From Trickle to Torrent: The Great Transfer of Wealth is Well Underway

Waterfall Flowing

Background:

It was 1999 when Paul G. Schervish and John J. Havens, researchers at the Boston College Center of Wealth and Philanthropy, first introduced their prediction of the coming tidal wave of intergenerational wealth transfer which would occur as Baby Boomers died and left behind unprecedented amounts of wealth to non-spousal heirs, taxes, estate closing costs, and charity. At that time, Schervish and Havens forecast that $41 trillion would change hands by 2052.

In 2014, Schervish and Havens released an updated prediction that an estimated $59 trillion – divided among heirs, charities, estate taxes and estate closing costs – would be transferred from 93.6 million American estates from 2007 to 2061 in the greatest transfer of wealth in U.S. history.

The windfall for charities from final estates (for which there is no surviving spouse) is forecast by Schervish and Havens to be $6.3 trillion. In addition, they estimate that inter-vivos giving during the same period will total $27 trillion, as the “give while you live” trend continues to swell current giving, especially from many of the nation’s larger estates.

From the standpoint of the charitable community, one can summarize the to-date veracity of the 2014 Schervish/Havens prediction as follows: The forecasted trajectory is essentially correct, but the predicted velocity is somewhat flawed. In other words, they were correct that the wealth transfer would occur, but were less accurate about the speed with which the portion of estates designated for charity would be transferred to the nonprofit beneficiary/beneficiaries.

That this unprecedented transfer of wealth has begun is inarguable, as the points which follow make clear. Perhaps the most important point to understand from the nonprofit perspective is that the transfer is “backloaded,” that is, it will only gain full velocity when the surviving spouses of the first Baby Boomers to die pass away, and the entirety of estates are distributed among non-spousal heirs, namely children, taxes, estate closing costs and charity.

Indicators that the Wealth Transfer has Begun:

(Note: All figures presented are for the United States only.)

  • Growth in Bequest Giving:  Charitable bequests now make up 10% of all U.S. charitable giving, up from 7% a decade ago. For charities not yet experiencing a bottom-line impact from this increase, there is an important dynamic to comprehend. Taxable estates make up only 3% of the total number of bequests made each year, but they account for over half (53%) of total bequest revenue. Over the past two decades, an increasing number of testamentary gifts from taxable estates have been funneled into donor advised funds and private foundations, rather than going directly to charitable organizations. This means that although a planned gift donor has died, his or her ultimate gift to charity may be parceled out over time. Hence, matured planned gifts, especially larger gifts from taxable estates, do not always translate into current income for the charity/charities that the gift was designed to ultimately benefit.
  • Baby Boomer Mortality: Over 26% of Baby Boomers have already passed away, with most leaving behind a surviving spouse and therefore setting the stage for the much larger increase in testamentary gifts which will take place at the death of the second spouse. Over 5,000 Baby Boomers die each day – a rate of one every 17.0 seconds. The average life expectancy in the United States is 81 years for women and 76 years for men.
  • Boomer Domination of U.S. Wealth: In terms of net worth, boomers have widened the disparity between themselves and other generations – namely the millennials. The average Baby Boomer household currently has a net worth of $1.2 million, as compared to $100,800 for Millennials, and the gap is widening. In 1998, boomers averaged seven times the net worth of younger households. Today, boomer net worth averages twelve times that of younger households. It is this wealth that is fueling the transfer of cash and assets as boomers (especially surviving spouses) pass away and their charitable intentions are realized.  
  • Women in Control of Wealth: Women currently control over half of the privately held wealth in the United States. The wealth under the control of women is estimated to be $22 trillion. The percentage of wealth controlled by women will only increase as males pre-decease their spouses. This bodes well for charity, as women are significantly more likely than men to be charitably engaged. In terms of gift value, on average women make gifts that are twice as large as those made by their male counterparts. This important dynamic is active today and will only expand in the decades to come.
  • The Ultimate Distribution: While the intergenerational transfer of wealth is most certainly underway, it is important to recognize that this flow of cash and assets to non-spousal heirs (including charity) started as a trickle and will end with a torrent. As pointed out previously, the real windfall for charities and other heirs occurs at the death of the second spouse, whereby the unlimited marital deduction is removed from the equation and the entirety of the estate is distributed among family, costs, taxes and nonprofit organizations.
  • Critical Timing for Planned Gifts Marketing: Across all clients for whom metrics are available, more than 85% of bequest gifts generated by CZG direct mail campaigns come from donors over 75 years old. This shortens the timeline to realization and cost of stewardship significantly. (The average age of respondents to digital campaigns is well under 70 years old.) Most gifts from direct mail are created by surviving spouses, and any bequest will be realized upon their deaths. Donors typically receive between three and six planned gift marketing pieces before responding, meaning a lead time of one to two years between first engagement and a gift being created. With the first boomers already reaching age 75, it is now more critical than ever to have a robust and effective planned giving program in place or risk losing a large share of the wealth to those organizations that do.
  • Get Started Today: CZG specializes in jump starting and super charging planned giving programs for organizations of all sizes. It’s not too late to claim some of this wealth for your organization, but you have to take the first step and reach out today for a free program consultation.

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