charitable bequest decision-making

Charitable bequest decision-making: Practical lessons from research findings

Russell James, J.D., Ph.D.Associate ProfessorDirector of Graduate Certificate of Charitable

Financial PlanningDept. of Personal Financial PlanningTexas Tech University

Presented to the Big 12 Gift Planning GroupJune 6, 2012

Neuroimaging

Psychology

Demographics

Charitable Giving Theory

Tax Tips

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Dr. James is the 2nd most frequently published author all time in ISI-ranked academic journal articles on the topic of “charitable giving” when weighting for co-authorship (3rd in total articles) as of 2012 James, R. N., III & O’Boyle, M. W. (under review). Charitable estate planning as visualized autobiography: An fMRI study of its neural correlates. Available at SSRN: http://ssrn.com/abstract=2000345 Wiepking, P. & James, R. N., III (in press). Why are the oldest old less generous? Explanations for the unexpected age-related drop in charitable giving. Ageing & Society. James, R. N., III, & Baker, C. (2012). Targeting wealthy donors: The dichotomous relationship of housing wealth with current and bequest giving. International Journal of Nonprofit and Voluntary Sector Marketing, 17(1), 25-32.James, R. N., III, & Jones, K. S. (2011). Tithing and religious charitable giving in America. Applied Economics, 43(19), 2441-2450. James, R. N., III. (2011). Cognitive skills in the charitable giving decisions of the elderly. Educational Gerontology, 37(7), 559-573. James, R. N., III. (2011). Charitable giving and cognitive ability. International Journal of Nonprofit and Voluntary Sector Marketing, 16(1), 70-83.James, R. N., III. (2010). Charitable estate planning and subsequent wealth accumulation: Why percentage gifts may be worth more than we thought. International Journal of Educational Advancement, 10(1), 24-32.James, R. N., III. (2009). Health, wealth, and charitable estate planning: A longitudinal examination of testamentary charitable giving plans. Nonprofit and Voluntary Sector Quarterly, 38(6), 1026-1043.

James, R. N., III. (2009). The myth of the coming charitable estate windfall. The American Review of Public Administration, 39(6), 661-674.James, R. N., III. (2009). Wills, trusts, and charitable estate planning: A panel study of document effectiveness. Financial Counseling & Planning, 20(1), 3-14.James, R. N., III. (2009). An econometric analysis of household political giving in the USA. Applied Economics Letters, 16(5), 539-543. James, R. N., III., Lauderdale, M. K., & Robb, C. A. (2009). The growth of charitable estate planning among Americans nearing retirement. Financial Services Review, 18(2), 141-156.James, R. N., III., & Wiepking, P. (2008). A comparative analysis of educational donors in the Netherlands. International Journal of Educational Advancement, 8(2), 71-79.James, R. N., III. (2008). Charitable giving and the financial planner: Theories, findings, and implications. Journal of Personal Finance, 6(4), 98-117.James, R. N., III. (2008). Distinctive characteristics of educational donors. International Journal of Educational Advancement, 8(1), 3-12.James, R. N., III., & Sharpe, D. L. (2007). The nature and causes of the U-shaped charitable giving profile. Nonprofit and Voluntary Sector Quarterly, 36(2), 218-238. James, R. N., III., & Sharpe, D. L. (2007). The “sect-effect” in charitable giving: Distinctive realities of exclusively-religious charitable givers. The American Journal of Economics and Sociology, 66(4), 697-726. James, R. N., III. (2006). Multi-family housing, social capital, and charitable behavior: Does spatial connectedness influence social connectedness? Housing and Society, 33(2), 91-104.

Findings published or under review in peer reviewed academic journals in economics, sociology, marketing, and neuroscience

BackgroundPh.D., Consumer & Family Economics, U. of Missouri

Dissertation on religious charitable giving

J.D., U. of Missouri School of Law, cum laudeUMB award for most outstanding work in gift & estate taxation & planning

Director of Planned Giving, Central Christian College & practicing estate planning attorney, 1994-2000President, Central Christian College, 2000-2005Visiting Assistant Professor, University of Missouri, 2005-2006Assistant Professor, University of Georgia, 2006-2010Associate Professor & Director of the Graduate Certificate in Charitable Financial Planning, Texas Tech University, 2010-

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Quoted in media outlets including The New York Times, The Wall Street Journal, CNN, MSNBC, CNBC, ABC News, U.S. News & World Report, USA Today, The Associated Press, Bloomberg News and the Chronicle of Philanthropy.

“On a recent day in the basement of a campus lab, Russell James is working with a brain-scanning machine that wouldn’t look out of place in a top-notch hospital. James isn’t a mad scientist…” -SmartMoney, February, 2012

=

Charitable bequests financial significance

• US charitable estate gifts over $22 billion; exceeds corporate giving of $15 billion (Giving USA, 2011).

• In prior 20 years, charitable bequests more than doubled in real dollars (Giving USA, 2011)

• Future growth from population aging and increasing propensity due to greater education and childlessness (James, Lauderdale, & Robb, 2009).

Potential for greater philanthropy

• 70% to 80% of Americans engage in charitable giving each year (Giving USA, 2011).

• About 5% of Americans have a charitable estate plan (James, 2009a).

* Donors giving $500+ per year, weighted nationally representative 2006 sample

Over-50 Donors with Charitable Plans; 9.4%

Over-50 Donors With No Charitable Plans;

90.6%

Challenges to encouraging bequest giving

• Unlike current giving, it is difficult to measure experimental success in bequest fundraising

• Ask-to-receipt may take 40+ years

• Identification of distinct cognitive characteristics could inform fundraising strategies sensitive to these differences

Neuroimaging

Why use fMRI to study bequest decision-making?

• Not all parts of decision-making are known to the decision maker

• Activation reflects the type of cognitive processes

Previous fMRI studies in giving: reward/salience

• Moll, et al. (2006) found giving engaged mesolimbic reward systems in the same way as when subjects received monetary rewards.

• Harbaugh, Mayr, and Burghart (2007) found giving elicited neural activity in reward processing/salience areas, e.g., ventral striatum.

Previous fMRI in charitable giving: social cognition

• Izuma, Saito, and Sadato (2009) found greater ventral striatum activation before a decision to donate when observers were present v. absent

• Hare, et al. (2010), found giving value calculation was driven by input from regions involved in social cognition

• Moll, et al. (2006) found decision to donate mediated by activation in areas which play key roles in social attachment and aversion

Basics of fMRI experiments

We place subjects in an MR scanner where they canobserve a video screenand make choices by pressing buttons

We can then associate those choices with blood oxygenation levels in different brain regions

Subjects spend time in the scanner working with the buttons and screen to acclimate to

the environment

Task A Task BTask A- Task B

A single image contains much unrelated brain

activations

A contrast can subtract out

the noise

Think of study results in terms of contrasts

Image of task

A

Image of task

B

Image of task A-

Image of task B

The Experiment

A comparison of bequest decision

making with giving and volunteering decision making

QuestionWhat brain regions

are differentially activated by

bequest decisions as compared with

giving and volunteering

decisions?

Exploratory expectations

• Increased activation in areas involved in death-related contemplation

• Unfortunately, very limited fMRI research on what these areas are

Death-related words: precuneus• Gündel, et al (2003) worked

with subjects who had lost a first-degree relative in the previous year. The only region showing significant activation (at p<.05, FWE) in response to grief-related (v. neutral) words was the precuneus.

• Freed, et al. (2009) examined subjects who had lost a pet dog or cat within the previous 3. Four of twelve areas showing activity in response to the deceased reminder (v. neutral) words, were in the precuneus.

Methods

• Sixteen adult male subjects • Prior to entering the scanner,

subjects reviewed terms along with the names and a one sentence description of each charitable organization.

• Subjects had two right and two left response buttons for each hand, for a total of four response options.

Comparison Questions

1. “If asked in the next 3 months, what is the likelihood you might GIVE money to ______” 2. “If asked in the next 3 months, what is the likelihood you might VOLUNTEER time to ____” 3. “If you signed a will in the next 3 months, what is the likelihood you might leave a BEQUEST gift to _____”

96 questions: 28 x 3 large charitable organizations and 4 x 3 family member recipient categories. 16 second pairs (2B, 2G, 2V or 2G, 2B, 2V)

The Results

Category(1)

None(2)

Unlikely

(3) Somewhat Likely

(4) Highly Likely

Missing Avg.

Bequest 30.7% 38.9% 16.6% 11.3% 2.5% 2.09Give 30.5% 28.3% 26.8% 12.7% 1.8% 2.22Volunteer 24.4% 29.1% 25.8% 19.9% 0.8% 2.42

Behavioral Responses

What areas are more engaged during bequest questions than during giving/ volunteering questions?

A flight through the brain: http

://youtu.be/NKKKE_7aFqM

http://youtu.be/NKKKE_7aFqM




peak-level cluster-level

Contrast TitleMNI Co-ordinates

p (FWE-corr)

Z-scor

e

p (FWE-corr) ke

(1) Bequest>Give Lingual Gyrus -2, -78, -2 0.004 5.44 0.000 1399Precuneus 26, -66, 42 0.102 4.64 0.009 313

(2) Bequest>Volunteer Lingual Gyrus 2, -80, -4 0.007 5.32 0.000 2254Precuneus 30, -66, 40 0.180 4.47 0.004 356Precentral Gyrus -34, -3, 36 0.397 4.19 0.001 433

(3) Bequest> (Give+Volunteer)

Lingual Gyrus 0, -78, -4 0.001 5.82 0.000 2016

Precuneus 26, -66, 42 0.007 5.33 0.001 475

(4) Give>Bequest Cuneus 8, -88, 20 0.157 4.51 0.003 388(5) Volunteer>Bequest Cuneus 8, -88, 20 0.060 4.79 0.000 1008

Insula -38, -20, 8 0.323 4.27 0.001 462(6) (Give+Volunteer) >Bequest

Cuneus 6, -90, 22 0.011 5.22 0.000 1014

Relative Activations Comparing Charitable Bequest with Giving and/or Volunteering

(reporting only p<.05 FWE corrected cluster-level)

peak-level cluster-level

Contrast TitleMNI Co-

ordinatesp

(FWE-corr)

Z-score

p (FWE-corr)

cluster size

(1) Increasing with agreement

Lingual Gyrus

10, -68, -4 0.004 5.46 0.000 671Postcentral Gyrus

-40, -22, 52 0.007 5.37 0.000 1200

(2) Increasing with disagreement

Precentral Gyrus

38, -20, 62 0.000 6.20 0.000 1387

Insula 42, -20, 18 0.171 4.61 0.013 196

Activating with Increasing and Decreasing Charitable Bequest Agreement

(Linear Parametric Modulation reporting only p<.05 FWE corrected)

Core areas more engaged for bequest

contemplation• Precuneus • Lingual gyrus

– Also increased activation was significantly associated with increased projected likelihood of making a charitable bequest

Precuneus and lingual gyrus activation occurred when subjects were able to vividly relive events in an photo, but not where scenes were only vaguely familiar.

(Gilboa, et al., 2004)

Visualized Autobiography


“retrieving detailed vivid autobiographical experiences, as opposed to personal semantic information, is a crucial mediating feature that determines the involvement of hippocampus and two posterior neocortical regions, precuneus and lingual gyrus, in remote

autobiographical memory.” (Gilboa, et al., 2004, p. 1221)

• In Viard, et al. (2007), four of six regions showing significant activation when reliving events by mentally “traveling back in time”, were in the precuneus and lingual gyrus.

• In Denkova (2006), three of the four most statistically significant regions associated with recalling autobiographical personal events were in the lingual gyrus and precuneus.


Visualized autobiography = visualization +3rd person perspective on self

• The lingual gyrus is part of the visual system. Damage can result in losing the ability to dream (Bischof & Bassetti, 2004).

• The precuneus has been called “the mind’s eye” (Fletcher, et

al., 1995), is implicated in visual imagery of memories (Fletcher,

et al., 2005) and in taking a 3rd person perspective on one’s self.

Precuneus: Taking a 3rd person perspective on one’s self

• Differentially involved in observing one’s self from an outside perspective (Vogeley & Fink, 2003)

• Greater activation when subjects described their own physical and personality traits as compared to describing another’s (Kjaer, et al.,2002)

• Activation greatest when referencing one’s self, lowest when referencing a neutral reference person (Lou, et al.; 2004)

• TMS disrupting normal neural circuitry in precuneus slowed ability to recall judgments about one’s self more than the ability to recall judgments about others (Lou, et al., 2004)

Inter alia, the “precuneus may respond more strongly to familiar events involving the self and possibly when the self is projected across time.” (Rabin, et al., 2009)

Autobiography: The self across timeIn Meulenbroek, et al. (2010), the precuneus was the most statistically significant

region of activation for autobiographical memory tasks v. semantic true- false questions

“activation of the visual cortex (in the lingual gyrus) might also be related to autobiographical memory retrieval and in particular to visual imagery components, which play a key role in autobiographical memory (Greenberg & Rubin, 2003)” (D’Argembau, et al. 2007, p. 941).

Lingual Gyrus: Autobiographical

Visualization

• Jackson, Meltzoff, and Decety (2006) found both lingual gyrus association with third person perspective and cuneus association with first person perspective.

• Similarly, Wurm, et al. (2011), found greater activation in the lingual gyrus for third-person perspective and simultaneously greater activation in the cuneus for first-person perspective.

• Others have also associated cuneus activity with first-person perspective-taking as contrasted with third-person perspective-taking (David, et al., 2006; Lorey, et al., 2009).

Simultaneous cuneus deactivation: 1st v. 3rd person perspective?

Applications to practice in

bequest fundraising

Routley (2011) identified the importance of autobiographical connection when interviewing donors with planned bequests, writing, “Indeed, when discussing which charities they had chosen to remember, there was a clear link with the life narratives of many respondents”

Visual autobiography in practice

“‘[In my will] there’s the Youth Hostel Association, first of all...it’s where my wife and I met....Then there’s the Ramblers’ Association. We’ve walked a lot with the local group...Then Help the Aged, I’ve got to help the aged, I am one...The there’s RNID because I’m hard of hearing...Then finally, the Cancer Research. My father died of cancer and so I have supported them ever since he died.’Male, 89, married‘The reason I selected Help the Aged...it was after my mother died...And I just thought – she’d been in a care home for probably three or four years. And I just wanted to help the elderly....I’d also support things like Cancer Research...because people I’ve known have died...An animal charity as well...I had a couple of cats.’Female, 63, widowed” (Routley, 2011, p. 220-221)



Fundraisers may consider emphasizing the autobiographical connections between the donor and the charity, rather than focusing on the charity’s need for funds

Psychology

Death salience

• Bequest decision making processes differentially activated areas similar to those involved in using death-oriented words to evoke memories of a recently deceased loved one (Gündel, et al., 2003; Freed, et al., 2009).

• This association is consistent with the rather obvious idea that bequest decisions involve reminders of mortality.

You

Suggests two levels of “defenses” to mortality salience (Pyszczynski, et al., 1999).

Proximal defenses: avoid death reminders (Hirschberger, 2010), e.g., deny one’s vulnerability, distract oneself, avoiding self-reflective thoughts (Pyszczynski, et al., 1999).

Distal defenses: attempt to achieve literal (i.e., religious) or symbolic death transcendence through support of one’s worldview or self-esteem (Hirschberger, 2010, p. 205). Some part of one’s self – one’s family, achievements, community – will continue to exist after death.

Terror-management theory

• the most common initial reaction will be to avoid or postpone the topic – Even among older adults, most have

no will or trust (James, Lauderdale, & Robb, 2009)

– For fundraisers, the enemy of the planned gift often isn’t “no”; the enemy is “later”

• create deadlines, make appointments, or promote time-limited campaigns– Rosen (2011) pointed to the

example of a challenge gift where a donor agreed to match 10% of bequests, up to $10,000 per donor, signed prior to a deadline

Proximal defenses in

practice

U.S. Over 50 Population

* Weighted nationally representative 2006 sample

Charitable Plans; 5.7%

Plans Without Charity; 38.2%No Planning Doc-

uments; 56.1%

Distal defenses in practice• Symbolic immortality requires

something, identified with the decedent, which will live beyond them, typically descendants. Hence, childlessness is most significant predictor of charitable bequest (James, 2009a).

• Large share of charitable bequest dollars go to permanent private foundations, typically bearing the deceased’s name (James, 2009b).

• Donors may be particularly interested in lasting gifts (endowments, named buildings, scholarship funds, etc.) to stable organizations.

Demographics

Previous studies

One time survey• Non-response bias if the whole survey

was about charitable giving

After death distributions• Only for taxable estates• Rare single county probate studies

Current study

LongitudinalSame people asked every two years

DistributionsAfter death nearest relatives are asked about final distributions

New Questions

ChangesNot just who has charitable plans but

when do they add and drop them

Intentions v. Outcomes

Did during life plans result in after death distributions

Details

• Nationally representative of over 50 population since 1998.

• Over 20,000 people per survey.• In person interviews, some

follow up by phone.

• Started in 1992• Questions within

larger Health & Retirement Study

• Respondents paid

What share of people over 50 in the U.S. have “made provisions for any charities in [their] will or trust?”



No Charitable Plans; 94.3%





Plans Without Charity; 38.2%No Planning Doc-

uments; 56.1%

What share of over-50 charitable donors giving over $500 per year indicate that they

have a charitable estate plan?




90.6%

Can that be right?

• Maybe a lot of donors will eventually get around to making a charitable plan?

Will donors ever get around to making a charitable plan?

88%-90% of donors ($500+/year) over age

50 will die with no charitable estate plan.

Projecting based on age, gender and

mortality or tracking actual post-death

distributions

You mean 90% of our donors will die without

leaving a gift?

You mean we could generate 9 times more estate gifts from

our current donors?

Among donors ($500+) over 50 with an estate plan, what is the single most significant factor associated with having a charitable estate plan?

Age? Education? Wealth? Income?

Among Donors ($500+) with an Estate Plan

Family Status

% indicating a charitable estate

planNo Offspring 50.0%Children Only 17.1%Grandchildren 9.8%

Regression: Compare only otherwise identical people

Example: The effect of differences in education among those making the same income, with the same wealth, same family structure, etc.

Likelihood of having a charitable plan(comparing otherwise identical individuals)

•Graduate degree (v. high school) +4.2 % points•Gives $500+ per year to charity +3.1 % points•Volunteers regularly +2.0 % points•College degree (v. high school) +1.7 % points•Has been diagnosed with a stroke +1.7 % points•Is ten years older +1.2 % points•Has been diagnosed with cancer +0.8 % points•Is married (v. unmarried) +0.7 % points•Diagnosed with a heart condition +0.4 % points•Attends church 1+ times per month +0.2 % points•Has $1,000,000 more in assets +0.1 % points•Has $100,000 per year more income not significant•Is male (v. female) not significant•Has only children (v. no offspring) -2.8 % points•Has grandchildren (v. no offspring) -10.5 % points

Find your estate donor…

Amakes substantial

charitable gifts, volunteers regularly,

and has grandchildren

Bdoesn’t give to charity,

doesn’t volunteer, and has no children

From an Australian study by Christopher Baker including 1729 wills:

“Australian will-makers without surviving children are ten times more likely to make a charitable gift from their estate”

How did giving during life compare with post death transfers?

$ $$$

Estate giving and annual giving for 6,342 deceased panel members

OffspringLast Annual

Volunteer Hours

Average Annual Giving

Average Estate Giving

Estate Gift Multiple

No Children 32.6 (6.6) $3,576 $44,849 12.6Children Only 25.4 (7.1) $1,316 $6,147 4.7Grandchildren 23.2 (2.1) $1,497 $4,320 2.9Total 24.3 (1.8) $1,691 $8,582 5.1

When did people drop charitable plans?

Yes! Yes! No.

What happened

here?

Factors that triggered dropping the charitable plan1. Becoming a grandparent 0.7226*

(0.2997)

2. Becoming a parent 0.6111† (0.3200)

3. Stopping current charitable giving 0.1198* (0.0934)

4. A drop in self-rated health 0.0768† (0.0461)

Some factors that didn’t seem to matter: Change in income Change in assets Change in marital status

*Fixed effects analysis including 1,306 people who reported a charitable plan and later reported no charitable plan. Coefficients show relative magnitude of factors.

When did people add charitable plans?

Factors that triggered adding a new charitable plan• Starting to make charitable gifts .1531† (.0882)• An improvement in self-reported health .0927* (0.0446)• A $100k increase in assets .0061** (.0023)

One factor dramatically reduced the likelihood that a new charitable plan would be added:• The addition of the first grandchild -.4641† (.2732)

Do the estates of people who make charitable estate plans grow differently than the general population?

After making their plan, charitable estate donors grew their estates 50%-100% faster than did others with

same initial wealth

Future demographic trends in estate giving

The Fall and Rise in Live Births - US

1912 (Age

100)

1915 (Age

97)

1918 (Age

94)

1921 (Age

91)

1924 (Age

88)

1927 (Age

85)

1930 (Age

82)

1933 (Age

79)

1936 (Age

76)

1939 (Age

73)

1942 (Age

70)

1945 (Age

67)

1948 (Age

64)

1951 (Age

61)

1954 (Age

58)

1957 (Age

55)

1960 (Age

52)

1963 (Age

49)

1966 (Age

46)

1969 (Age

43)

1972 (Age

40)

1975 (Age

37)

1978 (Age

34)

1981 (Age

31)2000000

2500000

3000000

3500000

4000000

4500000

50 to 54

55 to 59

60 to 64

65 to 69

70 to 74

75 to 79

80 to 84

85 to 89

90 to 94

95 to 99

100+0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

200120022003200420052006200720082009201020112012

Dramatic increases on the horizon

Temporary drop in key demographic population

Total Resident Population by 5-Year Age Groups [(NP-T3-B) U.S. Census]

19701972

19741976

19781980

19821984

19861988

19901992

19941996

19982000

20022004

20062008

1750000

1850000

1950000

2050000

2150000

2250000

2350000

2450000

2550000

Deaths in the U.S. (Red is Actual; Black is Trendline)

Drop in this key demographic combined with health care improvements

Projecting future bequest giving

Frequency of future bequest gifts • Change in population• Change in tendency to

make bequest gifts

Charitable Estate Planning among US Adults Aged 55-65

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

1996 1998 2000 2002 2004 2006

Increases in charitable planning are driven by increases in childlessness and education

VariableEstimate

(s.e.) p-valueEstimate

(s.e.) p-valueEstimate

(s.e.) p-valueYear 0.0138

(0.0032)<.0001 0.0033

(0.0034)0.3298 0.0015

(0.0036)0.664

Any children -0.6251 (0.0345)

<.0001 -0.6224 (0.0479)

<.0001

Years of Education

0.1412 (0.0048)

<.0001 ….full set of

….

control variables

Probit analysis of all respondents age 55-65 in 1996-2006 HRS. Outcome variable is the presence of charitable estate planning.

Time trend exists

Time trend disappears

when including childlessness

and education

Charitable estate planning among adults aged 55-65

0%

5%

10%

15%

20%

25%

30%

35%

40%

1996 1998 2000 2002 2004 2006

No Children - NoCollege Degree

No Children -College Degree

Children - NoCollege Degree

Children - CollegeDegree

Basic relationship

• The trend of increased charitable estate planning is driven by changes in childlessness and education.

• This allows us to predict charitable estate planning levels in the future.

Upcoming cohorts and childlessness

• Childlessness among women who will be entering the 55-65 age group over the next decade will be substantially higher than those in the 55-65 age group during 2006 (the year of the HRS data).

• Women in the 56-61 age group during 2006 reported a childlessness rate of 16.0% in 1990 when they were aged 40-44 (Dye, 2005). In comparison, women in the 40-44 age range in 2004 (i.e., those who will begin entering the 55-65 near retirement age group in 2015) reported a childlessness rate of 19.3% (Dye, 2005).

Upcoming cohorts and education

• Similarly, a college education is much more common among the upcoming cohorts of individuals nearing retirement age than among the current 55-65 group (Stoops, 2004).

• In 1996, less than 27% of those in the 35-54 age group had at least a bachelor’s degree.

• By 2007, over 31% of those in the 35-54 age group had at least a bachelor’s degree (Current Population Survey, 2007).

• Thus, one can expect the upcoming cohorts of individuals nearing retirement to be more educated than individuals currently in the 55-65 age group.

Big take-aways

• Don’t just recruit estate givers by giving level, also know your donors without children

• After making their intention, charitable estate donors grew their estates 50%-100% faster than did others.

• Future demographics are generally positive based on population, childlessness, and education

Charitable Giving Theory

New Ideas for legacy promotion from a theoretical framework

Applying “The Generosity Code”

Why theory instead of just a list of techniques?

• Limitations of “war stories” research– So called best practices may just be practices

• Theory based strategies are more flexible– New techniques can emerge as circumstances

change• Guides practice even where, as in bequest

giving, interim measurement is difficult.

What does a fundraiser do?

• Bring in money?• This description is “true”, but not very informative.

Applies to essentially all private sector jobs.• What does a Lawyer do? Makes money. What does

a grocer do? Makes money. What does an artist do? Makes money.

• You could bring money to your organization from government contracts, operation of a charitable business, or other means, but it wouldn’t be as a fundraiser.


A fundraiser …


A fundraiser …

Encourages Generosity

Encouraging generosity

• An issue of fundamental human significance• An independently valuable mission separate

from (although complementary to) your organization’s mission

Understanding generosity

Giving occurs when the “potential energy” of a gift’s potential value is unlocked by the “catalyst” of a request

Reciprocity(Response of Recipient

to Donor)

Interdependent Utility

(Recipient’s experience)

Self-Identity(Donor as giver)

Social Exchange (Response of Others to

Donor)

Cultural Norms (Response of Others to

Others)

Self-Efficacy(Donor as change

agent)

Potential Value of Gift

(Potential Energy)

Quality of Request

(Catalyst)

Gift(Energy

Released)

1. Definitiveness2. Observers

=x


to Donor)





Donor)


Others)


agent)

Interdependent Utility(Recipient’s experience)

• I am happy because you were benefitted

• Empathyi X Change in well-beingi

Act of Receiving

Act of Giving

Others’ Responses


to Donor)





Donor)


Others)


agent)

Act of Receiving

Act of Giving

Others’ Responses


• I am happy because I am generous, faithful, concerned, etc.

• Importance of value and felt adherence to it


to Donor)





Donor)


Others)


agent)

Act of Receiving

Act of Giving

Others’ Responses

Self-Efficacy(Donor as change agent)

• I am happy because I was the one who benefitted you

• My actions were the cause of the change that I selected


to Donor)





Donor)


Others)


agent)

Act of Receiving

Act of Giving

Others’ Responses

Reciprocity(Response of Recipient to Donor)

I receive benefits from the recipient or representative charity


to Donor)





Donor)


Others)


agent)

Act of Receiving

Act of Giving

Others’ Responses

Social Exchange(Response of Others to Donor)

I receive benefits from others because of my giving


to Donor)





Donor)


Others)


agent)

Act of Receiving

Act of Giving

Others’ Responses

Cultural Norms(Response of Others to Others)

I influence others in the way they behave towards others


to Donor)





Donor)


Others)


agent)

Act of Receiving

Act of Giving

Others’ Responses

Theoretical backgroundThese value channels exists for reasons rooted in social psychology (proximate causes) and natural selection (ultimate causes)


to Donor)





Donor)


Others)


agent)

Psychological benefits to donor

Material benefits to similar others

Material benefits to donor

Theoretical backgroundWe can rearrange by their value type including both material and psychological value sources

Understanding generosity

Giving occurs when the “potential energy” of a gift’s potential value is unlocked by the “catalyst” of a request


to Donor)





Donor)


Others)


agent)


(Potential Energy)

Quality of Request

(Catalyst)

Gift(Energy

Released)


=x

Definitiveness• How clearly is a decision required?

Observers• Who observes the decision?

Quality of request

Quality of a request: Definitiveness

Requires a definite

“no”

Indefinitely deferrableresponse

General support concept

General issue

awareness

Specific request

• Definitiveness: The degree to which a request demands a definitive “yes” or “no”

• The enemy isn’t “no”, it is “no response”

General requestNo request


Requires a definite

“no”



General issue

awareness

Specific requestGeneral requestNo request

“100,000 children have died in West Africa’s current food crisis.”


Requires a definite

“no”



General issue

awareness


“100,000 children have died in West Africa’s current food crisis. Please help one of the relief agencies if you can.”


Requires a definite

“no”



General issue

awareness


“Please give $50 to Oxfam to support relief efforts for children caught in West Africa’s current food crisis.”


Requires a definite

“no”



General issue

awareness


“We are sending an office gift to Oxfam on Friday. Put in whatever you like and I will stop by to pick up your envelope in

the morning.”

Quality of a request: Observers

1. Perceived likelihood of observance

2. Observer’s social significance and level of commitment to beneficiaries

Observation of a decision point adds a social cost to saying “no” and a social benefit to saying “yes” based upon:

Office beverages available with payment on an “honor” system.Picture above payment instructions rotated weekly.Payments were higher when picture of eyes was posted.

M. Bateson, D. Nettle & G. Roberts (2006). Cues of being watched enhance cooperation in a real-world setting. Biology Letters 2, 412–414.

A B

Two groups with two computer backgrounds. Each person receives $10. Computer question: Do you want to share any of it with another (anonymous) participant?

K. J. Haley (UCLA), D.M.T. Fessler (UCLA). 2005. Nobody’s watching? Subtle cues affect generosity in an anonymous economic game. Evolution and Human Behavior, 26, 245–256

Shar-ing55%

Not Sharing45%

Normal Screen

Sharing88%

Not Sharing12%

Eyes Screen

K. J. Haley (UCLA), D.M.T. Fessler (UCLA). 2005. Nobody’s watching? Subtle cues affect generosity in an anonymous economic game. Evolution and Human Behavior, 26, 245–256


to Donor)





Donor)


Others)


agent)

Potential Value of Gift(Potential Energy)

Quality of Request (Catalyst)

Gift (Energy Released)


=x

Applications to legacy giving

Unfortunate reality of legacy giving

“74% of the UK population support charities and when asked, 35% of people say they'd happily leave a gift in their will once family and friends had been provided for. The problem is only 7% actually do.”

From www.rememberacharity.org




90.6%


to Donor)





Donor)


Others)


agent)


=x

So, why is legacy giving so low?What is missing?


to Donor)





Donor)


Others)


agent)


=x

People may not consider charity during document creation (practice of advisors and mistiming of communications from charity).


to Donor)





Donor)


Others)


agent)


=x

Will drafting and legacy planning is easy to postpone (avoid facing mortality).


to Donor)





Donor)


Others)


agent)


=x

Will drafting is not public, and not an acceptable forum for peer observation.


to Donor)





Donor)


Others)


agent)


=x

Most legacy giving benefits can only be anticipated, not actually experienced.


to Donor)





Donor)


Others)


agent)


=x

Reciprocity or social exchange is limited. Prior to the gift, the intention is revocable.

After the gift, the donor is gone.


to Donor)





Donor)


Others)


agent)


=x

Charitable bequests may be viewed as competitive with transfers to offspring

What strategies within this framework might improve participation in charitable bequest making?


to Donor)





Donor)


Others)


agent)


=x

Spend more efforts with those donors who do not have offspring (and thus lower

competing interdependent utility).


to Donor)





Donor)


Others)


agent)


=x

Promote self-identify of the planned legacy donor as a current identity of social worth.

Identify an important value.

Associate current planned giving status with that value.

Create experienced gift value today, rather than only anticipated post-mortem value.

[Legacy club] members have a love for animals that lasts more than a lifetime.

Become a [legacy club] member today.


to Donor)





Donor)


Others)


agent)


=x

Death creates a natural self-efficacy void. Emphasize giving opportunities with

permanence.

Self-efficacy in legacy gifts

With death we “disappear”, a serious imposition on self-efficacy.

– The desire to overcome this is natural.– Humankind develops memorials emphasizing

permanence.

Self-efficacy in legacy gifts

It is easier for the wealthy to imagine charitable gifts with permanent impact.

Buildings, large charitable foundations, parks, art

Consider developing permanent giving opportunities for mid-level donors.

• Named giving opportunities limited to legacy donors (so as not to pull from current giving)

• Permanent memorial trusts for legacy donors only• Scholarships, lectureships, sponsor a child, sponsor a

rescued pet, annual performances, etc.


to Donor)





Donor)


Others)


agent)


=x

Develop small permanent giving opportunities exclusively for legacy gifts.


to Donor)





Donor)


Others)


agent)


=x

Emphasize data on how quickly inheritances are spent by family members as compared to

longevity of a “permanent gift”


to Donor)





Donor)


Others)


agent)


=x

Legacy societies to publicly recognize planned donors and create functioning donor communities through social events.


to Donor)





Donor)


Others)


agent)


=x

Always reminding so that the option is “top of the mind” whenever planning happens to occur.


to Donor)





Donor)


Others)


agent)


=x

Creating planned giving campaign deadlines to interfere with ease of postponement.

A small organization’s two-year campaign to reach 100 planned legacies

http://www.fcs.uga.edu/alumni/legacies.html


to Donor)





Donor)


Others)


agent)


=x

Encourage will making in donor population.


to Donor)





Donor)


Others)


agent)


=x

Provide free planning services to donors with high potential.


to Donor)





Donor)


Others)


agent)


=x

Create immediate commitment pledge devices with follow up verification.


to Donor)





Donor)


Others)


agent)


=x

Targeting advisors to include charitable questions in their document creation process through information and recognition.

Why not recognize the intermediaries?

• Intermediaries, such as a will drafting lawyer, are essential to the process.

• Often the simple act of specifically asking about a gift to charity by an advisor is key.

• A “new” idea?

Magdalen HospitalList of Contributors, 1760From: Sarah Lloyd, ‘A Person Unknown’? Female supporters of English subscription charities during the long 18th century, Voluntary Action History Society Research Conference, Canterbury, UK, July 14-16, 2010

Recognizing intermediaries

• Friends of charity solicitors society• Sponsoring free CPD (continuing professional

development) charitable planning related education opportunities– Advertising those who have completed the CPD

program.• Publishing recognition of active solicitors authoring

charitable wills probated in most recent 6 months in particular county, town.– Shows frequency of professional activity.


to Donor)





Donor)


Others)


agent)


=x

Consider legacy arrangements that involve children in charitable decisions.

Public notice of founding

of the Bible

Society (1804)

and listing of donors

The Morning Post (London, England), Monday, March

19, 1804; pg. [1]; Issue 11061. 19th Century British

Library Newspapers: Part II.

Executors become voting

Governors for life


to Donor)





Donor)


Others)


agent)


=x

The framework doesn’t provide automatic answers, but may help generate ideas about value creation and realization in your context.


to Donor)





Donor)


Others)


agent)


(Potential Energy)

Quality of Request

(Catalyst)

Gift(Energy

Released)


=x

Tax Tips

2012 special tax considerations

• IRA qualified charitable distributions (QCDs) – not available

• Roth IRA conversions• Low interest rates resulting

in high valuations of future gifts

$1MM in standard IRA (withdraws

are taxable)

In 2012 no income limits for Roth

conversions

Roth Conversion

$1MM in Roth IRA (withdraws

are tax free)

TaxableTax Free


are taxable)

Conversion creates $1MM in immediate

taxable income

Roth Conversion


are tax free)

TaxableTax Free

Roth conversions and charitable planning can work together to match

Income Deductions


are taxable)


taxable income

Roth Conversion


are tax free)

TaxableTax Free

Where can I find offsetting deductions?

Where can I find offsetting deductions?

• Direct charitable gift• Charitable remainder trust• Charitable lead trust

(grantor)• Charitable gift annuity• Donor advised fund• Private foundationOr give a remainder interest in a residence or farmland to a charity

Charitable deductions may be limited (with five year carryover) to 20%, 30%, or 50% of income depending on gift and recipient

If I have unused deductions, how can I pull future income into current year?

If I have unused deductions, how can I pull future income into current year?

With a Roth conversion


are taxable)


taxable income

Roth Conversion


are tax free)

TaxableTax Free

Roth conversions and charitable planning can work together to match

Income Deductions

Charitable gift of remainder interests in homes

and farms

A remainder interest gives the right to own the property after a set time or after the death of a person

OK, you can have my

stuff now.

Charles A. Donor

Charitable Deduction

Interest Rates

Deduction for remainder interest in $100,000 of farm land by age 59 donor

1.4% (April 12)

$74,03311.6% (May 89)

$15,684

Unlike a will, a remainder interest is not revocable, and can even be sold

Remainder Interest

A deductible remainder interest in farmland or a home must be transferred by deed, not by trust or contract

A farm is any land and improvements used (even by a tenant)

to raise crops or livestock

A remainder interest in any part of a farm may be gifted

(Rev. Rul. 78-303)

Can I give a remainder interest of an undivided share in

farmland?

12.5%

25%

Yes, donor may deduct a remainder interest shared by

charity and others as tenants in common (Rev. Rule 87-37)

12.5%

25%

However, IRS may deduct cost of partitioning (of forcing a sale

or division)

12.5%

25%

• No deduction for remainder just in mineral rights because it is not a “farm” Reg. 1.170A-7(b)(4)

• Can gift remainder in entire “fee simple” farm (even if land and mineral rights go to separate charities) PLR 8316037

• Can gift remainder in farm without mineral rights if you don’t owned them

mineral rights

How do you calculate the deduction for a remainder interest in farmland?

1. Find the §7520 interest rate (http://www.irs.gov/businesses/small/article/0,,id=112482,00.html)

2. Multiply value of land by remainder percentage in IRS Pub. 1457 (one or two lives or specific term) (http://www.irs.gov/retirement/article/0,,id=206601,00.html)

1. Find the §7520 interest rate http://www.irs.gov/businesses/small/article/0,,id=112482,00.html

Ex: A remainder interest in $100,000 of farmland given by a 59 year old donor 5/12

1.4%

Table S - Based on Life Table 2000CMInterest at 1.4 Percent

Age Annuity Life Estate Remainder55 20.8206 0.29149 0.7085156 20.2495 0.28349 0.7165157 19.6800 0.27552 0.7244858 19.1129 0.26758 0.7324259 18.5479 0.25967 0.74033

1. Find the §7520 interest rate (http://www.irs.gov/businesses/small/article/0,,id=112482,00.html)

2. Multiply value of land by remainder percentage in IRS Pub. 1457 (one or two lives or specific term) (http://www.irs.gov/retirement/article/0,,id=206601,00.html)

1.4%

Ex: A remainder interest in $100,000 of farmland given by a 59 year old donor 5/12

X 0.74033 $100,000

= $74,033

Leaving land to charityby will

• Revocable• $0 income tax deduction

• Impacts charity after death

Leaving land to charityby remainder interest

• Irrevocable• $74,033 immediate income

tax deduction• Impacts charity after death

or immediately if charity sells remainder interest

Because farmland can be gifted in parts, a donor could annually give remainder interests up to income limits or desired marginal tax rate

• Allows for increasing valuation each year

• Avoids risk of losing carryover deduction at death

• Could use value of annual deductions to pay for ILIT life insurance passing tax free to heirs

Donor can use money from remainder tax deduction to buy tax free life insurance (ILIT) for children’s inheritance

Tax

Free

From

ILIT

IRS Cash Back

remainder interest in farmland given to charity

$74,033 tax deduction x 35% combined tax rate = $25,911

$25,911 buys est. $70,000 paid up ILIT life insurance

children receive

$70,000 (tax free from ILIT)

will divides farmland 10% to charity 90% to children

charity receives $12,500

(10% x $125,000)

children receive

$50,625 (90% x 125,000 =

112,500, less 55% for post ‘12 estate taxes)

charity receives

$125,000 farmland

farmland worth $125,000 at death

Age 59 wealthy donor with $100,000 farmland on 5/12

Gifts of remainder interests in personal residences can also be deducted

Remainder Interest

Includes second homes, vacation homes, even a boat with bathroom, cooking, and

sleeping facilities, if used by the donor as a residence

Deduction for a house is reduced because, unlike land, it is depreciable (it wears out)

Rules in IRS Pub. 1459 http://www.irs.gov/pub/irs-pdf/p1459.pdf

59 year old donor giving on 9/6/10

Remainder interest in $100,000 farm

.68233 x $100,000

$68,233 Deduction

*.68233 less .26821 depreciation reductioncalculatedon nextslide

Remainder interest in $100,000 home

.68233 x $20,000 (land)

.68233 x $10,000 (salvage)

.41412* x $70,000

$49,458 Deduction

Table C(2.4)Factors for Reducing Assurances - Based on Table 2000CM

Interest at 2.4 Percent Age

Remainder R-Factors D-Factors

Age Remainder R-Factors D-Factors

x

Factors Rx-0.5Mx

Dx x

Factors Rx-0.5Mx Dx

0 .17830 1202916 100000.0 55 .56322 317860.0 24748.541 .17677 1185429 96977.54 56 .57383 304002.2 24008.452 .18060 1168311 94656.94 57 .58449 290311.8 23274.973 .18466 1151231 92407.69 58 .59517 276800.1 22547.024 .18888 1134179 90219.15 59 .60589 263478.6 21825.10… … …… … … … … … … …… … … …48 .49158 418809.2 30218.64 103 .95802 60.91156 35.6359549 .50143 404011.4 29397.77 104 .96077 33.72948 21.05020

Depreciation reduction factor

R factor age now – R factor age after useful life of house

D factor age now X Useful life of houseAppraiser can estimate. IRS examples use 45 years.

Table C at http://www.irs.gov/retirement/article/0,,id=206601,00.html263478.6-60.91156

21825.1-45 =.26821

What if the donor leaves?

What if the donor leaves?

Agree with the charity to

a joint sale and divide proceeds

Give life estate to charity in

exchange for a gift annuity

Give life estate to charity

Rent property

Sell life estate

What if I make improvements to the property after giving a remainder interest?

You can deduct the remainder value of major

improvements as additional gifts

PLR 9329017; PLR 8529014

$8,000 for

new HVAC

EncourageGenerosity.com

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