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Charitable Bequest Demographics
 

Charitable Bequest Demographics

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The demographics and statistics of charitable estate planning

The demographics and statistics of charitable estate planning

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    Charitable Bequest Demographics Charitable Bequest Demographics Presentation Transcript

    • Encouraging generosity: The demographics of charitable estate planning Russell James, J.D., Ph.D., CFP® Professor Texas Tech University
    • It’s kind of a BIG DEAL Why this new data is so important
    • The entire “lifetime” movie (tracking same people from mid-life to post-mortem) New data Previous data Old data Small one-time snapshots in life Post-mortem for largest estates
    • The entire “lifetime” movie • Matches sequence of lifetime responses with post- mortem distributions for over 10,000 decedents • Identifies timing of plan changes • Large, federally-funded, longitudinal, in-person, well-compensated, nationally representative, study on health and retirement issues
    • Warning! This might not be pretty
    • 52% 54% 56% 58% 60% 62% 1998 (n=18,987) 2000 (n=18,142) 2002 (n=17,353) 2004 (n=17,464) 2006 (n=17,033) 2008 (n=16,464) 2010 (n=18,370) 2012 (projected) U.S. population aged 55+ with a will or trust
    • States allowing “Transfer on Death” deeds in 1995
    • States allowing “Transfer on Death” deeds in 2000
    • States allowing “Transfer on Death” deeds in 2005
    • States allowing “Transfer on Death” deeds today (+2013 legislative action in 6 more states)
    • 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 1998 (n=18,987) 2000 (n=18,142) 2002 (n=17,353) 2004 (n=17,464) 2006 (n=17,033) 2008 (n=16,464) 2010 (n=18,370) 2012 (projected) U.S. population aged 55+ with will only or trust Will Only Funded Trust
    • 8.0% 8.5% 9.0% 9.5% 10.0% 10.5% 11.0% 1998 (n=18,987) 2000 (n=18,142) 2002 (n=17,353) 2004 (n=17,464) 2006 (n=17,033) 2008 (n=16,464) 2010 (n=18,370) 2012 (projected) Charitable estate beneficiary among U.S. population aged 55+ with a will or trust
    • 0% 1% 2% 3% 4% 5% 6% 7% 1998 (n=18,987) 2000 (n=18,142) 2002 (n=17,353) 2004 (n=17,464) 2006 (n=17,033) 2008 (n=16,464) 2010 (n=18,370) 2012 (projected) U.S. population aged 55+ with a charitable estate beneficiary in will or trust
    • Where’s the boom?
    • 0 20 40 60 80 100 120 140 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 $BillionsAnnually Est. High ('98-'17) Est. Middle ('98-'17) Est. Low ('98-'17) Charitable bequests received Charitable bequests: Predicted v. Received Estimated annually is 1/20 of 20 year estimated total from P.G. Schervish and J. J. Havens (1999) “Millionaires and the millenium: New estimates of the forthcoming wealth transfer and the prospects for a golden age of philanthropy”. Bequests received are inflation-adjusted numbers from Giving USA 2013
    • 0 20 40 60 80 100 120 140 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 $BillionsAnnually Est. High ('98-'17) Est. Middle ('98-'17) Est. Low ('98-'17) Charitable bequests received Estimated annually is 1/20 of 20 year estimated total from P.G. Schervish and J. J. Havens (1999) “Millionaires and the millenium: New estimates of the forthcoming wealth transfer and the prospects for a golden age of philanthropy”. Bequests received are inflation-adjusted numbers from Giving USA 2013 Charitable bequests: Predicted v. Received
    • Charitable bequests since 2000 have trended flat… What’s going on?
    • 76 78 80 82 84 86 88 MedianAgeatDeath Linear (Male Bequest Donor) Linear (Female Bequest Donor) Linear (All Female) Linear (All Male) Wealthy people die old. Wealthy bequest donors die even older.
    • 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90-94 95+ Cumulative percentage of charitable bequest dollars by donor age at death Over 80% of charitable bequest dollars come from decedents aged 80+
    • 2000000 2500000 3000000 3500000 4000000 4500000 1913(Age101) 1917(Age97) 1921(Age93) 1925(Age89) 1929(Age85) 1933(Age81) 1937(Age77) 1941(Age73) 1945(Age69) 1949(Age65) 1953(Age61) 1957(Age57) 1961(Age53) 1965(Age49) 1969(Age45) 1973(Age41) 1977(Age37) 1981(Age33) The “baby bust” is driving demographics Births
    • Key population not growing, YET 0 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90-94 95-99 100+ 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total resident population by 5-year age groups Temporary flat trend in key population
    • Coming demographic wave will impact CRT creation first, then CGA creation, then bequests realization Realized Bequest Peak Age: 88 Franey, J. W. & James, R. N., III (2013) Trending Forward: Emerging Demographics Driving Planned Giving. National Conference on Philanthropic Planning, Minneapolis, MN, October 15-17, 2013 CRT Creation Peak Age: 70-74 CGA Creation Peak Age: 75-79
    • The future is bright…
    • 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 1998 2000 2002 2004 2006 2008 2010 2012p U.S. population aged 55+ charitable estate recipient among those with will/trust by family status Grandchildren Children only No Offspring (unmarried) No Offspring (married)
    • 9% 11% 13% 15% 17% 19% 21% 1976(77-82) 1977(76-81) 1979(74-79) 1980(73-78) 1981(72-77) 1982(71-76) 1983(70-75) 1984(69-74) 1985(68-73) 1986(67-72) 1987(66-71) 1988(65-70) 1990(63-68) 1992(61-66) 1994(59-64) 1995(57-62) 1998(55-60) 2000(53-58) 2002(51-56) 2004(49-54) 2006(47-52) 2008(45-50) 2010(43-48) Year (current age range) Percent childless women age 40-44 in U.S.
    • 0% 2% 4% 6% 8% 10% 12% 14% 16% 1998 2000 2002 2004 2006 2008 2010 2012p U.S. population aged 55+ inclusion of charitable recipient by education level Grad School College Grad Some College HS Grad <HS Grad
    • 5% 10% 15% 20% 25% 30% 35% 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 U.S. population share with bachelor's degree and above 55+ YEARS OLD 35 to 54 YEARS OLD
    • 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 1998 2000 2002 2004 2006 2008 2010 2012p U.S. population aged 55+ charitable recipient among those with will/trust by giving/volunteering Donor & Volunteer Donor only Volunteer only Neither
    • 30% 35% 40% 45% 50% 55% U.S. aged 55+ giving ($500+) and volunteering volunteer charitable giving
    • Wills that won’t What ultimately happened to those written and witnessed will documents reported during life?
    • Reported wills are often unused 16% 38% 10% 19% 11% 6% Distributed estates where decedent reported having a written and witnessed will (n=6,063) No will found Will probated Unprobated will: nothing much of value Unprobated will: estate otherwise distributed Unprobated will: trust distributed Unprobated will: other
    • Funded trusts more likely to work 75% 5% 10% 4% 2% 4% Distributed estates where decedent reported having a funded trust (n=913) Funded trust exists No documents Will probated Unprobated will: Otherwise divided Will - Nothing much of value Will - Unknown
    • Documents • The will is only a back-up document • Ask about titling and beneficiary designations (especially qualified plans!) • Most wills are never used – let me explain why • Encourage trust planning • Consider alternate will language “a dollar amount equal to __ percent of my adjusted federal gross estate…”
    • Who are these people?
    • Lifetime predictors of a post-mortem bequest gift
    • 1. % years giving 2. No offspring 3. Highest giving 4. % years reporting funded trust 5. Female 6. Last reported wealth 7. Not married 8. Last reported giving 9. Growing wealth 10. % years volunteering
    • 20% 30% 40% 50% 60% 70% 8-10 years premortem 6-8 years pre-mortem 4-6 years pre-mortem 2-4 years pre-mortem 0-2 years pre-mortem Timing of Lifetime Surveys Lifetime giving and volunteering by estate donors Giving ($500+) Volunteering Bequest givers may not be your donors, but many used to be
    • When do plans change?
    • Factors predicting when charitable plans are ADDED
    • 1. Approaching death (final pre- death survey) 2. Becoming a widow/widower 3. Diagnosed with cancer 4. Decline in self- reported health 5. Divorce 6. Diagnosed with heart problems 7. Diagnosed with a stroke 8. First grandchild 9. Increasing assets 10. Increasing charitable giving
    • Factors predicting when charitable plans are DROPPED
    • 1. Decline in self- reported health 2. Approaching death (final pre- death survey) 3. Becoming a widow/widower 4. Divorce 5. Diagnosed with cancer 6. Diagnosed with heart problems 7. Diagnosed with a stroke 8. First grandchild 9. First child 10. Exiting homeownership
    • 1. Death feels near • Final pre-death survey • Decline in self-reported health • Diagnosis with cancer • Diagnosis with heart disease • Diagnosis with stroke • Becoming a widow or widower 2. Family structure changes • Divorce • First child • First grandchild • Becoming a widow or widower Plans destabilize when
    • Most realized charitable plans (shown in red) added within 5 years of death Total Number Total $
    • Although most charitable plans were added within 5 years of death, ONE longer- term plan was worth FOUR made in the last two years.
    • A 5% national sample of 2012 probate records in Australia showed an estimated • 31% of charitable wills were signed within 2 years of death • 60% were signed within 5 years of death Baker, Christopher (October, 2013) Encouraging Charitable Bequests by Australians . Asia-Pacific Centre for Social Investment & Philanthropy - Swinburne University
    • Plans destabilize as death approaches lifetime reports made as death approaches post-mortem transfers v. lifetime reports timing of the last changes made to the final will
    • Most still report charitable plans 10 years later 0% 10% 20% 30% 40% 50% 60% 70% 1993/4 to 2004 1995/6 to 2006 1998 to 2008 2000 to 2010 10-Year retention of charitable estate plans age 70+ age 50-69
    • So where does “Once in, Always in” come from?
    • Old data Post-mortem for largest estates Plans destabilize as death nears We can see this only in a LIFETIMEsurvey not in a ONE TIMEsurvey
    • The NCPG (2000) study showed that 90% of planned bequest donors don't change their plans Fiction Among those (avg. age of 58) WITH a charitable plan, 10% chose “Amount Decreased” when asked about their overall plan, “Has the amount of the charitable bequest ever increased or decreased?” Fact It showed that IF charity stayed in, plan changes decreased total charitable amount 10% of the time
    • Practice suggestions What now?
    • “Count it and forget it” doesn’t work!
    • A bequest commitment is the beginning, not the end Higher value in converting to irrevocable commitments: gift annuities, charitable remainder trusts, remainder interests is homes and farms.
    • Charitable plans signed earlier DO produce larger gifts, IF they stay in (or they return later)
    • Don’t ignore your oldest supporters
    • Half of all charitable bequest dollars came from decedents this age and older… Current U.S. study: Age 88 New Australian study (5% sample of national probate files): Age 90 Remember that most realized charitable bequests are added within 5 years of death
    • Age at Will Signing (by share of total charitable bequest $ transferred) 76% 11% 13% 80s+ 70s pre-70 Australian data from: Baker, Christopher (October, 2013) Encouraging Charitable Bequests by Australians . Asia- Pacific Centre for Social Investment & Philanthropy - Swinburne University
    • For those 75+ with lifetime connections, stay “top of the mind” (service, service communication, mission communication, honoring/thank you, living bequest donor stories)
    • Many of our customers like to leave money to charity in their will. Are there any causes you’re passionate about? Would you like to leave any money to charity in your will? No reference to charity Charitable bequest decisions are often unstable and easily influenced Charitable plans among 1,000 testators Charitable plans among 1,000 testators Charitable plans among 1,000 testators
    • • Plans change every time a donor opens a new account with a TOD/POD or changes a joint account owner • Plans become unstable as death approaches • Stay connected! Stay communicating! The score doesn’t count until the clock runs out
    • A realistic boom is starting soon (5 years) But, trusts do Wealthy, consistent donors with a trust (especially childless and unmarried) Approaching mortality & family changes
    • My favorite student evaluation from a personal finance class… This class sucked. It was all about reality. I didn’t want to know this stuff.
    • Russell James, J.D., Ph.D., CFP® Professor Texas Tech University www.EncourageGenerosity.com www.EncourageGenerosity.com/ACBD.pdf Encouraging generosity: The demographics of charitable estate planning
    • Drilling down…
    • Race and ethnicity in charitable planning
    • 0% 2% 4% 6% 8% 10% 12% 1998 2000 2002 2004 2006 2008 2010 2012p U.S. population aged 55+ inclusion of charitable recipient among those with will or trust by race/ethnicity White (NH) Black (NH) Hispanic
    • 10% 20% 30% 40% 50% 60% 70% 1998 2000 2002 2004 2006 2008 2010 2012p U.S. population aged 55+ use of will or trust by race/ethnicity White (NH) Black (NH) Hispanic
    • 0% 1% 2% 3% 4% 5% 6% 7% 8% 1998 2000 2002 2004 2006 2008 2010 2012p U.S. population aged 55+ inclusion of charitable estate recipient by race/ethnicity White (NH) Black (NH) Hispanic
    • Trends in use of funded trusts
    • 0% 2% 4% 6% 8% 10% 12% 14% 1998 2000 2002 2004 2006 2008 2010 2012p U.S. population aged 55+ use of funded trust by race/ethnicity White (NH) Black (NH) Hispanic
    • 5% 6% 7% 8% 9% 10% 11% 12% 13% 1998 2000 2002 2004 2006 2008 2010 2012p U.S. population aged 55+ use of funded trust by household type Married Households Single Female HH Single Male HH
    • 0% 5% 10% 15% 20% 25% 30% 35% 1998 2000 2002 2004 2006 2008 2010 2012p U.S. population aged 55+ use of funded trust by wealth Top 20% 60%-80% 40%-60% 20%-40% Bottom 20%
    • 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 1998 2000 2002 2004 2006 2008 2010 2012p U.S. population aged 55+ use of funded trust by education level Grad School College Grad Some College HS Grad <HS Grad
    • Extra details
    • 8.0% 8.5% 9.0% 9.5% 10.0% 10.5% 11.0% 11.5% 1998 2000 2002 2004 2006 2008 2010 2012p U.S. population aged 55+ inclusion of charitable recipient among those with will or trust by household type Married Households Single Female HH Single Male HH
    • What are the best multi-item models to predict the amount of money left to charities at death? Items 1 2 3 4 5 6 7 8 9 10 base rate 1,499 703 -242 -199 -826 -561 -836 -636 -567 346 Average $k giving 1,415 1,344 1,340 1,024 1,004 1,078 1,056 1,044 1,244 1,250 Last reported wealth $k 4 4 3 3 5 4 4 4 5 No offspring exists 9,774 9,722 9,815 9,807 9,917 9,868 9,844 9,325 $k of giving in last report 336 341 317 301 293 286 286 % years reporting funded trust 9,960 11,125 10,049 10,014 10,096 10,195 Highest reported wealth $k -2 -4 -5 -5 -5 Average reported wealth $k 7 10 10 10 Lowest reported wealth $k -13 -13 -12 Highest $k year of giving -113 -114 Married -2,409
    • What is the combined effect (considering both adding and dropping) of various lifetime changes on the presence of a charitable plan existing rank Δ factor Δ in conditional probability 1 Start (stop) giving 0.0798 2 Start (stop) volunteering 0.0585 3 Increase assets by 10k 0.0001 4 Increase annual volunteering hours by 100 0.0091 5 Being diagnosed with cancer 0.0728 6 $1k change in giving to charity 0.0010 7 Becoming a widow/widower 0.0572 8 The last survey before death 0.0528