Are we saying that 59% of all of our “legacy society member” intents will not come to fruition?  Read on if that percentage throws you for a loop.

I have been struggling for a few weeks on writing a blog post in reaction to an article in AFP’s May/June 2010 issue of Advancing Philanthropy entitled “Barriers to Bequest Giving” written by Russell N. James III, J.D., PH.D.  (I don’t have permission to reprint the article – see attached chart with my own summary some of the data – click here: Summary of Data for Charitable Estate Planning from Health and Retirement Study)

There is just something about the overall message from the article that had me bewildered a bit – unsure what to make of it.  This wasn’t just me alone – I confirmed this uneasy feeling from many colleagues in the field of planned giving.

On the one hand, the author of the article pulled out some very interesting data from the University of Michigan’s national Health and Retirement Study (1995-2006), which interviewed approximately 26,000 over age 50 Americans over the course of the study.

The planned giving element in the study was that they not only asked participants about charitable intent in their estates plans, they also followed up on those who passed away to see if their charitable bequest intents were fulfilled.

Professor James sliced and diced the data in many ways – most of which was very interesting.  But, his headline – and the cause for concern by the planned giving community – was the 59% failure rate cited in my title.

In all fairness to Professor James, he didn’t make up the data.  Here are the facts:

• 6,640 individual participants in the study died;
• 298 of those who died had stated that they had intent to include charities in their estate plans;
• Only 121 of those 298 estates passed funds to charities.

Professor James did quite a bit more data analysis – but this 59% failure rate is just too glaring to ignore or “pooh-pooh,” especially since it seems to fly in the face of the experiences of the planned giving officers of the world.

If you read the article, Professor James goes through some of the potential reasons for these failures, also noting that 136 of the 298 deceased had surviving spouses (39 of these actually did see estate distributions to charity).  There are many other reasons why charitable estate intents fail.  No money left at end of life.  Not well organized estates – too much in IRAs or other non-probate assets.  He noted in particular that those using Living Trusts succeeded with a much higher percentage of charitable bequest fulfillment (maybe a sign that the use of living trusts indicates a higher level of attention to estate planning in general).  Intentionally or unintentionally lost estate documents – believe it or not, but families can choose to not probate a will (particularly if it is to their benefit).

There is actually a lot that we should learn from this data – even if the number of deceased is not enough for broad statistical conclusions.  Educating our donors on proper and good estate planning practices.  Staying in touch with our bequest donors.  Cultivating both spouses. Remembering that only 5% of people generally have charitable estate plans – try to expand your reach within your donor world without forgetting your best bequest prospects.

So, why the blog piece?  Sounds like I am intrigued by the data.

Actually, I was intrigued and went on to read a longer article by Professor James (which he kindly emailed to me) which goes into much greater detail on various interesting points that can be seen in the data like rates of bequest success among various demographic variables or those who use living trusts.

But something was still bothering me.  Telling me, and the rest of the planned giving world, that 59% of our “legacy society members” fail to come through with their bequests is a complete contradiction with our actual experiences.  Yes, some bequests fail – for the reasons mentioned.  From among my informal poll of planned giving officers after reading this article, everyone sees a few failed bequest gifts over their career.  Bigger places sometimes see one or two a year.

But, 59% failure.  No way.

There are two possible answers to this contradiction (study results vs. general planned giving officer experience).  First, we could just say that the 298 deceased individuals was just an unlucky group.  Call it negative selection.  Hey, 6,000 or more people in a study is statistically significant.  But, 298 people – is that a large enough sampling to make broad national conclusions?

The other answer:  let’s distinguish between legacy society members (i.e. those who inform charities of their intent to leave charitable bequests) and those who inform a national study that they plan to leave a charitable bequest.  A good follow-up question might have been:  if you intend to leave a charitable bequest, have you or will you inform the intended charitable recipients?    I suspect that most of the 298 with charitable intent in their estate plans never informed their charitable destinations of their intent.

My issue, therefore, with Professor James’ article is his first sentence: “A donor says that she has signed a bequest gift to your charity.”  It is misleading because we don’t know if the survey respondents are our legacy society donors.  I suspect that the respondents in the study are mainly people who have good intentions but never tell the charities.  People hesitate to discuss their charitable bequest intentions because they know the money might not be there.  They might change their minds.  For whatever reason.

The point is this:  planned giving legacy societies are not losing their members’ intentions at a rate of 59%.  Probably more like 3%.   But, whether or not the data is large enough for any statistical validity, these are issues we in the planned giving world need to be cognizant of.  There is reason to hold estate planning seminars and send out planned giving newsletters with estate planning advice.  There is reason to get to know your bequest donors.

Of course, what if the 41% success rate generally includes our legacy society donors and we are still losing out on the 59% failure rate? Maybe charities are losing out on untold amounts of bequests?

One last point.  Professor James suggested at the end of his AFP article that charities should encourage their bequest donors to include charities for a percentage of their gross estates for federal estate tax purposes.  Nice idea but practically, the drafting attorney in me says it’s a bad one.  Where does such a clause go?  In the specific bequest section of a will?  Say goodbye to the residuary (possibly at the unintended expense of family).  In the residuary section?  All non-probate assets and specific bequests are already transferred away to their named recipients – what is left to distribute?   This is just a technical point but the idea though of educating donors  about ensuring that their wishes happen as planned was the real message, and that I agree with.