Just the facts on legacy giving

Rumour has it that legacy gifts account for as much as one-third of the philanthropic income of charities in the UK, or at least of the largest ones. Whether or not that’s an accurate estimate, it’s clear to all observers that legacies account for a far larger share of charitable revenue in the British Isles than they do elsewhere.

Written by
Mal Warwick
Added
June 02, 2013
‘There are three things we need to understand before we can expect to increase legacy giving in any substantial way.’ - Mal Warwick

Rumour has it that legacy gifts account for as much as one-third of the philanthropic income of charities in the UK, or at least of the largest ones. Whether or not that’s an accurate estimate, it’s clear to all observers that legacies account for a far larger share of charitable revenue in the British Isles than they do elsewhere.

In the USA, for example, the widely-consulted annual Giving USA 2008, reporting on philanthropy for the year 2007, stated that legacies amounted to just $23.15 billion – a huge sum, of course, but just 7.6 per cent of $306.39 billion in estimated total giving for the year. This, by any measure, is a far sight lower than the proportion of legacy giving in the UK. That appears to be the case in just about every other country, so far as I can tell.

Clearly, though, legacy giving represents major potential for the nonprofit sector worldwide – potential that’s very largely untapped. So, then, the question is, what do we have to do to tap that potential? How can nonprofit organisations in the USA and elsewhere increase giving by bequest by 100 per cent, 200 per cent, or even more?

A little thought on the matter suggests there are three things we need to understand before we can expect to increase legacy giving in any substantial way:

  • We need to understand clearly the demographics and psychographics of legacy donors – in short, who gives such gifts?
  • We need to understand why those donors give legacy gifts.
  • We need to understand how best to communicate with legacy prospects and legacy pledgers.

Over the years, a number of researchers have taken a stab at finding answers to one or other of these questions. In the United States, the biggest and most widely cited study was ‘Planned Giving in the United States 2000: A Survey of Donors’, a reprise of a study first conducted in 1992 by the National Committee on Planned Giving (NCPG). The project began with a sample of 170,000 US households; after intensive screening, 1,500 completed detailed questionnaires. There have been other research projects, large and small, doubtless including many I’m not aware of.

However, as far as I can tell, the net result of all this research to date is that we still don’t have clear answers to the questions posed above. At the very least, most of the practitioners whose day-to-day conduct will determine whether the US nonprofit sector ever taps the full potential of legacy giving haven’t got the answers.

This may change, however. The work of Adrian Sargeant and his colleagues in North America and the United Kingdom suggests that research may yet yield down-to-earth findings that can be put to work by fundraising practitioners. Two papers published in the UK by Sargeant’s Centre for Voluntary Sector Management at Henley Management College report on the findings of an ambitious study of UK legacy donors and prospects, ‘The Final Gift: Targeting the Potential Charity Legator’, by Sargeant and T Hilton, and ‘The Efficacy of Legacy Communications’, by Sargeant and Elaine Jay. Sargeant has since conducted similar extensive studies in the United States focused on legacies (research co-sponsored by Mal Warwick Associates). The findings were fundamentally similar.

Let’s take a look at each of the three questions in turn in the light of Sargeant’s research.

1. Who gives legacy gifts?

Sargeant and Jay cite a widely quoted finding based on data from the 1992 US Gallup National Survey of National Giving and Volunteering, ‘The individual most likely to leave a legacy bequest to a charity. . . has lived in the same residence for 2-9 years, is an unmarried, self-employed, non-Jewish white male . . .’

Sargeant and Jay’s research, though, comes to a startlingly different conclusion: legacy pledgers who responded to their survey were 64.9 per cent female. About one-third of these women were married and another third single (with the balance widowed, divorced, separated, or living with a partner). Granted, the Sargeant study was conducted in the UK, not the U.S, the questions and methodology were different and the two projects were separated in time by more than a decade. But does it seem likely to you that a broadly defined group judged to be predominantly male and unmarried in one post-industrial English-speaking country would be predominantly female and equally likely to be married or single in the other?

If I had to place a bet on one of these two research teams, my money would be on Adrian Sargeant’s – if only because my clients and staff consistently report to me that the legacy gifts they observe are overwhelmingly from women.

For the most part, they are also donors. As NCPG learned in its 2000 study, ‘The majority of planned gift donors have made multiple gifts to charity, including outright gifts of cash and various planned gifts.’

Consider another, even more important aspect of this question: the wealth and income levels of legacy donors.

In the United States, gift planners routinely target wealthy individuals and major donors. No doubt this is partly because they calculate that people who have more money can leave more money. But also, I submit, self-interest is involved, since the complex estate planning that surrounds most large legacies requires platoons of skilled professionals. Is this emphasis on wealthy prospects justified? Is it in the best interest of most nonprofits? In some circumstances, yes. But if this approach diverts resources from efforts to cultivate and educate legacy prospects who either aren’t wealthy – or at least haven’t given large gifts during their lifetimes – it’s decidedly counterproductive.

  • I’ve learned two important things about the character of legacy donors over the years from the legacy specialist Robert F Sharpe, Jr and others as well as from my colleagues and clients.
  • First, that there is no correlation between either income or wealth with the likelihood of giving by bequest.
  • Second, that the average bequest, now about $35,000 in the US, typically comes from the estate of a retired woman who either has no living children, or feels they’ve got enough money of their own.

Sargeant’s recent research confirms this demographic pattern, at least in the British context. When comparing samples of legacy pledgers and donors who had been asked to pledge but hadn’t yet done so, Sargeant found that, ‘pledgers report a significantly lower annual income than supporters’. Admittedly, the pledgers were older, with a mean age of 68 as compared with 59 for the other donors, but that difference alone is insufficient to explain the significant income gap. He also learned that the amount of money donated to charity each year was roughly the same for pledgers and supporters.

2. Why do donors leave legacies?

The legacy market in the United States is complicated because our tax laws allow for a wide variety of tax-reduction schemes that involve charitable giving – and because thousands of professionals have crowded into the market to help exploit these laws. That’s probably why most of the talk I’ve heard over the years about the motivations for legacy giving centres around the question of tax savings.

This, despite the fact that (a) every survey of which I’m aware reports that legacy gifts are rarely motivated by tax considerations and (b) most bequests come from non-taxable estates. It’s all about the mission, as NCPG’s 2000 survey convincingly documented. (And if the US estate tax is eventually eliminated, there won’t be any reason left to question the finding! In the meantime, it’s worth noting that legacies to charities aren’t taxed in the UK.)

As the NCPG study concluded, ‘Legal and financial advisors appear to play a much more significant role in the gift planning process than they did [in 1992]. This may be attributed in part to the increasing affluence and financial sophistication of donors in a strong economy. However, the desire to support charity remains the primary motivation for most donors, while tax and other financial considerations continue to be secondary.’

Sargeant’s findings in the UK provide considerable support for this finding. It’s true, of course, that US tax laws are unique to that country and that tax benefits clearly do motivate some legacy gifts there, at least in part. But I suspect that what Sargeant learned in the UK will prove largely true in the United States as well.
In ‘The Efficacy of Legacy Communications’, Sargeant and Jay report that three factors stand out above all others as keys to the legacy decision. The following statements ranked highest among the motivators.

  • ‘My family are already adequately provided for.’
  • ‘I have no immediate family to provide for.’
  • ‘I perceive that the charities’ needs are more pressing than those of my family.’

In ‘The Final Gift,’ Sargeant and Hilton report on a complex, two-stage study involving 1,500 donors to five of the UK’s largest charities. Their paper is full of chi-squares and Kuskal Tau Values and Q statistics and eigenvalues, but much of it is written in English –and the findings are clear enough.

The first stage consisted of focus group research conducted to isolate the critical questions to ask. Careful analysis of comments volunteered in the focus groups led the researchers to posit eight factors that might motivate legacy donors.

  • The quality and nature of donor communications.
  • The charity’s responsiveness to gifts.
  • Altruism.
  • The efficiency and effectiveness of the charity.
  • Empathy;
  • The charity’s professionalism.
  • The desire to ‘give something back’ in exchange for help provided to them or people they know.
  • The desire to relieve guilt or other negative feelings.

They tested these eight factors with a mailed questionnaire which included 27 simple statements donors were asked to rank from 1 to 5. Here’s what they found:

  • ‘Pledgers are generally more demanding than other categories of donor…. Legacy pledgers exhibit a greater concern for organisational performance… They expect both the quality of communication and the responsiveness of the organisation to be of a significantly higher standard…
  • ‘We find no evidence that suggests pledgers are either more altruistic or empathic than other categories of donor… The need for reciprocity [payback], however, was highlighted as the key factor in discriminating between pledgers [who demanded it] and donors [who didn’t]…
  • ‘Many pledgers are motivated by the need to ‘give something back.’ This may be because their life has been touched in some way by the cause, or because they have actually been a service user of the organisation. Whilst fundraising messages could be created around this motive, a key lesson for fundraisers may well be the need to target all stakeholder groups associated with an organisation with legacy “asks”, including service users.’

In other words, everything that British fundraising pioneer and author Ken Burnett and other advocates of relationship fundraising have been telling us for years appears to be true about legacy donors. They really do care about thank-yous and being informed about how their gifts have been used.

However, Sargeant and Hilton caution that ‘it remains unclear whether these differences in perception evolve as a consequence of becoming a legacy pledger’, or are characteristics that would indicate whether an individual is a good legacy prospect. Note, too, as Robert Sharpe says, that only about one in every six bequest donors tells the most sophisticated charities in advance. Most want the freedom to change their minds and don’t want to feel they’re ‘committing’.

Clearly, Sargeant’s UK study is only a beginning. It’s not definitive, even for Great Britain, but it does suggest lines of inquiry we can pursue in the US and other countries. Most importantly, perhaps, it makes clear that an organisation’s donors may not be the only fruitful source of legacy gifts: volunteers, clients, and others who are affected by its services are potential legacy donors, too.

3. How can we best communicate with legacy prospects and donors?

In recent years, growing numbers of US nonprofits have begun promoting legacy giving to their donors. The NCPG now has 12,000 members. They’ve used a variety of techniques to select appropriate target audiences and to carry the legacy message. As NCPG learned in its 2000 research project, ‘Increased efforts of charities to secure planned gifts are also evident… The percentage of donors citing a contact with the charity as their first source of the idea for a bequest or charitable remainder trust has increased substantially since 1992.’

Some nonprofits select legacy prospects exclusively on the basis of age, usually targeting those who are 65 or older. Others focus on loyal, long-standing donors, particularly monthly givers. Some approach only their most generous donors. Others have developed complex, multivariable targeting formulas. Still others promote legacy giving to all their donors.

Isn’t it obvious that one of these approaches is likely to be more effective than the others?

Similarly, some organisations limit themselves to a single legacy promotion letter a year. Others form heritage or legacy societies, replete with their own bimonthly or quarterly newsletters and other benefits. Some advertise in targeted publications. Some use telephone communications in addition to, or even instead of, direct mail. Many are tinkering with the internet as a medium to promote legacy gifts.

Here, too, it would seem that some techniques are likely to work better than others. But if we knew which techniques were the most effective, and if we understood better how to target legacy prospects, we would probably put that understanding to work. So far, it’s lacking.

However, Adrian Sargeant’s research findings contain tantalising hints about the most effective ways to communicate with legacy prospects and donors. In ‘The Efficacy of Legacy Communications’, Sargeant and Jay reveal that, of all the aspects of donor service they tested, ‘I expect charity employees to be courteous in their dealings with supporters’ ranked at the very top among both legacy pledgers and prospects.

‘It would also appear’, they write, ‘that these donors favour being offered choice in respect of the frequency of communication and the amount they should offer to the cause. They would also seem to place some importance on being informed how their past gifts were ultimately used.’

Equally important, ‘[Bequest] pledgers express a significantly greater desire to be regarded as being in some way “special”… Pledgers are significantly more likely to express a need for the recipient to express appreciation for their gift.’

Sargeant and Jay probed the attitudes of legacy pledgers about their attitudes toward the charities’ communications with them expressly about legacy giving. ‘When asked whether they believed that it was appropriate for charities to ask their supporters to consider a legacy gift, 76.5 per cent indicated they felt that this form of fundraising request was appropriate… When asked whether they recalled the legacy communication from the participating charity, only 42.4 per cent were able to remember having received it.’ (Could that possibly be because the charities in question didn’t repeat the message often enough?)

Now to the nitty-gritty – the ultimate effectiveness of these communications in the minds of British donors. Nearly 90 per cent of respondents – including both pledgers and other donors – reported their giving would be about the same after receiving a legacy promotion from a charity. Seven point six percent said they would be likely to give less. Just 2.5 per cent reported they were likely to give more.

‘Individuals that had pledged a gift were then asked how they preferred to be approached for a legacy “ask” by charities.” Direct mail and press advertising were by far the preferred choices, the telephone and personal visits by far the least favorite. Ultimately, however, whatever the nature or contents of a charity’s communication with prospect legacy donors, what matters the most is whether that communication led (or contributed to) a donor’s decision to leave a legacy. Here are the factors and their rankings that Sargeant and Jay reported from their study:

Statement

A communication from a charity 33.3%
I have used the service provided by the charity 20.5%
Advice or recommendation from a solicitor/professional advisor 4.8%
Advice or recommendation from a friend 3.0%
Advice or recommendation from a relative 3.0%
Other 58.3%

Please note that the total of these numbers is well in excess of 100 per cent because some respondents indicated that more than one factor bore on their decisions to pledge. And, as Sargeant and Jay point out, the large proportion of ‘other’ factors ‘reflects the wide range of often very personal motives that were expressed for this form of charity support.’

Isn’t it remarkable, though, that one out of every three legacy pledgers in Sargeant’s study asserted that ‘a communication from a charity’ prompted them to leave a legacy? And doesn’t that reinforce the belief that there is great potential for growth in legacy giving in the USA. and around the world?

Mal Warwick is the author of How to Write Successful Fundraising Letters, second edition, and seventeen other books. He can be reached at mal@malwarwick.com or via www.malwarwick.com.

About the author: Mal Warwick

Mal Warwick

Mal Warwick is one of the world’s great fundraising communicators.

Mal is the author of How to Write Successful Fundraising Letters, second edition, and seventeen other books. He can be reached at mal@malwarwick.com or via www.malwarwick.com.

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