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Will the Real Planned Giving Stand Up?

By Tom Watson on July 23, 2008No Comment

Will the Real Planned Giving Stand Up? by Jonathan Gudema

When I joined the planned giving world in the early 1990s, life income vehicles (CRUTs, CRATs, CGAs, etc.) were our primary focus.  And, while at times I oversaw a large bequest program in addition to my primary responsibility of closing life income gifts, it would never have dawned on me that bequests were something that planned giving officers focused on (except maybe when they couldn’t close the live gift).

Then, a consultant came to audit our seemingly successful program.  We were closing upwards of $4,000,000 a year in life income gifts and another $4,000,000 or more in bequest dollars.  I was shocked when the consultant reported back that we were not performing particularly well, since we were top heavy in life income gifts.  Our consultant said that a healthy planned giving program sees 80% of its planned giving revenue come in from bequests. 

This angered me.  We were working hard to close large, irrevocable planned gifts and doing a pretty good job at it.  And now a consultant had given the Vice President of Development the idea that our planned giving program was overly focused on the wrong type of gifts. 

Fast forward many years.  The stock market is no longer soaring, estate taxes are not as much of a concern, and older people are feeling less secure about their financial futures.  Except for a small percentage of organizations in this country, the market for life income planned gifts has dried up.  Many organizations that have established programs are telling me that they are lucky to close more than ten life income planned gifts a year.

And, of course, I have slowly changed, taken off my blinders, and realized that there was something to what that consultant was saying.

So back to our original question:  What is planned giving?  Well, where is the most money coming in from among all of those vehicles mentioned above?
The answer, of course, is bequests! 

I don’t need statistics to say with absolute certainty that bequests out perform life income and other vehicles by a wide margin.  In my estimation, a typical planned giving program, one that has been promoted consistently for ten or more years and accepts CGAs and CRTs, sees around 90% of its planned giving revenue from bequests.  And for organizations without developed life income plan programs, we can easily say 99% of planned gifts come through bequests.
Interesting statistics.

Recently, I was fortunate to have access to general data from the most recent CAE (Council for Aid to Education) Voluntary Support of Education Survey (VSE).  According to CAE’s web site, the “VSE survey is the authoritative national source of information on private giving to higher education and private K-12, consistently capturing about 85 percent of the total voluntary support to colleges and universities in the United States.” 

So, with the knowledge that colleges and universities most likely represent the best planned giving programs in the non-profit sector, I pulled and played with data from over 1,000 two and four year institutions which reported their 2007 fundraising totals.

Let’s start with the big picture.  A total of 1,040 universities and colleges (including 2-year colleges) reported raising money in 2007 over $25 billion of it, to be exact.  Of that $25 billion, 12.16% was from planned giving (bequests and present valued deferred gifts which are most likely CRTs and CGAs). 

Next, what about the universities and colleges that actually reported any planned giving (851 institutions)?  The numbers are virtually the same:  12.39% of total giving was from planned giving and 80.19% of planned giving totals were from bequests.  But, looking at this group showed me something else.  The average number of “deferred gifts” for this entire group in 2007 was 10 gifts.  Additionally, the average number of bequests reported by the group was 18.  The average bequest size was $162,282 over a total of 15,056 bequests reported.  For deferred gifts, the average gift size was $73,352 from 8,331 such gifts.

What about the top 100 planned giving programs based on total dollars reported, including bequests and deferred gifts?  The average number of bequests was 73, for an average bequest size of $239,494.  The average number of deferred gifts was 39 for an average deferred gift size of $90,720.   Planned giving as a percentage of overall fundraising:  14.63%.  Bequests as a percentage of total planned giving:  83.06%.

And the top 10 planned giving programs?  Average number of bequests:  140.  Average size bequest:  $435,729.  Average number of deferred gifts:  86.  Average size of deferred gifts:  $107,165.  Planned giving as a percentage of overall fundraising:  22.02%.  Bequests as a percentage of total planned giving:  86.91%.

Which university reported the highest amount of planned giving dollars received in 2007?  Stanford University with $185.4 million (22.27% of overall fundraising with 87.18% of planned gifts from bequests).  Stanford reported 138 bequests and 160 deferred gifts.

Stanford may have had an unusual bequest which pushed it over the top in 2007.  Harvard, as expected, won the total number of planned gifts by far with 313 bequests and 281 deferred gifts for a total of $116.4 million in planned giving dollars (18.95% of fundraising totals with 69.77% from bequests).

Only 7 institutions (Harvard, Stanford, Cornell, Michigan State, Oregon State, Penn State University and University of Michigan) reported over 100 deferred gifts.  Only Harvard, Oregon State and Michigan State reported over 200 deferred gifts.

I decided to see what the averages looked like for the top 100 universities, without the numbers from the top ten planned giving programs.  Average number of bequests: 66.  Average dollar size of bequests:  $195,820.  Average number of deferred gifts:  35.  Average dollar size of deferred gifts:  $82,113.

Top 26 100 planned giving programs?  Average number of bequests:  55.  Average dollar size of bequests:  $181,913.  Average number of deferred gifts:  31.  Average dollar size of deferred gifts:  $71,015.

Top 101-500 planned giving programs?  Average number of bequests:  16.  Average dollar size of bequests:  $106,994.  Average number of deferred gifts:  9.  Average dollar size of deferred gifts:  $57,033.

A picture begins to form.  The statistic that 80% of planned giving revenue is from bequests tends to ring true.  What does this mean?  Should we abandon deferred gifts altogether? 

At 20% of planned giving revenue, deferred gifts are still a significant component in the scheme of things.  Remember, the deferred giving dollar totals were “present valued.”  If you look at deferred gifts in full value, the percentage would probably look more like 60% bequests versus 40% planned gifts (I roughly calculated this by assuming that the present value of typical deferred gifts is about 35% of the deferred gift’s gross value). 

More important than trying to justify deferred giving based on the initial full value of the gifts, deferred gifts play a very important role in marketing a planned giving program.  In my opinion, a planned giving program needs more than bequests to market.  Deferred gift marketing complements a bequest program by interesting donors in potential estate planning options.  And, frankly, we planned giving people need something to talk about!  Ultimately, bequests will outshine deferred gifts, but you won’t find any successful planned giving programs that only promote bequests. 

The most interesting facts to me are the average numbers of deferred gifts among the top 26-100 programs and the top 101-500 programs.  These are the working class programs of the planned giving world.  An average of 31 deferred gifts is very similar to the program I started out at in planned giving.  Over 30 deferred gifts was a successful year for us and we were a significant national organization with very good numbers of potential prospects.  And, for those programs that average around 10 deferred gifts a year but also bring in significant bequest revenue?  I would not say they are not maximizing their planned giving potential.  It depends on the organization and its relationship to the pool of potential planned giving donors.

Please click here to see data on the top 100 University Planned Giving Programs.

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