Posted February 1st, 2000

Planning Matters

In recent months, Boston College researchers Paul G. Schervish and John J. Havens released a comprehensive new study estimating that upwards of $41 trillion of wealth will be transferred through estates during the first half of the 21st Century. The new report suggests that America’s charitable organizations and institutions will receive a growing share of the transfer ushering in what could be a new “golden age” of philanthropy.

The new study is based on a broad sampling of the population and includes projections for estate transfers between 1998 and 2052. Reflecting the tremendous growth in value of financial assets over the past decade, the $41 trillion estimate amounts to almost four times the $10.4 trillion estimated by the Cornell University study released in 1990.

Where do charities fit in?

A variety of other reports reveal that while only approximately 5% to 10% of the U.S. population as a whole include charitable provisions in the their estate plans, almost 50% of affluent Americans plan to include charities in their estate plans. Internal Revenue Service figures indicate that based on the most recent statistics available, just under 20% of Americans who die with taxable estates actually include charitable provisions in their final plans. The Boston College study projections indicate a tremendous growth in the wealth being transferred to charities as reflected by the report’s formal title: “Millionaires in the Millennium: New Estimates of the Forthcoming Wealth Transfer and the Prospects for a Golden Age of Philanthropy.”

Depending upon the assumptions made and time frame considered, charities might receive anywhere from $1.7 to $25 trillion over the next 20 to 55 years. For the very largest estates, the Boston College model estimates that 39% of the assets will go to philanthropic causes. For the estates of the moderately wealthy, valued at from $1 to $5 million, the study assumes that charities will receive 8%. In estates of less than $1 million, an amount between 5% and 6% should go to charity. Other studies of actual bequest programs at organizations with successful planned gift development efforts indicate that for childless persons, upwards of 50% to 60% of funds are left to charity on average, regardless of the size of the estate.

As important as these new projections are, it is essential to remember that 55 years is a very long time. The longer the period of time studied, the greater the effect of the compounding of whatever growth assumptions are used. Econometric models (even using conservative assumptions) are driven to very large numbers through the sheer power of compounding asset growth over time. Such models are typically more accurate and more reliable over a shorter time frame, during which they are less likely to become distorted by the underlying assumption. Gift planners must necessarily focus their efforts on a shorter time frame. Thus it is important to note that the Boston College study also included projections over a 20-year period predicting a minimum of $12 trillion transfer of wealth with $1.7 trillion of charitable bequests.

Be prepared

Before budgeting for an unexpected windfall, note that it is likely that not all charities will share equally in this transfer. A relatively small number of organizations and institutions with active and well-organized gift planning efforts may be the primary beneficiaries. Others with less active programs may receive some of the benefits “over the transom” from time to time, but many may be left wondering what has happened to their share. Well-planned education and communication will make the difference. One thing is sure‹charitable organizations that regularly inform their constituency about the best gift and estate planning methodologies are more likely to receive the full measure of the coming wealth transfer regardless of its total and the time period in which it is received.

The publisher of Give & Take is not engaged in rendering legal or tax advisory service. For advice and assistance in specific cases, the services of your own counsel should be obtained. Articles in Give & Take may generally be reprinted for distribution to board members and staff of nonprofit institutions and other non-donor groups. Proper credit must be given. Call for details.

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