Tip of the Iceberg

by K. Gene Christian
Printed in Planned Giving Today

Planned giving is a professional discipline few people imagined as a career option 25-30 years ago. According to their website, there are more than 11,000 people supporting the mission of the National Committee on Planned Giving–an organization that didn’t exist 32 years ago. With that kind of explosive growth and interest, a logical person might conclude that it’s time for a plateau or “correction” to occur. After all, the financial markets and real estate go through cycles, so why not planned giving?

Regardless of how the debate on IRA rollover reform or estate tax elimination goes in Washington, the sheer volume of data supporting the rising popularity of planned giving will continue to flood our professional landscape. Imagine an iceberg looming on the horizon just a few meters away from your boat. What you see is only a small portion of what truly exists below the surface.

So, too, it will be with planned giving. What we see and experience today will be only a small fraction of the reality that occurs during the next 30 years in this business. Consider the following facts on the next page.

The Nation Is Aging Rapidly
In a recent USA Today article titled “2030 Forecast: Mostly Gray,” the Census Bureau predicts that 26 states will double their populations of people older than 65 by 2030, when the oldest members of the baby boom generation begin to turn 80 years old.

The growth in the 65-and-older population will be about 3.5 times the growth of the nation as a whole, and in six states more than one in four people will be over 65 years by 2030. Imagine how many more gift annuity prospects will be in your database during the next 25 years.

Land Values Will Increase Dramatically
Property values in many parts of the country have seen explosive growth during the past three years, particularly due to low interest rates. Even though real estate goes through “cycles,” imagine what property values in your area will be in 10 to 20 years. The San Francisco Bay area today is a good example of what many cities will experience by 2030.

I call it the 60/70 phenomenon. Many teachers, electricians, nurses, and social workers purchased their relatively modest homes in the Bay area during the 1960s and 1970s for $60,000 to $70,000. Today (depending upon the proximity to the city) those same homes are valued between $1 and $2 million, and those same people (now 60 to 70 years old) are ready to retire. They are living in their single largest valued asset without the benefit of receiving income from it to help pay for living expenses and property taxes.

Many medium and large cities across America (where the majority of planned giving occurs) are about 20 years behind San Francisco in terms of the property value phenomenon. Imagine how many new CRT, bargain-sale, and life-estate prospects will be in your database during the next 20 years.

Unprecedented Transfer of Wealth Occurring
By now, we all know and have read Paul Schervish’s and John Havens’ thoroughly researched work on the transfer of wealth in our country. It is estimated that $41 trillion is scheduled to transfer intergenerationally until 2052, assuming a 2 percent net growth rate in the value of estates. However if the real growth rate is 3 percent, the wealth transfer will actually be $72 trillion. If estates grow by 4 percent, the transfer amount will be $136 trillion.

If the nonprofit organizations large and small, new and old, will consistently remind people to name them as a beneficiary in estate planning, how much money might we expect to receive by 2050 through simple and ongoing bequest awareness programs?

Additionally, consider the lower mandatory distribution rules that occurred in 2002 related to IRAs. Now people age 70 1/2 are able to take much less on a mandatory basis from their IRAs than they were required to previously. The result? Twenty-five percent of Americans who have a qualified retirement plan will see their plan value be twice as large at their passing as it would have been under the old mandatory distribution rules in force prior to 2002. Imagine the unprecedented planning opportunities that will become available with IRD assets through charitable estate planning strategies during the next 20-30 years.

Changing Gears…
Now juxtapose the data just presented with what we know about the environment for outright giving during the same time period. The opportunities will be much narrower and the competition will become increasingly fierce.

50l(c)(3)s will Double in Number
In June 2004, Adrian Sargeant and Elaine Jay wrote a thesis for the Association of Fundraising Professionals titled “Determinants of U.S. Donor Behavior: The Case of Bequests.” The opening sentence in their well-written and exhaustive piece states that there are 1.2 million nonprofits and churches in America today, with the number of registered nonprofits growing by 5-6 percent annually. That means in a short 15 years there will be 2.4 million nonprofits in America–double the number we have today.

How many of us believe that the number of outright contributions will double during that same time period, or the number of existing donors will double their current giving levels? Not likely. In fact, Sargeant and Jay say that “As nonprofits face slowing levels of growth in giving, increasing levels of competition, and changes in donor audiences and expectations, organizations will have to work harder to solicit the desired levels of support.”

Some would even go further and contend that it will be very hard for nonprofits to simply keep their current levels of financial support during the next 15 years (with inflation factors built in), let alone increase the results by “double digits” as most board members might optimistically hope for.

Foundation Distributions Trend Downward
How many large, grant-making foundations in your region anticipate distributing (by percentage) as much money during the next 15 years as they did during the last 15 years? Most have a mandatory requirement to payout 5 percent of the value of the assets, with a rolling average formula used. However, most financial pundits are suggesting real returns will be lower during the next decade. Bond rates will remain low, and gains across the board in the equity markets will thin out, too. The result? Grant-making foundations may not be dispersing funds into their communities during the next 15 years at the same real rate that they did during the last 15 years.

Donors Give to More Groups
In the May issue of The NonProfit Times, an article appeared by Matthew Sinclair titled “Donors Give to More Groups Wealth Is Being Spread Thinner.” In it, Sinclair reinforces what Sargeant and Jay found–citing a recent survey done by the Opinion Research Corp. for The NonProfit Times. Sinclair points out that 80 percent of respondents gave to at least one organization other than their church or temple during the past 12 months.

This is a notable jump from a similarly worded item in a 1990 survey done by the Roper organization, which found that 57 percent of respondents gave to organizations other than their religious institutions. Sinclair concludes: “The continued decline of donations by individuals as a percentage of overall giving … coupled with the increasing number of charities would translate to lower average gifts for all.”

Donors Have Little Cash to Give
And finally, Robert Cathcart, who works for a religious nonprofit organization, wrote in a 2003 paper that “… 94 percent of total charitable gifts by Americans were made with cash, and only 6 percent were made with non-cash assets. Yet compared to the property actually owned by Americans, 91 percent of all assets are non-cash and only 9 percent are cash… [organizations are] asking for gifts of current cash from people who mostly own non-cash assets. There simply isn’t enough current cash.”

I hope this article will become “grist for the mill” as thoughtful executive directors and development officers work with their board members. Every nonprofit organization, whether large or small, needs to consider their most effective development office staffing plan in the years to come–given what we know about the fundraising landscape in the future ahead.

While it is not possible to simply ignore more traditional fundraising efforts that help keep the lights on or the water hot, it is also not possible to ignore the phenomenal opportunities that will exist in planned giving in the years to come.

Simply put, the window of opportunity is about to fly wide open as it relates to charitable estate and planned giving…while that same window may be closing a bit when it comes to your more traditional development programs.

Most nonprofit organizations that have particularly been in the bequest awareness business for the past 20 years are significantly stronger today than their counterparts who did not market themselves in the same way.

For those organizations who want to emerge in the next decade as fiscally strong and increasingly viable–ready to influence their community for the mission they are about–they simply must have board members with strong intestinal fortitude and vision, ready to invest resources in their charitable estate and planned giving efforts.

Today we’re only scratching the tip of the planned giving iceberg. The next 20-30 years will ultimately be a harvest many in the planned giving community can scarcely imagine. Our demographics and awareness-building efforts have the potential to produce a meteoric rise in the popularity and effectiveness of charitable estate and planned giving.

K. Gene Christian works for Charitable Estate Planning Northwest, a growing company that provides a wide array of planned giving services to the nonprofit community throughout the Pacific Northwest. He is past president of the Northwest Planned Giving Roundtable, chairman of its annual conference, and writes and speaks regularly to prospective donors and the professionals who advise them. gene@cepnw.com

Planned giving is a professional discipline few people imaged as a career option 15-20 years ago. According to their website, there are more than 11,000 people supporting the mission of the National Committee on Planned Giving—an organization that didn't exist 22 years ago. Read More

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Brennan Wood, Dougy Center

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Tim Abrahamson, Board Chair, Salem Nazarene Foundation

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