Saturday, July 23, 2011

The myth of the coming flood

            Are charities about to be deluged with resources from estate gifts?  New research from Texas Tech University published in the American Journal of Public Administration suggests that this hope may not be completely realistic.  While the American population is graying, several factors may limit the connection between this demographic shift and your charity's gift income.

            Estate gifts do represent income, but they are often the last gift from long-time donors.  An analysis of approximately 6,000 deceased members of the 1995-2006 Health and Retirement Study suggests that the loss of current giving and volunteering previously provided by the deceased donors largely offsets the value of estate gifts.

            Although charitable transfers do come from estates, these gifts are highly skewed to the wealthiest decedents.  Consequently, charities whose supporters are less wealthy may not fare well.   In this study, the 62% of decedents with estates under $100,000 averaged $666 per year in annual gifts while alive.  At death, this group produced an average charitable estate gift of less than $100.   The 22% of decedents with estates between $100,000 and $500,000 averaged $1,702 in annual giving before death, and $3,223 in charitable estate gifts.  Thus, estate gifts made up for less than two years of these decedents' previous annual charitable giving.

            Charities with wealthier donors would seem to be in a better position.  Very wealthy estates leave a larger share of assets to charities.  However, estate tax return data also suggest that the charitable estate giving of the very wealthy is much less likely to support existing public charities.  Rather, at these larger sizes of estates, decedents have sufficient resources to establish their own private foundations.  Although these are charitable gifts, they do not come directly to existing public charities.  In some cases, these new private foundations may even be establishing well-funded competitors for existing public charities. 

Incorporating this reality, the overall estimate of estate gifts going to public charities was four times the previous average annual level of giving by decedents.  Of course, at current interest rates, this is far short of what would be needed to replace the decedent's pre-death charitable giving.

            What can fundraisers do to improve these results?  First, developing replacement donors from the younger generations will be essential to the survival of any charity.  This represents no easy task.  Other research has indicated that the baby boomer generation has been less charitable than their elders were.  Further, as America grays, there will be relatively fewer younger donor prospects for each deceased donor.  Finally, much work remains to be done in charitable estate planning.  Projections based on this national survey of over 22,000 seniors suggest that approximately 90% of donors (over $500/year) over age 50 will die with no charitable component to their estate plan.  Without significant changes, the magnitude of this missed opportunity may affect charities for generations to come.

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