Planning for Wealth Transfer, Part 2

In a webinar last month titled "Positioning for Wealth Transfer," Campbell & Co. Vice President Bruce Matthews talked about the need for organizations to prepare programs that take full advantage of this boon.

Last week, in Part 1 of this two-part series covering the presentation, we outlined Matthews' advice for creating a planned-giving program. Here, in Part 2, we lay out his thoughts on creating a bequest program.

Bequests, Matthews said, "will be the main vehicle by which individuals will transfer wealth to the next generation." Yet, according to data from the Partnership for Philanthropic Planning, only 50 percent of Americans have wills, and only 16 percent of that total have charitable beneficiaries. What's more, 68 percent of bequest donors have not notified the nonprofit beneficiaries of their gifts.

Citing information from the Center on Philanthropy at Indiana University, Matthews said individuals most likely to name a charity in their wills are between the ages of 40 and 60 — much younger than typically thought by most organizations.

"What that means is that if you wait until someone's 70 to ask them to put you in their will, it's probably too late," Matthews said.

Some other information Matthews shared to help organizations pick out good planned-giving prospects includes:

• Individuals with bachelor's degrees have the highest likelihood to name a charity in their wills; household income is not a factor. The primary motivation is a combined desired to do good and to fulfill others’ expectations (Center on Philanthropy at Indiana University);
• Final wills usually are done on average at 80 years of age, with the average lag time between the final will and death being five years (The Sharpe Group);
• Only 9.5 percent of individuals over the age of 50 that were giving more than $500 a year to charity had charitable estate plans, and only 10 percent to 12 percent of donors will die with charitable estate plans (AFP Research Council/Legacy Leaders). "So the majority of bequests that flow to our organizations, we don't know about ahead of time," Matthews said; and
• The most dominant predictor of charitable estate planning is the absence of children (AFP Research Council/ Legacy Leaders).

Matthews also cited " Three Americas: The Rising Significance of Regions," a paper by sociologist and demographer William Frey that notes three national trends that will greatly affect the future of planned giving:

1. Population growth. Immigration is a key factor driving this country's population growth.
2. Older population. By 2050, more than 20 percent of all Americans will be 65 years or older.
3. Diversity. Though whites made up 69 percent of the population in the 2000 Census, the white share of the population is expected to fall to about 46 percent by 2050.

The “three Americas” Frey looks at in his paper are represented in three different regions of the U.S. The Sun Belt — made up of Florida, California and Texas — has traditionally represented an area retirees migrated to. However, Frey posits that there is a new Sun Belt fueled by domestic in-migration of both whites and blacks to more affordable suburbs. The new Sun Belt includes Arizona, Colorado, Delaware, Georgia, Idaho, Nevada, North Carolina, Oregon, South Carolina, Tennessee, Utah, Virginia and Washington. Note that none of the original three Sun Belt states are represented in the new Sun Belt.

The second region, the Melting Pot, includes Alaska, New York, New Jersey, Florida, California, Hawaii, New Mexico, Texas and Illinois. These nine states contain the largest percentage of foreign-born population — 70 percent — in America and 76 percent of all Americans who speak Spanish at home.

The third region, the Heartland, has the most modest population growth of the three. Comprised of Alabama, Arkansas, Connecticut, District of Columbia, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Mississippi, Nebraska, New Hampshire, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Vermont, West Virginia, Wisconsin and Wyoming, it is the least racially diverse, and has the oldest residents and the highest percentage of people born in-state. Frey also notes that these states contain 39 percent of the nation's population and larger shares of baby boomers who are approaching retirement.

Frey's picture of America offers some important insights in terms of planned giving. For one thing, it illuminates heartland states as prime prospecting ground for potential bequest donors. Matthews added that it also shows the need for fundraisers to focus their messaging on shared values, not shared DNA; while individuals in these regions might have vastly different lifestyles from one another, they have similar aspirations.

Encouraging bequests
Donor actions that most likely predict the addition of an organization to an individual's charitable estate plan are the initiation of charitable giving to that organization, an improvement in self-reported health and an increase in assets. Changes that likely predict the removal of a charitable component of an estate plan are becoming a grandparent, becoming a parent, stopping charitable giving and a drop in self-reported health.

Matthews said while the median net worth of those 75 and older has grown by $50,000, median inheritances today are lower than they have been in the past. He cites a few reasons for this: People today have more siblings, they're living longer and, thus, healthcare costs are greater.

In terms of bequests, Matthews stressed the need for revocability, noting four reasons why revocability is important to donors:

1. People are worried that they will die too soon and not have enough available for heirs.
2. People are worried that they will outlive their assets.
3. People are worried about catastrophic illness.
4. People are worried about unexpected emergencies without enough savings or insurance.

"As long as people have these four fears, revocability is going to be very important to them," Matthews said, listing the following steps an organization should take to establish a bequest program:

1. Prepare a summary of the wording your organization will use in its bequest provision.
2. Create files of people who have documented bequests with your organization.
3. Devise a bequest intention form to get bequest commitments in writing.
4. Create a bequest or deferred-giving society.
5. Come up with guidelines for how you will count and credit bequests. Matthews said that because bequests are revocable, he's seen organizations assign a specific number at the end of the bequest value (like $10,001) so they can tell bequests from other gifts.

When marketing a bequest program, Matthews recommended using your organization's newsletter or magazine, and segmenting your database to determine your target group, noting that organizations should target those between the ages of 45 and 55.

Also, it’s essential to develop a strategy for following up on mail replies and referrals. Matthews also recommended creating a presence for your bequest program on your Web site, and creating a volunteer committee of advisors for the program.

Matthews closed the presentation by highlighting some bright spots on the planned-giving horizon, despite the economy. He noted that much of the wealth in the country is controlled by retired individuals, many of whom are unaffected by the current economic conditions. Rather than backing away, now is the time to increase contact with potential donors, he said.

Click here to view the webinar on-demand.