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In recessionary times, bequests and other planned
gifts that involve a remainder interest rather than an
immediate gift tend to be especially appealing. Because
uncertainty in investment and real estate market values
can make donors reluctant to give, it is not uncommon
during economic downturns for bequests and other gifts
distributed at death to constitute a larger percentage of
gifts received by charities.
Bequests remain appealing
For example, it was reported last year that 7 of the
10 largest gifts in America in 2008 came from estates.
Another recent report from The Chronicle of Philanthropy
reveals that roughly 20% of the 50 most substantial gifts
in 2009 were bequests.
While decisions to make larger immediate gifts may
be derailed by economic turmoil and uncertainty, bequest
maturities are more constant, owing to the fact that
people continue to pass away in accordance with actuarial
tables regardless of prevailing economic conditions. In
addition, some gifts that might have been made on an
outright basis in better times may instead be completed
in the form of a bequest.
Economic impact
That being said, however, given the depth and length
of the current recession, we may now be seeing an impact
on the amount and timing of bequests and other planned
gift distributions. According to some reports, the “affluent
market” has shrunk more than 25% since the start of the
recession. In the wake of declining values for most asset
classes and relatively low earnings from many types of
investments, the net worth of many individuals—whether
of average means or wealthy—has diminished somewhat,
which in turn can affect the size of distributions from
decedents’ estates over time.
The estate settlement process may also be prolonged
as personal representatives hope for real estate and other
assets to return to previous values. In some cases, executors
worried by falling market values may have felt it
prudent to quickly convert an estate’s assets to cash to
avoid sustaining further losses.
Unfortunately, these estates in many cases missed
market advances that subsequently occurred during the period of their administration. The estates of persons who
passed away in late 2008 or early to mid-2009 may have
been particularly vulnerable.
While market forces may have a limited effect on
bequests for a specific amount, they have in some cases
had a significant impact on the value of residuary estates
and/or estates that included real estate or securities.
In one case, for example, several charities were left the
remainder of an estate that included a multi-million dollar
home. The value of the home has since declined by at
least $2 million, causing an estimated $500,000 decline in
the bequest income of four organizations.
What it all means
Experience indicates that nonprofits should expect
and not be surprised by a reduction in the amount of
bequests and other gifts distributed at death in the current
environment. The estates of those who died in the
midst of market lows a year ago—where assets were
liquidated at that time—may constitute a large portion of
bequests being received in coming months. And bequests
involving real estate may be particularly affected.
The good news is that stock market values have
rebounded by about 50% in the past year. The value of
assets comprising estates left to charity in the form of
bequests will have shared in that rebound prior to the
decedent’s passing away in many cases, meaning that we
may soon see an upturn in the value of distributions from
estates as the restoration of asset values begins to work
its way through the estate settlement process.
In any event, now may be the time to monitor estate
distributions more diligently than ever. Experienced programs
have found that the key to maximizing bequest
distributions and receiving them in a more timely manner
in this environment is to stay on top of the process,
while letting executors know that you realize the challenges
they may be facing and are ready to assist them in
any way possible.
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