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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

Small one-time snapshots in life Previous data Old data Post-mortem for largest estates New data The entire lifetime movie (tracking same people from mid-life to post-mortem)

The entire lifetime movie Matches sequence of lifetime responses with postmortem 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

62% U.S. population aged 55+ with a will or trust 60% 58% 56% 54% 52% 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)

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)

55% U.S. population aged 55+ with will only or trust 50% 45% 40% 35% 30% 25% Will Only Funded Trust 20% 15% 10% 5% 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)

11.0% Charitable estate beneficiary among U.S. population aged 55+ with a will or trust 10.5% 10.0% 9.5% 9.0% 8.5% 8.0% 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)

7% U.S. population aged 55+ with a charitable estate beneficiary in will or trust 6% 5% 4% 3% 2% 1% 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)

Where s the boom?

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 $ Billions Annually 140 120 100 Charitable bequests: Predicted v. Received 80 60 40 Est. High ('98-'17) Est. Middle ('98-'17) Est. Low ('98-'17) 20 0 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 since 2000 have trended flat What s going on?

Median Age at Death Wealthy people die old. Wealthy bequest donors die even older. 88 86 84 82 80 78 Linear (Male Bequest Donor) Linear (Female Bequest Donor) Linear (All Female) Linear (All Male) 76

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Cumulative percentage of charitable bequest dollars by donor age at death 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90-94 95+ Over 80% of charitable bequest dollars come from decedents aged 80+

The baby bust is driving demographics 1913 (Age 101) 1917 (Age 97) 1921 (Age 93) 1925 (Age 89) 1929 (Age 85) 1933 (Age 81) 1937 (Age 77) 1941 (Age 73) 1945 (Age 69) 1949 (Age 65) 1953 (Age 61) 1957 (Age 57) 1961 (Age 53) 1965 (Age 49) 1969 (Age 45) 1973 (Age 41) 1977 (Age 37) 1981 (Age 33) 4500000 4000000 Births 3500000 3000000 2500000 2000000

25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 Total resident population by 5-year age groups Temporary flat trend in key population 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 Key population not growing, YET

Coming demographic wave will impact CRT creation first, then CGA creation, then bequests realization 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 Realized Bequest Peak Age: 88

The future is bright

55% U.S. population aged 55+ charitable estate recipient among those with will/trust by family status 50% 45% 40% 35% 30% 25% 20% Grandchildren Children only No Offspring (unmarried) No Offspring (married) 15% 10% 5% 1998 2000 2002 2004 2006 2008 2010 2012p

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) 21% Percent childless women age 40-44 in U.S. 19% 17% 15% 13% 11% 9% Year (current age range)

16% U.S. population aged 55+ inclusion of charitable recipient by education level 14% 12% 10% 8% 6% Grad School College Grad Some College HS Grad <HS Grad 4% 2% 0% 1998 2000 2002 2004 2006 2008 2010 2012p

1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 35% U.S. population share with bachelor's degree and above 30% 25% 20% 55+ YEARS OLD 35 to 54 YEARS OLD 15% 10% 5%

20% U.S. population aged 55+ charitable recipient among those with will/trust by giving/volunteering 18% 16% 14% 12% 10% 8% 6% Donor & Volunteer Donor only Volunteer only Neither 4% 2% 0% 1998 2000 2002 2004 2006 2008 2010 2012p

55% U.S. aged 55+ giving ($500+) and volunteering 50% 45% 40% 35% volunteer charitable giving 30%

Wills that won t What ultimately happened to those written and witnessed will documents reported during life?

Reported wills are often unused Distributed estates where decedent reported having a written and witnessed will (n=6,063) 11% 6% 16% No will found Will probated 19% Unprobated will: nothing much of value Unprobated will: estate otherwise distributed 10% 38% Unprobated will: trust distributed Unprobated will: other

Funded trusts more likely to work Distributed estates where decedent reported having a funded trust (n=913) 4% 2% 4% 5% 10% Funded trust exists No documents Will probated 75% 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

Bequest givers may not be your donors, but many used to be 70% 60% 50% 40% 30% 20% Lifetime giving and volunteering by estate donors 8-10 years premortem Giving ($500+) Volunteering 6-8 years pre-mortem 4-6 years pre-mortem 2-4 years pre-mortem Timing of Lifetime Surveys 0-2 years pre-mortem

When do plans change?

Factors predicting when charitable plans are ADDED

1. Approaching death (final predeath survey) 2. Becoming a widow/widower 3. Diagnosed with cancer 4. Decline in selfreported 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 selfreported health 2. Approaching death (final predeath 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

Plans destabilize when 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

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 longerterm plan was worth FOUR made in the last two years.

A 5% national sample of 2012 probate records in Australia showed an estimated Baker, Christopher (October, 2013) Encouraging Charitable Bequests by Australians. Asia-Pacific Centre for Social Investment & Philanthropy - Swinburne University 31% of charitable wills were signed within 2 years of death 60% were signed within 5 years of death

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 70% 10-Year retention of charitable estate plans 60% 50% 40% 30% age 70+ age 50-69 20% 10% 0% 1993/4 to 2004 1995/6 to 2006 1998 to 2008 2000 to 2010

So where does Once in, Always in come from?

Plans destabilize as death nears Post-mortem for largest estates Old data We can see this only in a LIFETIME survey not in a ONE TIME survey

Fiction Fact The NCPG (2000) study showed that 90% of planned bequest donors don't change their plans It showed that IF charity stayed in, plan changes decreased total charitable amount 10% of the time 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?

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 Remember that most realized charitable bequests are added within 5 years of death Current U.S. study: Age 88 New Australian study (5% sample of national probate files): Age 90

Age at Will Signing (by share of total charitable bequest $ transferred) Australian data from: Baker, Christopher (October, 2013) Encouraging Charitable Bequests by Australians. Asia- Pacific Centre for Social Investment & Philanthropy - Swinburne University 13% 80s+ 11% 70s pre-70 76%

For those 75+ with lifetime connections, stay top of the mind (service, service communication, mission communication, honoring/thank you, living bequest donor stories)

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 No reference to charity Would you like to leave any money to charity in your will? Many of our customers like to leave money to charity in their will. Are there any causes you re passionate about?

The score doesn t count until the clock runs out 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!

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.

Encouraging generosity: The demographics of charitable estate planning www.encouragegenerosity.com/acbd.pdf Russell James, J.D., Ph.D., CFP Professor Texas Tech University www.encouragegenerosity.com

Drilling down

Race and ethnicity in charitable planning

12% U.S. population aged 55+ inclusion of charitable recipient among those with will or trust by race/ethnicity 10% 8% 6% White (NH) Black (NH) Hispanic 4% 2% 0% 1998 2000 2002 2004 2006 2008 2010 2012p

70% U.S. population aged 55+ use of will or trust by race/ethnicity 60% 50% 40% White (NH) Black (NH) Hispanic 30% 20% 10% 1998 2000 2002 2004 2006 2008 2010 2012p

8% U.S. population aged 55+ inclusion of charitable estate recipient by race/ethnicity 7% 6% 5% 4% 3% White (NH) Black (NH) Hispanic 2% 1% 0% 1998 2000 2002 2004 2006 2008 2010 2012p

Trends in use of funded trusts

14% U.S. population aged 55+ use of funded trust by race/ethnicity 12% 10% 8% 6% White (NH) Black (NH) Hispanic 4% 2% 0% 1998 2000 2002 2004 2006 2008 2010 2012p

13% U.S. population aged 55+ use of funded trust by household type 12% 11% 10% 9% 8% Married Households Single Female HH Single Male HH 7% 6% 5% 1998 2000 2002 2004 2006 2008 2010 2012p

U.S. population aged 55+ use of funded trust by wealth 35% 30% 25% 20% 15% 10% Top 20% 60%-80% 40%-60% 20%-40% Bottom 20% 5% 0% 1998 2000 2002 2004 2006 2008 2010 2012p

20% U.S. population aged 55+ use of funded trust by education level 18% 16% 14% 12% 10% 8% 6% Grad School College Grad Some College HS Grad <HS Grad 4% 2% 0% 1998 2000 2002 2004 2006 2008 2010 2012p

Extra details

11.5% U.S. population aged 55+ inclusion of charitable recipient among those with will or trust by household type 11.0% 10.5% 10.0% 9.5% Married Households Single Female HH Single Male HH 9.0% 8.5% 8.0% 1998 2000 2002 2004 2006 2008 2010 2012p

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 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 Δ in conditional probability