Download - Charitable Bequest Decision-Making
Charitable bequest decision-making: Practical lessons from research findings
Russell James, J.D., Ph.D.Associate ProfessorDirector of Graduate Certificate of Charitable
Financial PlanningDept. of Personal Financial PlanningTexas Tech University
Presented to the Big 12 Gift Planning GroupJune 6, 2012
Neuroimaging
Psychology
Demographics
Charitable Giving Theory
Tax Tips
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Dr. James is the 2nd most frequently published author all time in ISI-ranked academic journal articles on the topic of “charitable giving” when weighting for co-authorship (3rd in total articles) as of 2012 James, R. N., III & O’Boyle, M. W. (under review). Charitable estate planning as visualized autobiography: An fMRI study of its neural correlates. Available at SSRN: http://ssrn.com/abstract=2000345 Wiepking, P. & James, R. N., III (in press). Why are the oldest old less generous? Explanations for the unexpected age-related drop in charitable giving. Ageing & Society. James, R. N., III, & Baker, C. (2012). Targeting wealthy donors: The dichotomous relationship of housing wealth with current and bequest giving. International Journal of Nonprofit and Voluntary Sector Marketing, 17(1), 25-32.James, R. N., III, & Jones, K. S. (2011). Tithing and religious charitable giving in America. Applied Economics, 43(19), 2441-2450. James, R. N., III. (2011). Cognitive skills in the charitable giving decisions of the elderly. Educational Gerontology, 37(7), 559-573. James, R. N., III. (2011). Charitable giving and cognitive ability. International Journal of Nonprofit and Voluntary Sector Marketing, 16(1), 70-83.James, R. N., III. (2010). Charitable estate planning and subsequent wealth accumulation: Why percentage gifts may be worth more than we thought. International Journal of Educational Advancement, 10(1), 24-32.James, R. N., III. (2009). Health, wealth, and charitable estate planning: A longitudinal examination of testamentary charitable giving plans. Nonprofit and Voluntary Sector Quarterly, 38(6), 1026-1043.
James, R. N., III. (2009). The myth of the coming charitable estate windfall. The American Review of Public Administration, 39(6), 661-674.James, R. N., III. (2009). Wills, trusts, and charitable estate planning: A panel study of document effectiveness. Financial Counseling & Planning, 20(1), 3-14.James, R. N., III. (2009). An econometric analysis of household political giving in the USA. Applied Economics Letters, 16(5), 539-543. James, R. N., III., Lauderdale, M. K., & Robb, C. A. (2009). The growth of charitable estate planning among Americans nearing retirement. Financial Services Review, 18(2), 141-156.James, R. N., III., & Wiepking, P. (2008). A comparative analysis of educational donors in the Netherlands. International Journal of Educational Advancement, 8(2), 71-79.James, R. N., III. (2008). Charitable giving and the financial planner: Theories, findings, and implications. Journal of Personal Finance, 6(4), 98-117.James, R. N., III. (2008). Distinctive characteristics of educational donors. International Journal of Educational Advancement, 8(1), 3-12.James, R. N., III., & Sharpe, D. L. (2007). The nature and causes of the U-shaped charitable giving profile. Nonprofit and Voluntary Sector Quarterly, 36(2), 218-238. James, R. N., III., & Sharpe, D. L. (2007). The “sect-effect” in charitable giving: Distinctive realities of exclusively-religious charitable givers. The American Journal of Economics and Sociology, 66(4), 697-726. James, R. N., III. (2006). Multi-family housing, social capital, and charitable behavior: Does spatial connectedness influence social connectedness? Housing and Society, 33(2), 91-104.
Findings published or under review in peer reviewed academic journals in economics, sociology, marketing, and neuroscience
BackgroundPh.D., Consumer & Family Economics, U. of Missouri
Dissertation on religious charitable giving
J.D., U. of Missouri School of Law, cum laudeUMB award for most outstanding work in gift & estate taxation & planning
Director of Planned Giving, Central Christian College & practicing estate planning attorney, 1994-2000President, Central Christian College, 2000-2005Visiting Assistant Professor, University of Missouri, 2005-2006Assistant Professor, University of Georgia, 2006-2010Associate Professor & Director of the Graduate Certificate in Charitable Financial Planning, Texas Tech University, 2010-
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“On a recent day in the basement of a campus lab, Russell James is working with a brain-scanning machine that wouldn’t look out of place in a top-notch hospital. James isn’t a mad scientist…” -SmartMoney, February, 2012
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Charitable bequests financial significance
• US charitable estate gifts over $22 billion; exceeds corporate giving of $15 billion (Giving USA, 2011).
• In prior 20 years, charitable bequests more than doubled in real dollars (Giving USA, 2011)
• Future growth from population aging and increasing propensity due to greater education and childlessness (James, Lauderdale, & Robb, 2009).
Potential for greater philanthropy
• 70% to 80% of Americans engage in charitable giving each year (Giving USA, 2011).
• About 5% of Americans have a charitable estate plan (James, 2009a).
* Donors giving $500+ per year, weighted nationally representative 2006 sample
Over-50 Donors with Charitable Plans; 9.4%
Over-50 Donors With No Charitable Plans;
90.6%
Challenges to encouraging bequest giving
• Unlike current giving, it is difficult to measure experimental success in bequest fundraising
• Ask-to-receipt may take 40+ years
• Identification of distinct cognitive characteristics could inform fundraising strategies sensitive to these differences
Neuroimaging
Why use fMRI to study bequest decision-making?
• Not all parts of decision-making are known to the decision maker
• Activation reflects the type of cognitive processes
Previous fMRI studies in giving: reward/salience
• Moll, et al. (2006) found giving engaged mesolimbic reward systems in the same way as when subjects received monetary rewards.
• Harbaugh, Mayr, and Burghart (2007) found giving elicited neural activity in reward processing/salience areas, e.g., ventral striatum.
Previous fMRI in charitable giving: social cognition
• Izuma, Saito, and Sadato (2009) found greater ventral striatum activation before a decision to donate when observers were present v. absent
• Hare, et al. (2010), found giving value calculation was driven by input from regions involved in social cognition
• Moll, et al. (2006) found decision to donate mediated by activation in areas which play key roles in social attachment and aversion
Basics of fMRI experiments
We place subjects in an MR scanner where they canobserve a video screenand make choices by pressing buttons
We can then associate those choices with blood oxygenation levels in different brain regions
Subjects spend time in the scanner working with the buttons and screen to acclimate to
the environment
Task A Task BTask A- Task B
A single image contains much unrelated brain
activations
A contrast can subtract out
the noise
Think of study results in terms of contrasts
Image of task
A
Image of task
B
Image of task A-
Image of task B
The Experiment
A comparison of bequest decision
making with giving and volunteering decision making
QuestionWhat brain regions
are differentially activated by
bequest decisions as compared with
giving and volunteering
decisions?
Exploratory expectations
• Increased activation in areas involved in death-related contemplation
• Unfortunately, very limited fMRI research on what these areas are
Death-related words: precuneus• Gündel, et al (2003) worked
with subjects who had lost a first-degree relative in the previous year. The only region showing significant activation (at p<.05, FWE) in response to grief-related (v. neutral) words was the precuneus.
• Freed, et al. (2009) examined subjects who had lost a pet dog or cat within the previous 3. Four of twelve areas showing activity in response to the deceased reminder (v. neutral) words, were in the precuneus.
Methods
• Sixteen adult male subjects • Prior to entering the scanner,
subjects reviewed terms along with the names and a one sentence description of each charitable organization.
• Subjects had two right and two left response buttons for each hand, for a total of four response options.
Comparison Questions
1. “If asked in the next 3 months, what is the likelihood you might GIVE money to ______” 2. “If asked in the next 3 months, what is the likelihood you might VOLUNTEER time to ____” 3. “If you signed a will in the next 3 months, what is the likelihood you might leave a BEQUEST gift to _____”
96 questions: 28 x 3 large charitable organizations and 4 x 3 family member recipient categories. 16 second pairs (2B, 2G, 2V or 2G, 2B, 2V)
The Results
Category(1)
None(2)
Unlikely
(3) Somewhat Likely
(4) Highly Likely
Missing Avg.
Bequest 30.7% 38.9% 16.6% 11.3% 2.5% 2.09Give 30.5% 28.3% 26.8% 12.7% 1.8% 2.22Volunteer 24.4% 29.1% 25.8% 19.9% 0.8% 2.42
Behavioral Responses
What areas are more engaged during bequest questions than during giving/ volunteering questions?
A flight through the brain: http
://youtu.be/NKKKE_7aFqM
peak-level cluster-level
Contrast TitleMNI Co-ordinates
p (FWE-corr)
Z-scor
e
p (FWE-corr) ke
(1) Bequest>Give Lingual Gyrus -2, -78, -2 0.004 5.44 0.000 1399Precuneus 26, -66, 42 0.102 4.64 0.009 313
(2) Bequest>Volunteer Lingual Gyrus 2, -80, -4 0.007 5.32 0.000 2254Precuneus 30, -66, 40 0.180 4.47 0.004 356Precentral Gyrus -34, -3, 36 0.397 4.19 0.001 433
(3) Bequest> (Give+Volunteer)
Lingual Gyrus 0, -78, -4 0.001 5.82 0.000 2016
Precuneus 26, -66, 42 0.007 5.33 0.001 475
(4) Give>Bequest Cuneus 8, -88, 20 0.157 4.51 0.003 388(5) Volunteer>Bequest Cuneus 8, -88, 20 0.060 4.79 0.000 1008
Insula -38, -20, 8 0.323 4.27 0.001 462(6) (Give+Volunteer) >Bequest
Cuneus 6, -90, 22 0.011 5.22 0.000 1014
Relative Activations Comparing Charitable Bequest with Giving and/or Volunteering
(reporting only p<.05 FWE corrected cluster-level)
peak-level cluster-level
Contrast TitleMNI Co-
ordinatesp
(FWE-corr)
Z-score
p (FWE-corr)
cluster size
(1) Increasing with agreement
Lingual Gyrus
10, -68, -4 0.004 5.46 0.000 671Postcentral Gyrus
-40, -22, 52 0.007 5.37 0.000 1200
(2) Increasing with disagreement
Precentral Gyrus
38, -20, 62 0.000 6.20 0.000 1387
Insula 42, -20, 18 0.171 4.61 0.013 196
Activating with Increasing and Decreasing Charitable Bequest Agreement
(Linear Parametric Modulation reporting only p<.05 FWE corrected)
Core areas more engaged for bequest
contemplation• Precuneus • Lingual gyrus
– Also increased activation was significantly associated with increased projected likelihood of making a charitable bequest
Precuneus and lingual gyrus activation occurred when subjects were able to vividly relive events in an photo, but not where scenes were only vaguely familiar.
(Gilboa, et al., 2004)
Visualized Autobiography
Visualized Autobiography
“retrieving detailed vivid autobiographical experiences, as opposed to personal semantic information, is a crucial mediating feature that determines the involvement of hippocampus and two posterior neocortical regions, precuneus and lingual gyrus, in remote
autobiographical memory.” (Gilboa, et al., 2004, p. 1221)
• In Viard, et al. (2007), four of six regions showing significant activation when reliving events by mentally “traveling back in time”, were in the precuneus and lingual gyrus.
• In Denkova (2006), three of the four most statistically significant regions associated with recalling autobiographical personal events were in the lingual gyrus and precuneus.
Visualized Autobiography
Visualized autobiography = visualization +3rd person perspective on self
• The lingual gyrus is part of the visual system. Damage can result in losing the ability to dream (Bischof & Bassetti, 2004).
• The precuneus has been called “the mind’s eye” (Fletcher, et
al., 1995), is implicated in visual imagery of memories (Fletcher,
et al., 2005) and in taking a 3rd person perspective on one’s self.
Precuneus: Taking a 3rd person perspective on one’s self
• Differentially involved in observing one’s self from an outside perspective (Vogeley & Fink, 2003)
• Greater activation when subjects described their own physical and personality traits as compared to describing another’s (Kjaer, et al.,2002)
• Activation greatest when referencing one’s self, lowest when referencing a neutral reference person (Lou, et al.; 2004)
• TMS disrupting normal neural circuitry in precuneus slowed ability to recall judgments about one’s self more than the ability to recall judgments about others (Lou, et al., 2004)
Inter alia, the “precuneus may respond more strongly to familiar events involving the self and possibly when the self is projected across time.” (Rabin, et al., 2009)
Autobiography: The self across timeIn Meulenbroek, et al. (2010), the precuneus was the most statistically significant
region of activation for autobiographical memory tasks v. semantic true- false questions
“activation of the visual cortex (in the lingual gyrus) might also be related to autobiographical memory retrieval and in particular to visual imagery components, which play a key role in autobiographical memory (Greenberg & Rubin, 2003)” (D’Argembau, et al. 2007, p. 941).
Lingual Gyrus: Autobiographical
Visualization
• Jackson, Meltzoff, and Decety (2006) found both lingual gyrus association with third person perspective and cuneus association with first person perspective.
• Similarly, Wurm, et al. (2011), found greater activation in the lingual gyrus for third-person perspective and simultaneously greater activation in the cuneus for first-person perspective.
• Others have also associated cuneus activity with first-person perspective-taking as contrasted with third-person perspective-taking (David, et al., 2006; Lorey, et al., 2009).
Simultaneous cuneus deactivation: 1st v. 3rd person perspective?
Applications to practice in
bequest fundraising
Routley (2011) identified the importance of autobiographical connection when interviewing donors with planned bequests, writing, “Indeed, when discussing which charities they had chosen to remember, there was a clear link with the life narratives of many respondents”
Visual autobiography in practice
“‘[In my will] there’s the Youth Hostel Association, first of all...it’s where my wife and I met....Then there’s the Ramblers’ Association. We’ve walked a lot with the local group...Then Help the Aged, I’ve got to help the aged, I am one...The there’s RNID because I’m hard of hearing...Then finally, the Cancer Research. My father died of cancer and so I have supported them ever since he died.’Male, 89, married‘The reason I selected Help the Aged...it was after my mother died...And I just thought – she’d been in a care home for probably three or four years. And I just wanted to help the elderly....I’d also support things like Cancer Research...because people I’ve known have died...An animal charity as well...I had a couple of cats.’Female, 63, widowed” (Routley, 2011, p. 220-221)
Visual autobiography in practice
Visual autobiography in practice
Fundraisers may consider emphasizing the autobiographical connections between the donor and the charity, rather than focusing on the charity’s need for funds
Psychology
Death salience
• Bequest decision making processes differentially activated areas similar to those involved in using death-oriented words to evoke memories of a recently deceased loved one (Gündel, et al., 2003; Freed, et al., 2009).
• This association is consistent with the rather obvious idea that bequest decisions involve reminders of mortality.
You
Suggests two levels of “defenses” to mortality salience (Pyszczynski, et al., 1999).
Proximal defenses: avoid death reminders (Hirschberger, 2010), e.g., deny one’s vulnerability, distract oneself, avoiding self-reflective thoughts (Pyszczynski, et al., 1999).
Distal defenses: attempt to achieve literal (i.e., religious) or symbolic death transcendence through support of one’s worldview or self-esteem (Hirschberger, 2010, p. 205). Some part of one’s self – one’s family, achievements, community – will continue to exist after death.
Terror-management theory
• the most common initial reaction will be to avoid or postpone the topic – Even among older adults, most have
no will or trust (James, Lauderdale, & Robb, 2009)
– For fundraisers, the enemy of the planned gift often isn’t “no”; the enemy is “later”
• create deadlines, make appointments, or promote time-limited campaigns– Rosen (2011) pointed to the
example of a challenge gift where a donor agreed to match 10% of bequests, up to $10,000 per donor, signed prior to a deadline
Proximal defenses in
practice
U.S. Over 50 Population
* Weighted nationally representative 2006 sample
Charitable Plans; 5.7%
Plans Without Charity; 38.2%No Planning Doc-
uments; 56.1%
Distal defenses in practice• Symbolic immortality requires
something, identified with the decedent, which will live beyond them, typically descendants. Hence, childlessness is most significant predictor of charitable bequest (James, 2009a).
• Large share of charitable bequest dollars go to permanent private foundations, typically bearing the deceased’s name (James, 2009b).
• Donors may be particularly interested in lasting gifts (endowments, named buildings, scholarship funds, etc.) to stable organizations.
Demographics
Previous studies
One time survey• Non-response bias if the whole survey
was about charitable giving
After death distributions• Only for taxable estates• Rare single county probate studies
Current study
LongitudinalSame people asked every two years
DistributionsAfter death nearest relatives are asked about final distributions
New Questions
ChangesNot just who has charitable plans but
when do they add and drop them
Intentions v. Outcomes
Did during life plans result in after death distributions
Details
• Nationally representative of over 50 population since 1998.
• Over 20,000 people per survey.• In person interviews, some
follow up by phone.
• Started in 1992• Questions within
larger Health & Retirement Study
• Respondents paid
What share of people over 50 in the U.S. have “made provisions for any charities in [their] will or trust?”
U.S. Over 50 Population
Charitable Plans; 5.7%
No Charitable Plans; 94.3%
* Weighted nationally representative 2006 sample
U.S. Over 50 Population
* Weighted nationally representative 2006 sample
Charitable Plans; 5.7%
Plans Without Charity; 38.2%No Planning Doc-
uments; 56.1%
What share of over-50 charitable donors giving over $500 per year indicate that they
have a charitable estate plan?
* Donors giving $500+ per year, weighted nationally representative 2006 sample
Over-50 Donors with Charitable Plans; 9.4%
Over-50 Donors With No Charitable Plans;
90.6%
Can that be right?
• Maybe a lot of donors will eventually get around to making a charitable plan?
Will donors ever get around to making a charitable plan?
88%-90% of donors ($500+/year) over age
50 will die with no charitable estate plan.
Projecting based on age, gender and
mortality or tracking actual post-death
distributions
You mean 90% of our donors will die without
leaving a gift?
You mean we could generate 9 times more estate gifts from
our current donors?
Among donors ($500+) over 50 with an estate plan, what is the single most significant factor associated with having a charitable estate plan?
Age? Education? Wealth? Income?
Among Donors ($500+) with an Estate Plan
Family Status
% indicating a charitable estate
planNo Offspring 50.0%Children Only 17.1%Grandchildren 9.8%
Regression: Compare only otherwise identical people
Example: The effect of differences in education among those making the same income, with the same wealth, same family structure, etc.
Likelihood of having a charitable plan(comparing otherwise identical individuals)
•Graduate degree (v. high school) +4.2 % points•Gives $500+ per year to charity +3.1 % points•Volunteers regularly +2.0 % points•College degree (v. high school) +1.7 % points•Has been diagnosed with a stroke +1.7 % points•Is ten years older +1.2 % points•Has been diagnosed with cancer +0.8 % points•Is married (v. unmarried) +0.7 % points•Diagnosed with a heart condition +0.4 % points•Attends church 1+ times per month +0.2 % points•Has $1,000,000 more in assets +0.1 % points•Has $100,000 per year more income not significant•Is male (v. female) not significant•Has only children (v. no offspring) -2.8 % points•Has grandchildren (v. no offspring) -10.5 % points
Find your estate donor…
Amakes substantial
charitable gifts, volunteers regularly,
and has grandchildren
Bdoesn’t give to charity,
doesn’t volunteer, and has no children
From an Australian study by Christopher Baker including 1729 wills:
“Australian will-makers without surviving children are ten times more likely to make a charitable gift from their estate”
How did giving during life compare with post death transfers?
$ $$$
Estate giving and annual giving for 6,342 deceased panel members
OffspringLast Annual
Volunteer Hours
Average Annual Giving
Average Estate Giving
Estate Gift Multiple
No Children 32.6 (6.6) $3,576 $44,849 12.6Children Only 25.4 (7.1) $1,316 $6,147 4.7Grandchildren 23.2 (2.1) $1,497 $4,320 2.9Total 24.3 (1.8) $1,691 $8,582 5.1
When did people drop charitable plans?
Yes! Yes! No.
What happened
here?
Factors that triggered dropping the charitable plan1. Becoming a grandparent 0.7226*
(0.2997)
2. Becoming a parent 0.6111† (0.3200)
3. Stopping current charitable giving 0.1198* (0.0934)
4. A drop in self-rated health 0.0768† (0.0461)
Some factors that didn’t seem to matter: Change in income Change in assets Change in marital status
*Fixed effects analysis including 1,306 people who reported a charitable plan and later reported no charitable plan. Coefficients show relative magnitude of factors.
When did people add charitable plans?
Factors that triggered adding a new charitable plan• Starting to make charitable gifts .1531† (.0882)• An improvement in self-reported health .0927* (0.0446)• A $100k increase in assets .0061** (.0023)
One factor dramatically reduced the likelihood that a new charitable plan would be added:• The addition of the first grandchild -.4641† (.2732)
Do the estates of people who make charitable estate plans grow differently than the general population?
After making their plan, charitable estate donors grew their estates 50%-100% faster than did others with
same initial wealth
Future demographic trends in estate giving
The Fall and Rise in Live Births - US
1912 (Age
100)
1915 (Age
97)
1918 (Age
94)
1921 (Age
91)
1924 (Age
88)
1927 (Age
85)
1930 (Age
82)
1933 (Age
79)
1936 (Age
76)
1939 (Age
73)
1942 (Age
70)
1945 (Age
67)
1948 (Age
64)
1951 (Age
61)
1954 (Age
58)
1957 (Age
55)
1960 (Age
52)
1963 (Age
49)
1966 (Age
46)
1969 (Age
43)
1972 (Age
40)
1975 (Age
37)
1978 (Age
34)
1981 (Age
31)2000000
2500000
3000000
3500000
4000000
4500000
50 to 54
55 to 59
60 to 64
65 to 69
70 to 74
75 to 79
80 to 84
85 to 89
90 to 94
95 to 99
100+0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
200120022003200420052006200720082009201020112012
Dramatic increases on the horizon
Temporary drop in key demographic population
Total Resident Population by 5-Year Age Groups [(NP-T3-B) U.S. Census]
19701972
19741976
19781980
19821984
19861988
19901992
19941996
19982000
20022004
20062008
1750000
1850000
1950000
2050000
2150000
2250000
2350000
2450000
2550000
Deaths in the U.S. (Red is Actual; Black is Trendline)
Drop in this key demographic combined with health care improvements
Projecting future bequest giving
Frequency of future bequest gifts • Change in population• Change in tendency to
make bequest gifts
Charitable Estate Planning among US Adults Aged 55-65
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
1996 1998 2000 2002 2004 2006
Increases in charitable planning are driven by increases in childlessness and education
VariableEstimate
(s.e.) p-valueEstimate
(s.e.) p-valueEstimate
(s.e.) p-valueYear 0.0138
(0.0032)<.0001 0.0033
(0.0034)0.3298 0.0015
(0.0036)0.664
Any children -0.6251 (0.0345)
<.0001 -0.6224 (0.0479)
<.0001
Years of Education
0.1412 (0.0048)
<.0001 ….full set of
….
control variables
Probit analysis of all respondents age 55-65 in 1996-2006 HRS. Outcome variable is the presence of charitable estate planning.
Time trend exists
Time trend disappears
when including childlessness
and education
Charitable estate planning among adults aged 55-65
0%
5%
10%
15%
20%
25%
30%
35%
40%
1996 1998 2000 2002 2004 2006
No Children - NoCollege Degree
No Children -College Degree
Children - NoCollege Degree
Children - CollegeDegree
Basic relationship
• The trend of increased charitable estate planning is driven by changes in childlessness and education.
• This allows us to predict charitable estate planning levels in the future.
Upcoming cohorts and childlessness
• Childlessness among women who will be entering the 55-65 age group over the next decade will be substantially higher than those in the 55-65 age group during 2006 (the year of the HRS data).
• Women in the 56-61 age group during 2006 reported a childlessness rate of 16.0% in 1990 when they were aged 40-44 (Dye, 2005). In comparison, women in the 40-44 age range in 2004 (i.e., those who will begin entering the 55-65 near retirement age group in 2015) reported a childlessness rate of 19.3% (Dye, 2005).
Upcoming cohorts and education
• Similarly, a college education is much more common among the upcoming cohorts of individuals nearing retirement age than among the current 55-65 group (Stoops, 2004).
• In 1996, less than 27% of those in the 35-54 age group had at least a bachelor’s degree.
• By 2007, over 31% of those in the 35-54 age group had at least a bachelor’s degree (Current Population Survey, 2007).
• Thus, one can expect the upcoming cohorts of individuals nearing retirement to be more educated than individuals currently in the 55-65 age group.
Big take-aways
• Don’t just recruit estate givers by giving level, also know your donors without children
• After making their intention, charitable estate donors grew their estates 50%-100% faster than did others.
• Future demographics are generally positive based on population, childlessness, and education
Charitable Giving Theory
New Ideas for legacy promotion from a theoretical framework
Applying “The Generosity Code”
Why theory instead of just a list of techniques?
• Limitations of “war stories” research– So called best practices may just be practices
• Theory based strategies are more flexible– New techniques can emerge as circumstances
change• Guides practice even where, as in bequest
giving, interim measurement is difficult.
What does a fundraiser do?
• Bring in money?• This description is “true”, but not very informative.
Applies to essentially all private sector jobs.• What does a Lawyer do? Makes money. What does
a grocer do? Makes money. What does an artist do? Makes money.
• You could bring money to your organization from government contracts, operation of a charitable business, or other means, but it wouldn’t be as a fundraiser.
What does a fundraiser do?
A fundraiser …
What does a fundraiser do?
A fundraiser …
Encourages Generosity
Encouraging generosity
• An issue of fundamental human significance• An independently valuable mission separate
from (although complementary to) your organization’s mission
Understanding generosity
Giving occurs when the “potential energy” of a gift’s potential value is unlocked by the “catalyst” of a request
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
Potential Value of Gift
(Potential Energy)
Quality of Request
(Catalyst)
Gift(Energy
Released)
1. Definitiveness2. Observers
=x
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
Interdependent Utility(Recipient’s experience)
• I am happy because you were benefitted
• Empathyi X Change in well-beingi
Act of Receiving
Act of Giving
Others’ Responses
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
Act of Receiving
Act of Giving
Others’ Responses
Self-Identity(Donor as giver)
• I am happy because I am generous, faithful, concerned, etc.
• Importance of value and felt adherence to it
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
Act of Receiving
Act of Giving
Others’ Responses
Self-Efficacy(Donor as change agent)
• I am happy because I was the one who benefitted you
• My actions were the cause of the change that I selected
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
Act of Receiving
Act of Giving
Others’ Responses
Reciprocity(Response of Recipient to Donor)
I receive benefits from the recipient or representative charity
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
Act of Receiving
Act of Giving
Others’ Responses
Social Exchange(Response of Others to Donor)
I receive benefits from others because of my giving
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
Act of Receiving
Act of Giving
Others’ Responses
Cultural Norms(Response of Others to Others)
I influence others in the way they behave towards others
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
Act of Receiving
Act of Giving
Others’ Responses
Theoretical backgroundThese value channels exists for reasons rooted in social psychology (proximate causes) and natural selection (ultimate causes)
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
Psychological benefits to donor
Material benefits to similar others
Material benefits to donor
Theoretical backgroundWe can rearrange by their value type including both material and psychological value sources
Understanding generosity
Giving occurs when the “potential energy” of a gift’s potential value is unlocked by the “catalyst” of a request
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
Potential Value of Gift
(Potential Energy)
Quality of Request
(Catalyst)
Gift(Energy
Released)
1. Definitiveness2. Observers
=x
Definitiveness• How clearly is a decision required?
Observers• Who observes the decision?
Quality of request
Quality of a request: Definitiveness
Requires a definite
“no”
Indefinitely deferrableresponse
General support concept
General issue
awareness
Specific request
• Definitiveness: The degree to which a request demands a definitive “yes” or “no”
• The enemy isn’t “no”, it is “no response”
General requestNo request
Quality of a request: Definitiveness
Requires a definite
“no”
Indefinitely deferrableresponse
General support concept
General issue
awareness
Specific requestGeneral requestNo request
“100,000 children have died in West Africa’s current food crisis.”
Quality of a request: Definitiveness
Requires a definite
“no”
Indefinitely deferrableresponse
General support concept
General issue
awareness
Specific requestGeneral requestNo request
“100,000 children have died in West Africa’s current food crisis. Please help one of the relief agencies if you can.”
Quality of a request: Definitiveness
Requires a definite
“no”
Indefinitely deferrableresponse
General support concept
General issue
awareness
Specific requestGeneral requestNo request
“Please give $50 to Oxfam to support relief efforts for children caught in West Africa’s current food crisis.”
Quality of a request: Definitiveness
Requires a definite
“no”
Indefinitely deferrableresponse
General support concept
General issue
awareness
Specific requestGeneral requestNo request
“We are sending an office gift to Oxfam on Friday. Put in whatever you like and I will stop by to pick up your envelope in
the morning.”
Quality of a request: Observers
1. Perceived likelihood of observance
2. Observer’s social significance and level of commitment to beneficiaries
Observation of a decision point adds a social cost to saying “no” and a social benefit to saying “yes” based upon:
Office beverages available with payment on an “honor” system.Picture above payment instructions rotated weekly.Payments were higher when picture of eyes was posted.
M. Bateson, D. Nettle & G. Roberts (2006). Cues of being watched enhance cooperation in a real-world setting. Biology Letters 2, 412–414.
A B
Two groups with two computer backgrounds. Each person receives $10. Computer question: Do you want to share any of it with another (anonymous) participant?
K. J. Haley (UCLA), D.M.T. Fessler (UCLA). 2005. Nobody’s watching? Subtle cues affect generosity in an anonymous economic game. Evolution and Human Behavior, 26, 245–256
Shar-ing55%
Not Sharing45%
Normal Screen
Sharing88%
Not Sharing12%
Eyes Screen
K. J. Haley (UCLA), D.M.T. Fessler (UCLA). 2005. Nobody’s watching? Subtle cues affect generosity in an anonymous economic game. Evolution and Human Behavior, 26, 245–256
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
Potential Value of Gift(Potential Energy)
Quality of Request (Catalyst)
Gift (Energy Released)
1. Definitiveness2. Observers
=x
Applications to legacy giving
Unfortunate reality of legacy giving
“74% of the UK population support charities and when asked, 35% of people say they'd happily leave a gift in their will once family and friends had been provided for. The problem is only 7% actually do.”
From www.rememberacharity.org
* Donors giving $500+ per year, weighted nationally representative 2006 sample
Over-50 Donors with Charitable Plans; 9.4%
Over-50 Donors With No Charitable Plans;
90.6%
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
So, why is legacy giving so low?What is missing?
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
People may not consider charity during document creation (practice of advisors and mistiming of communications from charity).
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
Will drafting and legacy planning is easy to postpone (avoid facing mortality).
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
Will drafting is not public, and not an acceptable forum for peer observation.
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
Most legacy giving benefits can only be anticipated, not actually experienced.
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
Reciprocity or social exchange is limited. Prior to the gift, the intention is revocable.
After the gift, the donor is gone.
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
Charitable bequests may be viewed as competitive with transfers to offspring
What strategies within this framework might improve participation in charitable bequest making?
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
Spend more efforts with those donors who do not have offspring (and thus lower
competing interdependent utility).
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
Promote self-identify of the planned legacy donor as a current identity of social worth.
Identify an important value.
Associate current planned giving status with that value.
Create experienced gift value today, rather than only anticipated post-mortem value.
[Legacy club] members have a love for animals that lasts more than a lifetime.
Become a [legacy club] member today.
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
Death creates a natural self-efficacy void. Emphasize giving opportunities with
permanence.
Self-efficacy in legacy gifts
With death we “disappear”, a serious imposition on self-efficacy.
– The desire to overcome this is natural.– Humankind develops memorials emphasizing
permanence.
Self-efficacy in legacy gifts
It is easier for the wealthy to imagine charitable gifts with permanent impact.
Buildings, large charitable foundations, parks, art
Consider developing permanent giving opportunities for mid-level donors.
• Named giving opportunities limited to legacy donors (so as not to pull from current giving)
• Permanent memorial trusts for legacy donors only• Scholarships, lectureships, sponsor a child, sponsor a
rescued pet, annual performances, etc.
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
Develop small permanent giving opportunities exclusively for legacy gifts.
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
Emphasize data on how quickly inheritances are spent by family members as compared to
longevity of a “permanent gift”
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
Legacy societies to publicly recognize planned donors and create functioning donor communities through social events.
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
Always reminding so that the option is “top of the mind” whenever planning happens to occur.
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
Creating planned giving campaign deadlines to interfere with ease of postponement.
A small organization’s two-year campaign to reach 100 planned legacies
http://www.fcs.uga.edu/alumni/legacies.html
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
Encourage will making in donor population.
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
Provide free planning services to donors with high potential.
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
Create immediate commitment pledge devices with follow up verification.
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
Targeting advisors to include charitable questions in their document creation process through information and recognition.
Why not recognize the intermediaries?
• Intermediaries, such as a will drafting lawyer, are essential to the process.
• Often the simple act of specifically asking about a gift to charity by an advisor is key.
• A “new” idea?
Magdalen HospitalList of Contributors, 1760From: Sarah Lloyd, ‘A Person Unknown’? Female supporters of English subscription charities during the long 18th century, Voluntary Action History Society Research Conference, Canterbury, UK, July 14-16, 2010
Recognizing intermediaries
• Friends of charity solicitors society• Sponsoring free CPD (continuing professional
development) charitable planning related education opportunities– Advertising those who have completed the CPD
program.• Publishing recognition of active solicitors authoring
charitable wills probated in most recent 6 months in particular county, town.– Shows frequency of professional activity.
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
Consider legacy arrangements that involve children in charitable decisions.
Public notice of founding
of the Bible
Society (1804)
and listing of donors
The Morning Post (London, England), Monday, March
19, 1804; pg. [1]; Issue 11061. 19th Century British
Library Newspapers: Part II.
Executors become voting
Governors for life
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
1. Definitiveness2. Observers
=x
The framework doesn’t provide automatic answers, but may help generate ideas about value creation and realization in your context.
Reciprocity(Response of Recipient
to Donor)
Interdependent Utility
(Recipient’s experience)
Self-Identity(Donor as giver)
Social Exchange (Response of Others to
Donor)
Cultural Norms (Response of Others to
Others)
Self-Efficacy(Donor as change
agent)
Potential Value of Gift
(Potential Energy)
Quality of Request
(Catalyst)
Gift(Energy
Released)
1. Definitiveness2. Observers
=x
Tax Tips
2012 special tax considerations
• IRA qualified charitable distributions (QCDs) – not available
• Roth IRA conversions• Low interest rates resulting
in high valuations of future gifts
$1MM in standard IRA (withdraws
are taxable)
In 2012 no income limits for Roth
conversions
Roth Conversion
$1MM in Roth IRA (withdraws
are tax free)
TaxableTax Free
$1MM in standard IRA (withdraws
are taxable)
Conversion creates $1MM in immediate
taxable income
Roth Conversion
$1MM in Roth IRA (withdraws
are tax free)
TaxableTax Free
Roth conversions and charitable planning can work together to match
Income Deductions
$1MM in standard IRA (withdraws
are taxable)
Conversion creates $1MM in immediate
taxable income
Roth Conversion
$1MM in Roth IRA (withdraws
are tax free)
TaxableTax Free
Where can I find offsetting deductions?
Where can I find offsetting deductions?
• Direct charitable gift• Charitable remainder trust• Charitable lead trust
(grantor)• Charitable gift annuity• Donor advised fund• Private foundationOr give a remainder interest in a residence or farmland to a charity
Charitable deductions may be limited (with five year carryover) to 20%, 30%, or 50% of income depending on gift and recipient
If I have unused deductions, how can I pull future income into current year?
If I have unused deductions, how can I pull future income into current year?
With a Roth conversion
$1MM in standard IRA (withdraws
are taxable)
Conversion creates $1MM in immediate
taxable income
Roth Conversion
$1MM in Roth IRA (withdraws
are tax free)
TaxableTax Free
Roth conversions and charitable planning can work together to match
Income Deductions
Charitable gift of remainder interests in homes
and farms
A remainder interest gives the right to own the property after a set time or after the death of a person
OK, you can have my
stuff now.
Charles A. Donor
Charitable Deduction
Interest Rates
Deduction for remainder interest in $100,000 of farm land by age 59 donor
1.4% (April 12)
$74,03311.6% (May 89)
$15,684
Unlike a will, a remainder interest is not revocable, and can even be sold
Remainder Interest
A deductible remainder interest in farmland or a home must be transferred by deed, not by trust or contract
A farm is any land and improvements used (even by a tenant)
to raise crops or livestock
A remainder interest in any part of a farm may be gifted
(Rev. Rul. 78-303)
Can I give a remainder interest of an undivided share in
farmland?
12.5%
25%
Yes, donor may deduct a remainder interest shared by
charity and others as tenants in common (Rev. Rule 87-37)
12.5%
25%
However, IRS may deduct cost of partitioning (of forcing a sale
or division)
12.5%
25%
• No deduction for remainder just in mineral rights because it is not a “farm” Reg. 1.170A-7(b)(4)
• Can gift remainder in entire “fee simple” farm (even if land and mineral rights go to separate charities) PLR 8316037
• Can gift remainder in farm without mineral rights if you don’t owned them
mineral rights
How do you calculate the deduction for a remainder interest in farmland?
1. Find the §7520 interest rate (http://www.irs.gov/businesses/small/article/0,,id=112482,00.html)
2. Multiply value of land by remainder percentage in IRS Pub. 1457 (one or two lives or specific term) (http://www.irs.gov/retirement/article/0,,id=206601,00.html)
1. Find the §7520 interest rate http://www.irs.gov/businesses/small/article/0,,id=112482,00.html
Ex: A remainder interest in $100,000 of farmland given by a 59 year old donor 5/12
1.4%
Table S - Based on Life Table 2000CMInterest at 1.4 Percent
Age Annuity Life Estate Remainder55 20.8206 0.29149 0.7085156 20.2495 0.28349 0.7165157 19.6800 0.27552 0.7244858 19.1129 0.26758 0.7324259 18.5479 0.25967 0.74033
1. Find the §7520 interest rate (http://www.irs.gov/businesses/small/article/0,,id=112482,00.html)
2. Multiply value of land by remainder percentage in IRS Pub. 1457 (one or two lives or specific term) (http://www.irs.gov/retirement/article/0,,id=206601,00.html)
1.4%
Ex: A remainder interest in $100,000 of farmland given by a 59 year old donor 5/12
X 0.74033 $100,000
= $74,033
Leaving land to charityby will
• Revocable• $0 income tax deduction
• Impacts charity after death
Leaving land to charityby remainder interest
• Irrevocable• $74,033 immediate income
tax deduction• Impacts charity after death
or immediately if charity sells remainder interest
Because farmland can be gifted in parts, a donor could annually give remainder interests up to income limits or desired marginal tax rate
• Allows for increasing valuation each year
• Avoids risk of losing carryover deduction at death
• Could use value of annual deductions to pay for ILIT life insurance passing tax free to heirs
Donor can use money from remainder tax deduction to buy tax free life insurance (ILIT) for children’s inheritance
Tax
Free
From
ILIT
IRS Cash Back
remainder interest in farmland given to charity
$74,033 tax deduction x 35% combined tax rate = $25,911
$25,911 buys est. $70,000 paid up ILIT life insurance
children receive
$70,000 (tax free from ILIT)
will divides farmland 10% to charity 90% to children
charity receives $12,500
(10% x $125,000)
children receive
$50,625 (90% x 125,000 =
112,500, less 55% for post ‘12 estate taxes)
charity receives
$125,000 farmland
farmland worth $125,000 at death
Age 59 wealthy donor with $100,000 farmland on 5/12
Gifts of remainder interests in personal residences can also be deducted
Remainder Interest
Includes second homes, vacation homes, even a boat with bathroom, cooking, and
sleeping facilities, if used by the donor as a residence
Deduction for a house is reduced because, unlike land, it is depreciable (it wears out)
Rules in IRS Pub. 1459 http://www.irs.gov/pub/irs-pdf/p1459.pdf
59 year old donor giving on 9/6/10
Remainder interest in $100,000 farm
.68233 x $100,000
$68,233 Deduction
*.68233 less .26821 depreciation reductioncalculatedon nextslide
Remainder interest in $100,000 home
.68233 x $20,000 (land)
.68233 x $10,000 (salvage)
.41412* x $70,000
$49,458 Deduction
Table C(2.4)Factors for Reducing Assurances - Based on Table 2000CM
Interest at 2.4 Percent Age
Remainder R-Factors D-Factors
Age Remainder R-Factors D-Factors
x
Factors Rx-0.5Mx
Dx x
Factors Rx-0.5Mx Dx
0 .17830 1202916 100000.0 55 .56322 317860.0 24748.541 .17677 1185429 96977.54 56 .57383 304002.2 24008.452 .18060 1168311 94656.94 57 .58449 290311.8 23274.973 .18466 1151231 92407.69 58 .59517 276800.1 22547.024 .18888 1134179 90219.15 59 .60589 263478.6 21825.10… … …… … … … … … … …… … … …48 .49158 418809.2 30218.64 103 .95802 60.91156 35.6359549 .50143 404011.4 29397.77 104 .96077 33.72948 21.05020
Depreciation reduction factor
R factor age now – R factor age after useful life of house
D factor age now X Useful life of houseAppraiser can estimate. IRS examples use 45 years.
Table C at http://www.irs.gov/retirement/article/0,,id=206601,00.html263478.6-60.91156
21825.1-45 =.26821
What if the donor leaves?
What if the donor leaves?
Agree with the charity to
a joint sale and divide proceeds
Give life estate to charity in
exchange for a gift annuity
Give life estate to charity
Rent property
Sell life estate
What if I make improvements to the property after giving a remainder interest?
You can deduct the remainder value of major
improvements as additional gifts
PLR 9329017; PLR 8529014
$8,000 for
new HVAC
EncourageGenerosity.com
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