Fund Raisers Urged to Focus on Young Donors and Owners of Real Estate

Despite research showing that as much as $6-trillion will flow into charities through bequests as members of the World War II and baby-boom generations die, a closer look at demographic figures reveals that charities are unlikely to see much of that money for decades, experts told the 1,150 fund raisers who attended the annual meeting of the National Committee on Planned Giving here.

As a result, speakers told fund raisers to veer somewhat from tried-and-true tactics and focus on new ways to attract gifts. They also urged fund raisers to persuade charity executives and board members to adjust their expectations to better match reality.

The wealth transfer “just might have been oversold by a little bit,” said John W. Jensen, a fund-raising consultant for the Sharpe Group, in Washington. “It produced tremendous expectations, and we have been hurt as a result.”

Those expectations have been fueled, in part, by a landmark Boston College study in 1999 that predicted that at least $41-trillion would change hands when members of the World War II and baby-boom generations die.

Lost in that big number was the fact that most of those who are expected to bequeath money are not likely to die until the 2030s and 2040s, Mr. Jensen said.

“If people don’t die, it’s really hard to get this money,” he said, adding: “If we simply do the same sorts of things that we’ve been doing for the last 10 years, we’ll be in exactly the same place.”

Mr. Jensen said the average age at death of people who make bequests is 83 or 84. That is a troubling number for two reasons:

• Demographic data show that the number of people who are now that age is somewhat smaller than in previous decades.
• The oldest baby boomers are only 61 — which means that it will probably be two or three decades before those boomers are able to follow through on their planned gifts to charities.

Even though the number of people in their 80s is not as large as it once was, most of the people in that age group are likely to be generous with their estates, conference speakers said.

Yet experts here also told fund raisers that they need to try new approaches to expand their universe of potential donors.

Sam Caldwell, president of the Planned Giving Company, in Media, Pa., said the traditional approach of cultivating relationships with elderly donors and wealthy people, while still important, is no longer enough.

The most successful planned-giving operations, Mr. Caldwell said, focus on a broader population. Fund raisers, he said, should be looking at more than just an organization’s older donors when deciding who should get appeals for bequests and planned gifts.

“It’s probably true that a large amount of the money is contributed by high-net-worth individuals. But most of the gifts are smaller and come from less-wealthy donors,” Mr. Caldwell said. “The key issue is loyalty.”

To prove that point, Mr. Caldwell cited research by his organization and the National Committee on Planned Giving that found that 41 percent of people who made planned gifts have contributed to the annual fund of the recipient organization for 10 years or more. More than 90 percent of planned-giving donors follow what Mr. Caldwell said are patterns of loyal giving — meaning they have made routine, small-scale gifts to the organization.

In addition, planned-gift donors are not as old as was once thought. Only about 15 percent of those who decide to make planned gifts arrive at those decisions when they are 75 or older, according to the National Committee on Planned Giving. By comparison, 17 percent of planned-gift donors are younger than 45.

Based on those numbers, Mr. Caldwell said planned-giving offices should be focusing their efforts on the organizations’ most loyal donors, regardless of age.

“There is clearly a revolution, a major change, going on in the way we identify planned-giving prospects,” Mr. Caldwell said. “These changes are very substantial.”

Planned-giving experts here remain confident that Congress will extend tax benefits for donors who give money to charities directly through their individual retirement accounts. But they are less than optimistic that an extention will be passed by the end of the year, when the current benefit is set to expire.

As a result, they urged fund raisers to encourage prospective donors to consider gifts from their individual retirement accounts soon. “The odds are pretty good that the law will be extended as is,” said Christopher Hoyt, a professor at the University of Missouri School of Law, in St. Louis. “But I don’t think we’ll know by December 31.”

Another speaker, Marc Carmichael, president of R&R Newkirk, in Willow Springs, Ill., was less optimistic. “We should take the position with donors that it is not going to be extended,” he said.

Two bills aimed at extending the law are now working their way through Congress.

The first would essentially extend the benefit under its current terms — meaning that the incentive would apply only to those age 70 and older, would be limited to $100,000 per year, and would not be available to those who make gifts to donor-advised funds or charitable-remainder trusts.

Another bill, the Public Good IRA Rollover Act, would allow donors to give to donor-advised funds and other entities that are excluded from the IRA law, lift a $100,000 limit, and allow people at age 59 to put their IRA funds into charitable-remainder trusts and other types of gifts that also produce income for the donor for a set time period.

Mr. Hoyt said the law has been a boon to many nonprofit groups, especially since donors must take a required income payment from their IRA’s after they reach the age of 70.

According to data collected by the National Committee on Planned Giving, about 20 percent of donors who have made IRA gifts since the bill was passed did so to satisfy the minimum-distribution requirements associated with their accounts. The data also found the median IRA gift was $5,000, meaning half were larger and half were smaller, and the most common gift was $1,000. About 7 percent of all gifts have been for the maximum $100,000.

Because of the uncertainty of the future of the IRA benefit, experts say they expect a flood of such gifts in coming months.

“What I hope we can take away from this is the last quarter of 2007 is going to be huge,” said Timothy J. Prosser, director of institutional trust consulting for the TIAA-CREF Trust Company, in St. Louis. “You have a real opportunity to have a sense of urgency with your donor base.”

Twenty years ago gifts of stock were considered unusual. Today they are commonplace.

Caroline Camougis, managing director of Delphi Partners, in New York, said she expects gifts of real estate to undergo a similar transformation over the next 20 years.

Ms. Camougis said real-estate gifts accounts for only about 2 percent of all charitable donations. Most of the rest — 97 percent — are in cash and stock, although she expects that ratio to change in the coming years.

For many potential donors, the money they have tied up in real estate is significant. One in 10 households owns at least two properties; one in 25 owns three or more, she said.

Rather than selling or maintaining those assets, Ms. Camougis said, many donors can be encouraged to donate their real estate to charity to avoid paying capital-gains taxes or to eliminate the burden of maintaining a property.

“Like anything,” Ms. Camougis said, “go where the money is.”