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by Barlow T. Mann
 In
1999, near the peak of the economic growth of the 1990s, Boston College released
a study projecting an intergenerational estate transfer of at least $41
trillion, a figure four times as large as amounts previously projected by
economists at Cornell University. In “Millionaires and the Millennium: New
Estimates of the Forthcoming Wealth Transfer and the Prospects for a Golden Age
of Philanthropy,” John J. Havens and Paul G. Schervish predicted that at least
$41 trillion in personal wealth would be transferred from the final estates of
the 1998 adult population through the year 2052. Because this study’s
projections far surpassed those of any previous study, both for- and nonprofit
communities responded with great interest, and the popular press reported that
baby boomers were eagerly awaiting their inheritance.
Projecting a bright spot for nonprofits
Although
the $41 trillion figure initially seemed excessive to some, researchers at
Boston College documented its validity, pointing to conservative growth and
savings rate assumptions. Other projections were included in the study that
assumed higher growth and saving rates and resulted in even larger wealth
transfer estimates.
According
to the Havens/Schervish study, America’s charitable sector could expect to
receive a minimum of $6 trillion in charitable bequests as the wealth transfer
unfolded. The mid-range estimate for bequests was $12 trillion, and under the
most ambitious economic growth assumptions the bequest total was projected to be
$25 trillion.
According
to Giving USA, bequests have grown from $5.2 billion in 1982 to some $16.3
billion in 2001. This represents an average annual growth rate of 6.2% over that
period. If the same growth rate continued from 2001 to the end of the transfer
period in 2052, then charities would be assured of receiving just under $6
trillion. In other words, the low end of the estimated charitable wealth
transfer for charity can be achieved with no greater growth in charitable
bequests than has already been experienced over the past 20 years.
This
is good news since America’s charitable community has greatly increased its
efforts to encourage gifts via estates in recent years, and these efforts should
serve to accelerate the rate of growth in this source of income. If the average
growth rate increased to 8.25% per year, the mid-range projection of $12
trillion in charitable bequests in the Boston College study could actually be
reached. A 10.25% rate of growth would result in the full $25 trillion being
realized.
What a difference three years make?
Much
has changed since 1999—in both political and economic climates. In 1999, there
was no immediate threat of war, and the economy had not yet fallen into
recession. As these contingencies became reality, increasing questions and
challenges were raised concerning the continuing validity of the wealth transfer
estimates.
In
light of these concerns, John S. Havens and Paul G. Schervish recently published
a reexamination of their 1999 report. In “Why the $41 Trillion Wealth Transfer
Estimate Is Still Valid,” Havens and Schervish reaffirm their original
projections.
Because
the low end of their estimates was originally based on conservative assumptions,
the authors believe that their projection will not be affected by short-term
fluctuations caused by periodic recessions and investment market losses. They
also conclude that spending habits after retirement will not significantly
affect their estimates since the asset value of wealthy Americans continues to
grow after age 70. Any possible impact of longer life expectancies is offset by
the trend toward later retirement, increased part-time employment, and the
continued growth in wealth among the elderly wealthy.
Havens
and Schervish further conclude that trends in annuitized retirement income will
not negatively affect their estimates. They also reexamine the distribution of
the wealth transfer among baby boomers and other heirs.
A windfall for charities?
 The
2003 report does not address the possible impact of scheduled estate tax
reductions on charitable bequests. However, the original report hints that no
change would be expected: “The recent shift in the proportions allocated,
especially by the super wealthy, away from heirs and toward philanthropy has
occurred in the absence of any changes in estate taxes. Apparently something
more profound than tax aversion and tax incentives is generating a greater
predilection for philanthropy.” Other studies by Schervish have indicated that
reductions in estate taxes may, in fact, lead to increases in estate giving by
the very wealthy. See page 1 of the May 2001 issue of Give & Take (PDF
or text) and the article “Charitable
Giving and the Great American Wealth Transfer,” published in the June 2001
issue of Trusts & Estates and available at www.sharpenet.com/current.
Whatever
occurs, the wealth transfer will not be evenly distributed. A small minority of
charitable and non-charitable beneficiaries will receive relatively large sums,
while many will receive little or nothing.
With
no windfall assured, charities with sound plans to reach older, long-term
donors, members, and friends will increase their chances of receiving a
significant portion. For more information on the 2003 and 1999 reports, visit
the Boston College Web site at www.bc.edu/swri.
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