The Type of Bequest that Delivers over 2,800% More Value

The Type of Bequest that Delivers over 2,800% More Value

The type of bequest that delivers more value

Jeff Buchanan, Senior Fundraising Consultant at AskRIGHT, analyses the value of the different types of bequests over time and gives advice to charities to seize the bequests opportunity.

 

The different types of bequests

 

There are usually 3 types of gifts that donors will make through their will:

 

1. Pecuniary Gift: This is defined as a set or fixed sum of money.

2. Specific Gift: This type of gift often comes in the form of specific item or items such as shares, paintings or other forms of property or assets that have meaningful value.

3. Residuary Gift: This is defined as a percentage of an estate or the percentage of the residue of an estate.

 

Each type of gift is always going to be a benefit but some are ultimately going to be more valuable than others with the passage of time.

 

How bequests change in value over time

 

Consider the reasonably predictable situation where an individual who is 60 years old now in 2017 could live for another 20 years to be 80 years old in 2037. During these 20 years, the value of the bequest will be impacted by inflation and growth.

 

With a modest 2% rate of inflation over the next 20 years, this is how the value of the two different types of gifts may develop:

 

The type of bequest that delivers more value

 

Type of Gift in Will 2017 2037 Change in value
 

Pecuniary Gift (fixed)

 

$50,000 $33,380 Decreases in value by over 33% in 20 years
 

Specific Gift

 

$50,000 Depends on the item(s)
 

Residuary Gift

 

$50,000 $74,297 Increases in value by nearly 50% in 20 years

 

 

The divergence in the value of different types of gifts by the time that the year 2037 rolls around is striking.

 

 

The value of a fixed amount of cash in a pecuniary or fixed gift will steadily deflate as the 2% annual inflation rate works against it year after year for a 20-year period. An amount of $50,000 in 2017 is worth much less in 2037, in fact, it is worth nearly $17,000 less!

 

The difference between the pecuniary (fixed) gift and the residual (percentage) gift becomes a staggering $40,917 after 20 years which is over 80% of the original value of $50,000.

 

The value of a residuary (or percentage of an estate) gift will tend to grow with the same 2% annual inflation rate year after year for a 20-year period. Think of it as a very steady and conservative growth in house prices over time. An amount of $50,000 in 2017 is potentially worth much more in 2037, in fact it could be worth around $75,000 or more!

 

The value of a specific gift could move up, or down, or not change much at all depending on the nature of the specific item or items gifted.

 

The importance of residual or percentage-based bequests

 

Chris Baker’s research published in 2014 supports the importance for charities of emphasising gifts in wills that are residual or percentage-based in nature.

 

Dr Baker studied more than 2,500 estates from which more than 230 bequests were made to charity in some form.

 

He found that bequests made as a specified (fixed) dollar value gift were on average significantly lower in value than those made as a residual of the estate. The difference was staggering as his analysis found that

1. The median value of (fixed) dollar value bequests was $7,000

2. The median value of residual bequests was $200,000

 

On average, the long-term value of a residual bequest was 2,800% greater than a fixed dollar value bequest.

 

The lesson for charities about bequests

First, if you are not working on bequests, get started. The best time to start (as the saying goes) is either 20 years ago, or tomorrow.

 

If you are active in securing gifts through wills, then a key lesson here is to ensure that promotional materials and other interactions with supporters make it clear that you prefer bequests that are a percentage or residual of an estate.

 

AskRIGHT fundraising consultants can help you with your fundraising activities, including your bequest program:

 

bequest webinar banner - identify bequest prospects

Jeff Buchanan

Jeff Buchanan

Senior Fundraising Consultant at AskRIGHT
Jeff has 15 years experience as a professional fundraiser and consultant, achieving considerable success for several organisations, and recognised by his peers for national awards.

To find out how Jeff can help your organisation, contact j.buchanan@AskRIGHT.com.
Jeff Buchanan