GIFT PLANNINGTrends and opportunities in bequests, endowments and major gifts

Barriers to Bequest GivingBY RUSSELL N. JAMES III, J.D., PH.D.

A donor says that she has signed a bequest gift to your charity.Great! However, how likely is it that this eventually will resultin bequest dollars actually going to your organization?

The Association of Fundraising Professionals (AFP) Research Councilsponsored a new study to help answer this question. This research trackedpeople in a national study who reported signing a charitable bequest. Theproject, part of a larger health and retirement study, tracked tens of thou-sands of people over the age of 50 from 1\'95 to 2006. During that time,6,640 of the people being tracked died. Among these decedents, 4.5 percenthad indicated in their most recent survey that they had made a planned char-

itable bequest. After death, researcherscontacted the spouse, caretaker or near-est relative to determine how the estatehad actually been divided. This alloweda comparison of reported charitable be-quest intentions during life with actualpost-death distributions.

The results were surprising. Amongthose indicating that they had made aplanned charitable bequest, 59 percentgenerated no charitable transfers afterdeath. Part of this was due to the pres-ence of a surviving spouse. Many peo-ple plan for gifts to charity only if theirspouse is no longer alive. Correspond-ingly, 71.5 percent of married decedentswho indicated that they had a plannedcharitable bequest generated no charita-ble transfers. This was not the whole sto-ry, however. Almost half (49.4 percent)of all unmarried decedents reporting aplanned charitable bequest ultimatelygenerated no charitable transfers.

What was causing this tremendousgap between stated intentions and ac-tual transfers? Were jealous heirs de-stroying documents to protect theirinheritance? Probably not. Those whohad reported a planned charitable be-quest were actually less likely to havemissing documents. Perhaps the chari-table plans were simply tied up in estateadministration and would eventuallygenerate a charitable gift. This did notappear to be the answer either. Lookingonly at completely distributed estatesslightly changed the percentage from 59percent of self-reported bequest donorsgenerating no gift to 56 percent. J

Part of this gap could have been idue to last-minute plan changes. Some ldecedents may have even intentionally .i

given false answers during life. How- j ~

May/June 201012 Advancing Philanthropy

(jl For more information, visit www.afpnet.org. Search: Planned Giving and Major Gifts

ever, estate document choice was alsoan important factor. Nearly 60 percentof people reporting a charitable planin a funded trust generated charitabletransfers after death. Less than 39 per-cent of those with a charitable will didso. Even when comparing people withidentical wealth, those with a charitabletrust were 18 percentage points morelikely to generate a gift than were thosewith a charitable will.

What caused this difference? Mostlikely, it came from one simple fact: Awill controls only the probate estate.The probate estate does not includeassets that are jointly owned or have"transfer on death" or "pay on death"designations. In many states, peoplecan easily add "transfer on death" des-ignations to any titled assets includinghouses, cars and financial accounts.Thus, people may report that they havea charitable plan because their will in-cludes a charitable provision. It may notoccur to them that all of their titled as-sets have joint ownership or "transferon death" designations.

How important was this lack of aprobate estate? Consider this: Nearly 40percent of the estates of those reportingcharitable will plans were never probat-ed. This means that all of the titled as-sets were transferred by other means.

The study also looked at other factorspredicting which people reporting char-itable plans would actually generate acharitable transfer. Wealth and incomemattered. Each additional $300,000 ofwealth or $20,000 of income increasedthe likelihood of charitable plan ful-fillment by about 1 percentage point.Conversely, having children reduced thechances of charitable plan fulfillmentby more than 20 percentage points.(This could have been due in part to thecommon practice of naming children in"transfer on death" designations.)

In light of these results, what strat-egies make sense for fundraisers? Forsome donors, encouraging the establish-ment of a living trust is a good idea. Theuse of living trusts increases the likeli-hood of the charitable intent being ful-filled. Living trusts require re-titling ofassets into the name of the trust, whichcan eliminate the interference of "trans-fer on death" designations. Additional-ly, living trust administration is usually

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quicker than probate, reducing the timeuntil the charity receives-the gift.

For donors who do not use a livingtrust, it is important to recognize thedifference between the donor's estateand the donor's probate estate. Gettinga will signed with a charitable bequest isgreat. However, it is important to recog-nize that the will may not control any ofthe donor's assets. With the prevalence :of "transfer on death" designations,signing the will is only the beginning ofthe bequest-generating process, ratherthan the end. Charities with plannedbequest recognition societies shouldconsider reminding will donors that"transfer on death" designations canundo their will plans.

Also, fundraisers may consider en-couraging donors to rephrase percentagebequests. Donors who want to leave 10percent of their net worth may considerbequeathing "a dollar amount equal to10 percent of my adjusted gross estatefor federal estate tax purposes." The ad-justed gross estate is the total value of thedonor's assets minus debts and adminis-tration costs. When people think of leav-ing a certain percentage of their estateto a charity, this is usually what theyintend. However, if a will leaves "10 per-cent of my estate," this usually means 10percent of the probate estate. When theprobate estate is much smaller than thedonor's net worth,this wording changecan alter the gift dramatically. Althoughimproving the wording will not help ifthere are no assets in the probate estateor the living trust, it will usually get clos-er to the donor's actual intent wheneversome assets are available.

Encouraging bequests is an impor-tant part of any charitable organiza-tion's comprehensive fundraising plan.This new research suggests that donorsmay be less successful in accomplishingthis task than we might have expected.These barriers, however, also show thepotential importance of intervention byprofessional fundraisers to help donorsaccomplish their charitable bequestgoals. (8)

Russell N. James III, J.D., Ph.D., isan assistant professor at the Institutefor Nonprofit Organizations at theUniversity of Georgia in Athens, Ga.,rjames@uga.edu.

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