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Dampened By Recession, Transfer Of Wealth Still On Track

Charities could potentially see $5 trillion to $8 trillion over the next 20 years and $18 trillion to $72 trillion in the next 55 years during a historic generational transfer of wealth in the United States, according to a new report.

“A Golden Age of Philanthropy Still Beckons: National Wealth Transfer and Potential For Philanthropy,” released yesterday by the Center on Wealth and Philanthropy (CWP) at Boston College, updates the center’s seminal study from 1999. That first study – “Millionaires and the Millennium: New Estimates of the Forthcoming Wealth Transfer and the Prospect for a Golden Age of Philanthropy” – conservatively estimated that the national wealth transfer from 1998 to 2052 would amount to $40.6 trillion in 1998 dollars ($52 trillion in 2007 dollars). An estimated $59 trillion – divided among heirs, charities, estate taxes and estate closing costs – will be transferred from 93.6 million American estates between 2007 and 2061, according to the new study.

During the summer of 2011, the center updated and extended its models to produce new estimates of wealth transfer and household charitable giving for the 20-year period of 2007-2026 and for the 55 years from 2007 to 2061. The updated study was commissioned by the Dakota Medical Foundation and Impact Foundation of Fargo, N.D.

The study estimates results for scenarios with 1 to 4 percent growth and the sunset estate tax provisions. The $59 trillion value corresponds to 2 percent growth and the extension of tax provisions current as of the date the research was finalized, and equals $67.5 trillion in current purchasing dollars.

If the growth rate on charitable giving were 3 percent instead of 2 percent, individuals and families would give more than $40 trillion to charity over 55 years – a 56-percent increase from the $27 trillion if growth remained at 2 percent.

The study reveals a 12-percent increase in the “give while you live” trend since the 1999 study. Total gifts to charity are expected to yield some $20.6 trillion between 2007 and 2061. Through estates, heirs will receive $36 trillion, federal estate taxes will claim $5.6 trillion, and $6.3 trillion will be directed to charity from final estates where there is no surviving spouse.

“These estimates present an extraordinary opportunity for nonprofits today and in coming years,” CWP Director Paul G. Schervish said. “Despite the trend toward lifetime giving, it is both realistic and valuable for charities to remain encouraged about the potential for bequests,” he said. People aged 65 to 79 are forecast to transfer $10 trillion, or 17 percent, of the total wealth transfer to charity and family via accelerated transfers. At least $1.5 trillion of the accelerated wealth transfer is earmarked for private foundations, trusts and charitable giving funds.

“This non charitable accelerated transfer is another one of those fertile fields for growth in giving beyond our estimates,” said senior research associate John J. Havens. “The more that charities and financial planners help people discover and fulfill their charitable aspirations, the more people will shift non-charitable accelerated transfers to charity, especially when doing so helps bring the next generations into the life of charity,” he said.

The decline in wealth due to the recession is significant and likely to reduce the level of wealth transfer in the future, according to the researchers. Aggregate household wealth declined by 25 percent from the end of 2007 to the first quarter of 2009, with more than 90 percent of households suffering a decline. Households with less than $100,000 in net worth – about half of households – lost a little less than $1 trillion, or on average 81 percent of wealth, while those with $1 million or more net worth (about 8 percent) lost $10 trillion or on average 21 percent of their net worth.

The wealth transfer is “top heavy,” with 20 percent of affluent families accounting for about 88 percent of the wealth transfer.

“The estimates of wealth and philanthropy we highlight in the report are conservative and probably represent the floor rather than the ceiling of what is in store for philanthropic giving,” Schervish said. “The most important finding in the study is the continued, abundant, and growing financial capacity for philanthropy. The most important implication is that channeling these resources into effective outcomes will allow us to make the greatest inroads in history on solving – not just attending too – our nation’s and our world’s most pressing problems and prospects.”

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