Use of Wills and Trusts Down Sharply. Cause for Alarm?

The percentage of older Americans with a will or trust has plummeted in just a dozen years. If people do not have a will, they cannot include a charitable bequest commitment in it. So, should the latest findings from Texas Tech researcher Russell James, JD, PhD set off alarm bells for planned gift fundraisers?

In his newest book, American Charitable Bequest Demographics (1992-2012), James observes that 61.2 percent of those age 55 and over had a will or trust in 1998. By 2010, that figure had fallen to just 40.8 percent. For 2012, the projection is 40.0 percent.

Decline of Will & Trust Use - Russell James copy

There are two possible reasons for the sharp decline.

In many jurisdictions, individuals can use non-probate transfers such as transfer-on-death or pay-on-death designations. While traditionally used for financial accounts, such designations are increasingly available for automobiles and real estate. Designations can, in many cases, allow for the complete transfer of an estate without the use of either a trust or probate process.

Another factor might be the substantial increase of the estate tax credit over the period examined. In 1998, the estate tax credit exempted $625,000 of assets while by 2010 the (at that point optional) exemption equivalent had risen to $5,000,000. James points out, “In addition to the direct impact on planning for those no longer subject to estate taxation, there may have been a spillover impact as estate tax planning issues gradually became less discussed in popular press venues.”

James explored how the sharp decline in the use of wills and trusts has affected charitable estate giving. While significantly fewer people had a will or trust during the period examined, those that did were more charitable. In 1998, 8.28 percent of wills or trusts, among those 55 and older, had a charitable provision. By 2010, that had increased to 10.12 percent. James believes the increase could be due to “growing levels of education and childlessness among this age group as both have been associated with increased likelihood of charitable estate planning.”

Fortunately, for the nation’s nonprofit organizations, these two different trends have offset each other. The percentage of all Americans age 55 and over who have made a charitable estate commitment has remained consistently between five and six percent since 1998.

There might also be another positive dimension that has not been examined. The study did not include an analysis of the charitable component of transfer-on-death designations. It could be that this represents a significant source of charitable giving. At the very least, it’s certainly a great source of potential giving.

While there is no cause for panic, the nonprofit sector should be concerned and must re-examine how it markets planned giving. Talking with a prospective donor about including the charity in her will might not be appropriate. She might not have a will or want a will. Therefore, focusing on a gift in a will would result in no gift.

Instead, here is what we need to do:

1. Recognize that wills and trusts are being used significantly less than they were;

2. Understand that individuals are using designations more often;

3. Educate our constituents about the value, for their loved ones, of using a will, trust, or beneficiary designation. Designations are a particularly attractive option for people since they can handle it themselves without the need for a lawyer and at no cost;

4. Encourage our prospects to include a charitable provision in their wills, trusts, or beneficiary designations. An organization is not likely to secure more estate gifts without educating and cultivating folks and then asking for the commitment.

That’s what Michael Rosen says… What do you say?

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12 Responses to “Use of Wills and Trusts Down Sharply. Cause for Alarm?”

  1. Michael,

    Thanks so much for this post. Readers of your blog may also access a free electronic copy of the report when they subscribe to your blog or contact you directly if they are already a subscriber.

    The paper version remains available for purchase at The Nonprofit Bookstore (powered by Amazon).

    Best regards,
    Russell

  2. One other reason, I believe, is that many people do estate planning with discretionary income. My estate planning practice is way down. One thing I hear consistently is that the client’s money situation is tight. They either don’t have the discretionary income or they are conserving it because they are nervous because of all that has happened in the last five years (understandably so). Wall Street is not reflecting the mindset on Main Street.

  3. I believe you have identified an extremely significant change in the dynamic of deferred giving, and confirmed the suspicions of myself and, I’m sure, many of our planned giving colleagues.

    The days of relying on bequests to carry the major load of our matured planned gifts are rapidly drawing to a close.
    It will be those shops who address the shortfall by marketing to their constituencies, as you indicate:

    –TOD beneficiaries
    –Retirement plan beneficiaries (even to your youngest supporters, everyone who has, or has had a job!)

    Of course, we will still continue to strongly advocate estate planning for our supporters.

    I understand that next week is EPAW; (Estate Planning Awareness Week). So, we are supposed to all hug an estate planner!

    • Scott, thank for sharing your insight. I’m glad to know that the research findings resonate with you. When practical experience and research data are in alignment, we definitely know it’s time to pay attention.

      I appreciate you letting me know that next week is Estate Planning Awareness Week. I had no idea. Who decides these things?

  4. Hi Michael,

    This absolutely tracks what I’ve seen for several years now and had thought was common knowledge in the industry! The majority of new gifts I’ve seen/solicited have been beneficiary designations and other TOD gifts. Obviously, this has implications for messaging and marketing, and also for our stewardship of donors – much easier to change beneficiary designations than a will! Also, points to the importance of having in-depth conversations with our donors about their financial and philanthropic planning, rather than just reflexively providing “bequest language.” A number of donors I’ve spoken to had not realized that their will would not override any existing beneficiary designations (and the quality of advice that some of our donors get from their lawyers and financial planners is a whole ‘nother conversation!) For organiztions like mine, which cannot depend on a large quantity of gifts, and must instead proactively solicit significant gifts, it’s all just commonsense.

    • Tracy, thank you for your insights. I’m glad to know that the research supports your own real-world experience. It will be interesting to see where this trend leads in the coming years.

      I want to take a moment to highlight something you said, “A number of donors I’ve spoken to had not realized that their will would not override any existing beneficiary designations…” I often speak with development professionals who assume that their larger donors are sophisticated when it comes to financial matters, including philanthropy. Unfortunately, they often assume that donors know more than they might. It’s better not to assume. While we don’t want to ever insult the intelligence of donors, we do have a responsibility to make sure they have the best possible information. I applaud your efforts to do just that.

  5. I think that Michael’s last line was very telling. “An organization is not likely to secure more estate gifts without educating and cultivating folks and then asking for the commitment.” Perhaps there are untried things that development officers can also be educated about. It’s hard to get past the resistance to change the way of doing things and the limiting beliefs that can get in the way of receiving major gifts. In this economy everyone needs money. Some are lapsing life insurance because they no longer can afford the premiums or no longer have the need for the death benefit. If open to donating the policies and a third party picking up the premiums, the donor gets the ability to see their gift go to work in their own lifetime and they get a nice tax deduction while the organization gets a sizable donation they never would have had. The development officers just need to have the knowledge that this option exists and who is a trustworthy agent to refer the donor to.

    • Andrea, thank you for sharing your thoughts and suggestion. One thing is for certain: If we keep doing the same things, we’re likely to keep getting the same results. Yes, careful consideration of fresh ideas is important. However, we should not be dismissive of approaches we haven’t used simply because we haven’t used them.

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