In the next 20 years, an estimated $30 trillion will be inherited in the United States as the large and prosperous Baby Boomer generation passes its wealth on to the next generation. This is the largest wealth transfer in human history, and may be the single greatest opportunity for philanthropy in the modern era.
For the uninitiated, the math around planned giving (a broad term encompassing giving through estate and end-of-life planning, most commonly through bequests) can be staggering. Bequests from middle-class donors frequently exceed $100,000, and some colleges report that their typical bequest is 2,500 times their average annual gift. US nonprofits received more than $30 billion in bequests in 2016 according to Giving USA.
These large numbers mask a tremendous missed opportunity: For donors and nonprofits alike, planned giving remains a poorly understood and infrequently utilized method of donation. More than 90 percent of American adults make a charitable donation every year, but fewer than 6 percent include a charitable bequest in their will or estate plan.
Narrowing that gap by even by a few percentage points would generate hundreds of billions in additional funding for many important causes. As the oldest Baby Boomers turn 71 this year, understanding exactly how to do that is essential.
During the course of the last 11 months, we—graduate students at Stanford University—have spent thousands of hours in research and experimentation to understand the state of planned giving in the United States, and the perspectives of donors in the Baby Boomer generation.
This research uncovers four systemic structural issues that currently retard the growth of planned giving. It also reveals solutions that can have a transformative effect on philanthropy in the next two decades. We’ve since used some of these solutions to launch a new social venture called FreeWill, which has generated more than $30 million in bequest commitments as of September 2017.
1. Staffing structures within most organizations ignore small donors, even though they are far more numerous.
Our interviews with more than 175 nonprofits found that those who have a planned giving department tend to have a similar organizational hierarchy. A VP or director of development commonly divides her team into two primary functions based on donor type: One team focuses on smaller donors (commonly called “annual giving” or “individual giving”), and a second team focuses on larger donors (usually called “major gifts”).
Planned giving personnel almost always are part of the “major gifts” team, where they tend to adopt the toolset of that discipline: They identify top prospects, schedule in-person meetings, and gradually secure commitments. This structure incorrectly de-prioritizes a much larger opportunity: recruiting small-dollar donors who might include the organization in their estate planning.
Even though they are not the target of most outreach, small-dollar donors (and even non-donors, who are fans of an organization but have not donated) make up the lion’s share of planned giving at most organizations. One large environmental organization, for example, receives 70 percent of their planned giving dollars from people who are not part of their top 10 percent in donations. One Midwestern university receives 38 percent of their bequest total from people who have never given a cent. In fact, our research suggests a dynamic in which the most frugal donors are also lifelong savers who are well-positioned to give the largest bequests.
Organizations should recognize that while small-dollar donors have significantly less disposable income for immediate giving compared to major donors, many have significant illiquid assets such as real estate, thanks to the increase in home values during the last thirty years.
2. The absence of data stifles investment and improvement.
Among donors who do include nonprofit organizations in their wills or estate plans, fewer than 25 percent notify the organization, our research has found.
The most obvious consequence is that nonprofits have difficulty planning around expected bequests. The more pernicious effect is that the absence of feedback means there is very little learning happening, even at a sector-wide level. In an age of real-time data, A/B testing, and constant optimization, many types of fundraising are improving at a rapid pace. But the learning cycle for planned giving is still decades long.
Compounding the problem, the lack of metrics leads to a chronic underinvestment in planned giving. Development leaders prefer to emphasize areas where they can show clear success to their boss or their board.
3. Baby Boomers avoid estate planning.
We interviewed 150 Baby Boomers between the ages of 53 and 71 who had made a contribution to a nonprofit in the last year. Only 8 percent had a bequest or other planned gift in their estate plans.
The first striking finding was that nearly half (47 percent) said that planned giving was not an option because they had no estate plan at all.
The most common words they used to describe the process were “scary”, “complicated,” and “expensive.” Common refrains were “I don’t know where to start” and “I just don’t want to think about it.”
The human instinct to avoid thinking about death means that nearly 70 percent of Americans do not have up-to-date legal wills. This is catastrophic for other reasons, but it also inhibits any potential for philanthropic giving through those plans, and likely costs the nonprofit sector tens of billions every year.
4. Meanwhile, estate planners avoid philanthropy.
Of the donors we interviewed who had made an estate plan with an attorney or online, nearly all reported that they were not prompted to think about charitable giving during that process.
This is particularly unfortunate, as academic research finds that when charitable giving is not suggested during estate planning, only 5 percent of people will include charitable bequests.
When prompted with a simple question, 10.4 percent of people will include gifts in their plans. But when prompted using social proof (i.e. “Many donors to the museum choose to leave a gift in their will. Is that something you’d be willing to do?”), more than 15 percent decide to give, and the gifts tend to be twice as large.
This indicates that planned giving could increase by a factor of six—potentially totaling more than $100 billion per year—if estate planning tools and attorneys use optimal prompts to encourage giving.
Enabling a Force for Good
These findings reveal a tremendous lost opportunity during the last decade. They also hint that planned giving can be a stunning force for good during the coming years, dramatically improving the nonprofit funding landscape.
1. Development leaders should create team-wide planned giving goals.
Planned giving should not be siloed in the major gifts department—or, worse, restricted to the domain of a planned giving officer. Staff in charge of digital fundraising, direct mail, and other small-dollar efforts should have shared accountability for generating bequests.
2. Nonprofits should regularly survey supporters about planned gifts.
To fill in the missing data on planned giving, organizations should regularly ask supporters: “Have you chosen to include us in your will or estate plan?” and “What motivated you to do so?” These questions must come with a clear explanation of why the information is valuable: It helps the organization plan for the future and understand how to motivate other donors.
3. Social entrepreneurs, legal entrepreneurs, and foundations must make estate planning and planned giving more friendly, intuitive, and accessible.
Nonprofits can only do so much to take advantage of the upcoming great wealth transfer when the general population eschews estate planning and estate planners rarely discuss giving. Estate planning itself has a dire need for more innovation if it is to unlock the tremendous potential of planned giving.
Our work with FreeWill indicates what is possible. By providing free, intuitive tools to help people make legal wills (or document their wishes and find a nearby attorney), we have generated nearly $30 million in new bequests in less than six months. (Each additional $100 we spend on marketing returns an average of $200,000 in charitable commitments.)
These early results hint that there is room for many more innovations and interventions. A few efforts could have a transformative impact—and launch a new era in philanthropic funding.