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center on wealth and philanthropy

THE MARKETS MAY BE DOWN,
BUT THE LARGEST INTERGENERATIONAL TRANSFER OF WEALTH IN HISTORY
IS STILL COMING TO TOWN

Projection of $41 Trillion Transfer -- With $6 Trillion to Charity -- Remains Valid

[MEDIA NOTE: To arrange an interview with the researchers, contact the Boston College Center on Wealth and Philanthropy at 617-552-4070.]

Download Press Release (PDF) | Download Complete Report (PDF)

Download Summary of Report (PDF) | Download 1999 Report (PDF)

CHESTNUT HILL, MA (01-06-03) -- Researchers at Boston College this week confirmed the validity of their 1999 projection that $41 trillion would be transferred via estates over the next 50 years. The $41 trillion figure, of which $6 trillion will go to charity, was calculated by John Havens and Paul Schervish at BC's Social Welfare Research Institute (SWRI).

Following its initial release, the $41 trillion transfer projection quickly became one of the most cited statistics about the economic future of the country. This week's confirmation of the projection's validity is released in the new report "Why the $41 Trillion Wealth Transfer Estimate Is Still Valid: A Review of Challenges and Questions," which will be published in the January issue of The Journal of Gift Planning, a leading publication for fundraising professionals and financial planners.

"This forecast is one of the few whose gleam has not been dimmed by the current gloomy climate," say Havens and Schervish. After having reviewed a broad range of challenges and questions concerning the $41 trillion estimate, the SWRI researchers are confident that the estimate that originally brought a wave of optimism to charities and fundraisers remains not only valid but conservative.

The prospect of such large amounts of wealth being transferred revolutionized business as usual in the financial and nonprofit worlds. The release of the original report, Millionaires and the Millennium: Prospects for Wealth Transfer and A Golden Age of Philanthropy, in 1999, provoked immediate changes to practice, according to the 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, they said.

The $41 trillion number, the lowest of three scenarios projected by SWRI, caused a stir as it was four times higher 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 Bureau of Labor Statistics. 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 might mean that the ultimate transfer would fall short of $41 trillion. In the new report, however, the researchers conclude 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 the researchers reveal 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 emphasizes that a close look at the numbers on individual wealth tells a different story—one with a happier ending. "Personally held wealth stands at about $32 trillion in the second quarter of 2002, almost exactly where it was in 1998 when we developed the projection. Individuals rebalanced their portfolios so that the drop in stocks was offset in part, for example, by growth in real estate."

"The news should come as a great relief to universities and charities across the country who expanded their development offices and overhauled their staff in response to our prediction that $6 trillion would be bequeathed to charity over the next 50 years," 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 points out that, "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 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, which we based on long-term trends in economic growth and life-cycle savings rates."

Who will benefit from the wealth transfer? "It is important to note that the wealth transfer is going to be split unevenly between the wealthy and the non-wealthy," Havens cautions. "In 2052 we will be able to look back and say that two thirds of the transfer came from only 7% of estates—the very wealthiest." The researchers also advise baby boomers against counting their chickens: "Wealth transfer is not the same as inheritance," says 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; so 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 whopping $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, which Mary O'Herlihy of BC's Social Welfare Research Institute, says, "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 report "A Review of the $41 Trillion Wealth Transfer Estimate" can be downloaded free at /swri and will be published in January 2003 by the Journal of Gift Planning. The report deals with the following themes: implications of recent economic trends for wealth transfer; whether the value of personally held wealth has significantly changed since 1999; what increased longevity, annuitization of assets, and increased consumption among the elderly mean for wealth transfer; what role the baby boomers play in wealth transfer; how the wealth transfer will be divided; and how trends toward lifetime giving may interact with bequests to charity.

[The complete report "Why the $41 Trillion Wealth Transfer is Still Valid: A Review of Challenges and Questions" was published in The National Committee on Planned Giving's The Journal of Gift Planning. Vol. 7, no. 1, 1st Quarter 2003. pp. 11-15, 47-50.]