fund development and is one that should be handled delicately as it often involves far more than a monetary transaction. Questions about estate settlement matters are among the most common issues SHARPE newkirk clients raise.

Give & Take spoke recently with three of our consultants who have dealt with these issues as development professionals in the past before addressing them as consultants.

Give & Take: Can you summarize some of the more common occurrences that can result in a charitable beneficiary of an estate receiving less than they should?

John Jensen: One of the most common “leaks” that can occur is when excess fees are charged to an estate. An executor, administrator or personal representative, as the case may be, is entitled to reasonable fees for services rendered in settling an estate. Fees can also be paid to attorneys, appraisers, accountants and other professionals incident to the management of an estate. In some cases, an executor and attorney can be entitled to a fee determined under state law based on a percentage of the estate unless a beneficiary questions fees, in which case the fees must be justified. It is important that fees be carefully reviewed by an appropriate party, especially in cases where the entire estate is left to charity or other heirs receive fixed amounts and what remains is shared by one or more charities.

Laura Knitt: Charities should also consider the opportunity costs being borne by an estate in addition to the fees described above. Time is money. If a charity is due, for example, $500,000 under the terms of a will and it could earn an estimated return of 7% on its endowment, then it costs the charity nearly $3,000 a month for each month the receipt of funds is delayed. In my experience, a bequest of a specific amount is often received within one year or sooner, where it is not uncommon for it to take two years or longer to receive a distribution of all or a portion of the remainder of an estate.

Real estate can present another area of concern. If a charity learns that its bequest amount will be determined in part by the proceeds of the sale of a home or other real property, the estate should be flagged for close attention. There are any number of ways that mishandling the management and/or sale of real property can cause distributions from an estate to be reduced. Watch for sales to related parties for less than fair market value or neglect of the maintenance of the property sufficient to lower its value when finally sold.

Aviva Shiff Boedecker: Another challenge is that many charities don’t pay attention when they receive estate related documents and don’t respond in a timely manner— which can sometimes mean they don’t receive anything at all. When a staff member at one of my clients learned the basics about what to do and what to look for, she started combing through old estate files and contacting the representatives. In a short time she collected thousands of dollars from dormant estate files!

Another growing problem is that charities are often unaware that they are the designated beneficiary of a retirement account or insurance policy. Even if the charity does know about the account, they may have a very difficult time receiving the distribution.

G&T: What should a charitable beneficiary of an estate expect from an executor, personal representative or other administrator of an estate?

Boedecker: Courtesy, honesty, prompt and clear notifications. Responsiveness. Even if the personal representative has no idea what they are doing, he or she should still be honest and responsive. If the representative is not responsive, this can be a red flag that something is amiss.

Knitt: You should request a full copy of the will and at least the relevant sections of a trust—although you should also request a full copy of the trust as well. State laws will ultimately determine who is entitled to what portion of a trust. If it’s a residuary gift, you should expect a full and timely copy of the inventory and accounting unless an accounting has been waived by the decedent in the will.

Jensen: I would just add that the executor owes the beneficiaries his or her best effort as a fair and unbiased fiduciary who will seek to follow the wishes of the deceased as expressed in the wording of the will or trust. The executor should not favor one beneficiary over another.

One thing organizations should always remember is that when a donor remembers a charitable interest in his or her estate plans, he or she is essentially elevating it to the status of a “family member.” The mission of your organization is that important to the donor. Remembering this and reminding estate administrators of this fact may be helpful as you deal with possible delays and pitfalls with estate administrators and family members.

G&T: What should charities do if they are asked to sign a “release and waiver” form prior to receiving funds left to them through a will?

Boedecker: This is one of the most common questions I get. The bottom line is don’t automatically sign these without careful consideration! They are not all the same. Read each document thoroughly, make sure you understand the terms and ask for legal guidance where appropriate.

Knitt: I agree. It is among the responsibilities of a charitable organization’s staff members to protect the interests of the organization. One of those interests is making sure the organization receives what it is supposed to receive. Any time a document, especially one involving the residuum of an estate, is provided (whether a signature is requested or not), it should be read carefully. If there is a question about giving something up, such as a right to a final accounting, it’s preferable to have the document reviewed by legal counsel.

Jensen: Never agree to anything that is unreasonable (such as exempting the executor from liability for theft, malfeasance or other misdeeds). If you sign a document through which you waive any rights, it can be very difficult if not impossible to go back later. For example, if a house is worth $250,000 and the executor sells it for $150,000 and you sign the release and waiver, you have just given up $100,000 unless you can prove some malfeasance on the part of the executor.

G&T: What can a charitable organization do if it learns that a donor who has previously notified the organization of a planned bequest has passed away but there has been no notice of the bequest given by someone administering the estate?

Knitt: This can be a delicate situation to handle. It is entirely possible that the organization had been included in an earlier draft but was no longer included in the donor’s final will, or was removed or replaced in a beneficiary form for a retirement plan, brokerage account or other type of transfer that may have been anticipated. This is why we stress to our clients the importance of continued stewardship of donors who have indicated the organization will be remembered in their will or other estate plans.

Sometimes an executor or administering institution has made an error, or worse, has committed fraud in some manner. Short of being fortunate to receive a call from a whistle-blower (which I’ve experienced more than once), this could be a situation in which staff members could make inquiries among family members, other charities or public records. Depending on the anticipated size of the estate, it may be worthwhile to seek outside legal counsel. It may be helpful in some situations to contact the state attorney general. Attorneys general in many states have special units devoted to protecting charitable interests.

Boedecker: Contact the administrator of the estate or a family member. Express condolences and note that the person was a member of the legacy society and the donor had mentioned that they had planned a bequest. Ask if the person knows of any gift. It could have been contingent on something that has not occurred, or the person may have depleted their resources or changed his or her mind. If the gift was documented and the donor agreed that it would be enforceable as an obligation of the estate, then further steps should be taken with advice of legal counsel.

Jensen: I’m often asked how long you should wait before taking action. If you have not heard anything within 60-90 days, call the registry of probate (the name varies by state) in the county where the donor resided, identify the approximate period of death and order a copy of the will. Be aware that there will be a per-page fee. Rest assured that no one (including family members) will know of your call and the clerks are used to this. Also keep in mind that the fact that no will has been filed or it doesn’t name your organization does not mean that there is not also a trust or other document that names your organization but doesn’t have to be filed with probate court.

A good resource for more information about estate settlement is a six-part Give & Take series by Aviva Shiff Boedecker from 2012 entitled “What to Do When a Donor Dies.” You can access these articles here. If you have questions about estate settlement, ask your SHARPE newkirk consultant or contact us at info@SHARPEnet.com. ■

Getting to Know You: Wealthy Donors in America

U.S. Trust and Indiana University Lilly Family School of Philanthropy have released the results of the seventh survey in a series of periodic studies of the charitable giving patterns of wealthy donors. For purposes of the study, “wealthy” households are those with an annual income of more than $200,000 and/or a net worth greater than $1 million (excluding the value of the primary residence). The median annual income and net worth of those surveyed in this report were $350,000 and $2 million respectively. Just over half of donors in the study were female, and Baby Boomers were the most represented generation, comprising 50% of respondents.

High net worth generosity

Some 90% of American high net worth households reported making charitable gifts, compared to 56% of the general population. The average amount given by this group was $29,269, more than 10 times the amount given by the typical household. Wealthy donors gave to an average of eight different nonprofits, with religion, basic needs and health care/medical research being the most popular recipients.

Surveyed donors were also generous with their time; almost half served as volunteers for one or more organizations.

Donor motivations

The wealthy give for the same reasons other donors give. The top four reasons for making gifts were:

  1. Belief in the mission of the organization – 54%
  2. Belief that their gift can make a difference – 42%
  3. Belief in supporting the same cause year after year – 34%
  4. Experience of personal satisfaction or fulfillment – 32%

Only 17% indicated that receiving tax benefits was a primary motivation. However, 51% indicated that tax considerations sometimes affect their giving. It would appear to be a mistake to overemphasize tax benefits OR to underemphasize them. Regardless of whether tax savings motivated the gift, 86% of respondents expected gifts to be properly acknowledged and receipted for tax purposes.

Leaving a legacy

Most high net worth individuals plan to leave the majority of their wealth to their family, but 14% intend to leave a portion of their estate to charity, some 24% on average.

Details of the survey are available here.

Help your donors maximize their gifts in 2019 by sending them the informational booklet Your Guide to Effective Giving in 2019. For more information, click here or contact us at info@SHARPEnet.com, or 901.680.5300.