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News Updates $41 Trillion Transfer Projection -- With $6 Trillion to Charity -- Remains Valid Researchers at Boston College have confirmed the validity of their 1999 projection that $41 trillion would be transferred through estates during the next 50 years. The $41 trillion figure, of which $6 trillion is predicted to go to charity, was calculated by Paul Schervish, director, and John Havens, associate director, of Boston College's Social Welfare Research Institute (SWRI). Following its release, the $41 trillion transfer projection quickly became one of the most cited statistics about the economic future of the country. "This forecast is one of the few whose gleam has not been dimmed by the current gloomy climate," according to Schervish. After reviewing a broad range of challenges and questions concerning the $41 trillion estimate, the SWRI researchers said they're confident that the estimate remains not only valid, but conservative. The release in 1999 of the original report, Millionaires and the Millennium: Prospects for Wealth Transfer and A Golden Age of Philanthropy, provoked immediate changes to practice, according to SWRI researchers. Financial firms added intergenerational themes and philanthropy to estate planning; charities conducted all-hands meetings to strategize about how best to participate in the coming windfall; some communities extrapolated wealth transfer estimates for state and county levels from the study. What became known as the largest wealth transfer in history even inspired futuristic re-imaginings of philanthropy's potential, Schervish said. The $41 trillion number, the lowest of three scenarios projected by SWRI, caused a stir as it was four times more than the previous highest estimate of wealth transfer. However, its initial reception was positive: it was officially adopted by the Council of Economic Advisors, incorporated in analysis by the Congressional Budget Office, and was favorably reviewed by the U.S. Bureau of Labor Statistics. Transition is on track Recently, the researchers began a careful review of their findings after fielding questions in the last year from many who were worried that the recent downward trend in equity markets could mean that the ultimate transfer would fall short of $41 trillion. The researchers conclude in the new report that "the relevant question is not whether $41 trillion will be transferred, but how much more than $41 trillion will be transferred." Given current economic conditions, one of the more surprising findings is that contrary to expectation, personal wealth has not dropped significantly below the 1998 estimate of wealth, on which the original report was based. Although the dramatic shrinkage in foundation endowments and the evaporation of the wealth of a few high-tech leaders have recently received a great deal of attention, Havens emphasized that a close look at the numbers on individual wealth tells a different story -- one with a happier ending. "Personally held wealth stood at about $32 trillion in the second quarter of 2002, almost exactly where it was in 1998 when we developed the projection," said Havens. Individuals rebalanced their portfolios so that the drop in stocks was offset in part, for example, by growth in real estate, he explained. "The news should come as a great relief to universities and charities across the country," said Schervish. "And because individual wealth has not fallen below the 1998 level used in the first report, the World War II and baby boom generations in particular will be giving away just as much wealth as when we first prophesied a golden age of philanthropy," added Havens. Among other issues, the researchers looked carefully at how the spending down of savings, occasioned by increased lifespan, would potentially affect their wealth transfer simulation. Havens pointed out, "While people are living longer, their increased consumption at the end of life is being balanced by a number of trends. Two of the most important trends are later retirement age and the increased tendency for the elderly to work at least part-time during retirement. Furthermore our estimates were sufficiently conservative that retirees can easily spend down a larger chunk of their wealth without affecting the $41 trillion total." Who will benefit "It is important to note that the wealth transfer is going to be split unevenly between the wealthy and the non-wealthy," Havens cautioned. "In 2052, we will be able to look back and say that two-thirds of the transfer came from only 7 percent of estates -- the very wealthiest." The researchers also advised baby boomers against spending money they don't yet have in the bank "Wealth transfer is not the same as inheritance," said Schervish. "In fact, only $25 trillion of the $41 trillion total is going to go to heirs. The baby boomers' share will be considerably less than that, about $7.2 trillion," predicted Schervish. "Over the five decades of the transfer, the boomers will play a more important role as benefactors than as beneficiaries." For fundraisers and nonprofits, their share of the projected $6 trillion that will be transferred over the next five decades will depend in large part on their ability to deal with another legacy, that of the 1990s boom. According to Mary O'Herlihy, director of publications and a research associate at SWRI, the boom "created a generation of younger and more engaged givers, whose contributions to charitable causes are in response to both societal needs and their own need for effectiveness and significance." The complete copy of A Review of the $41 Trillion Wealth Transfer Estimate can be downloaded free at http://www.bc.edu/swri and was published in January, 2003 by the Journal of Gift Planning. Copyright © 2006 The NonProfit Times. |
