Readers who follow the philanthropic press should be aware of the recent rebound in giving by the wealthiest Americans, as reflected in the Chronicle of Philanthropy’s (the Chronicle’s) recent summary of the top 50 donors in the United States in 2014.1
While headlines have, in some cases, touted the “tremendous growth” in giving by younger donors, a closer examination of the underlying data may be helpful for those who advise individuals regarding the philanthropic dimensions of their financial and estate plans.
Beneath the Surface
The hidden story in the top 50 donors report is the importance of older individuals and the extent to which they continue to drive U.S. philanthropy. Note that in 2014, over 40 percent of the individuals who made the largest gifts were at least age 80, roughly 60 percent were at least age 70 and almost 75 percent were age 60 and older. (See “Age of Top 50 Donors,” this page.)
Despite widespread reports of a welcome increase in the number of tech entrepreneurs under age 40 joining the ranks of the top 50 donors, only three individuals in that age group made it to the list. Further, the data reveals that only eight (16 percent) of the featured donors were under age 50.
U.S. philanthropic institutions still rely on the remaining members of the G.I. generation (those born between 1912 and 1924) and the silent generation (those born between 1925 and 1945). According to the Chronicle’s study, baby boomers account for just 24 percent of the largest donors and the X generation and millennials just 16 percent. This distribution shouldn’t be surprising, given the fact that most among the younger generations are still in the stage of life at which they’re accumulating, rather than distributing, assets.
The Chronicle’s reports of the top bequests received since 2009 reveal an even more pronounced generational pattern. (See “Top Bequests,” p. 11.)
Only five of the largest bequest donors, or 11 percent, passed away under age 70. Nearly two-thirds died over age 90 and 85 percent over age 80. This age distribution for large bequests very closely mirrors data published by the Internal Revenue Service and other reports on the ages of those who leave charitable bequests.
But, perhaps these individuals made wills that left their bequests much earlier in life? Apparently not so. Dr. Russell James, III, a professor at Texas Tech University, has conducted research on an ongoing study by the University of Michigan tracking 26,000 individuals every two years beginning in 1992. His findings indicate that a large percentage of those who actually include charitable gifts in their final plans indicated they didn’t provide for charitable provisions in their most recent previous plans. In his report, “American Charitable Bequest Demographics,”2 he states:
In total 2/3 of donors (representing over half of all charitable estate dollars) gave a negative response to the charitable plan question at some point within five years of the date of death. This suggests that planning within the final five years prior to death is particularly critical. Combining these results with the previous findings regarding the relatively older age of decedents who generate the bulk of charitable estate gifts suggests that late life planning is critical.
Dr. James goes on to state that 83 percent of charitable bequest dollars are coming from individuals who pass away after age 80, mirroring IRS reports and the findings of the Chronicle’s study.
Donors Over Age 70
What does all this data mean? The primary takeaway is that, despite all the discussion of the need for advisors to initiate discussions about philanthropy with their clients of all ages,3 the bulk of charitable giving activity appears to be centered in the age 70 and older group. With all the attention now being given to the concentration of wealth among the top 1 percent of Americans, it’s important to realize that the 1 percent are much older on average than the general population. I’ve begun to term this group of individuals the “philanthrogerontroplutocracy.”
Of particular interest to financial and estate-planning advisors is the fact that the oldest of 76 million living baby boomers will reach the age of 70 next year. If major philanthropic activity is, as is apparently the case, concentrated for the most part in the over age 70 group, the aging of the baby boomers may herald a significant increase in charitable giving in the coming years and amplify the need for advisors to be prepared to engage in discussions that involve desires that aren’t necessarily based in the realities of traditional investment and estate-planning advice.
The elimination of the federal estate tax for the vast majority of Americans also means that the “new old” will enter the final planning stages of life with the knowledge that they may enjoy previously unexpected discretionary social capital in their estates as a result of these changes in tax policy.
For advisors who address philanthropic issues as part of planning discussions with clients, it may be increasingly prudent to direct a greater attention to donors over age 70. While the baby boomers’ bequests may “boom” in the future, all of them are currently under that age, meaning the majority of testamentary charitable gifts will, in the near term, continue to come from the remainder of the G.I. generation and the bulk of the silent generation. In fact, reports indicate that many of these older clients have yet to make their largest outright gifts.
Applicable Planning Strategies
While this course of action may seem obvious, in practice it presents challenges. Most who are age 70 and older are entering or are well into their retirement years. Many are living on income derived from a lifetime of accumulated investments and may be “asset rich” and “income poor.” As a result, they may feel their philanthropic desires are constricted by these economic concerns.
This reality can amplify the importance of planning tools that afford opportunities to structure gifts that make it possible for clients to make philanthropic transfers while preserving or even enhancing their financial security in later years. Well-known examples include charitable remainder trusts (CRTs), charitable gift annuities (CGAs) and transfers of homes and other real property while retaining an interest for life or other period of time.
It may also be possible to use CRTs and CGAs to provide income for life or a term of years for a sibling, parent or others while benefitting from substantial current income and capital gains tax savings before eventually funding a meaningful charitable gift. These gifts can also result in significant income tax reductions and eventual estate taxes when that’s still a relevant consideration. Further, charitable lead trusts can reverse the income flow and be used to fund lifetime gifts before providing a tax-favored inheritance for loved ones.4
And, don’t overlook the possibility of helping clients make outright gifts in situations in which they may have provided for testamentary gifts as part of previous plans. In later years, they may come to realize that concerns that seemed to preclude making such gifts when they were facing a longer and more uncertain future may no longer be in play. Accelerating gifts from older donors can in these cases be a satisfying experience for them and their charitable interests as they’re able to see what may be their gift of a lifetime bear fruit while they’re still alive to witness the results of their generosity.5
The key to advising philanthropic donors now, as in the past, is to take a balanced approach and recognize that as circumstances change near the end of life, new possibilities may open for serving clients in ways that may not have been possible at earlier stages of life.
2. Russell N. James, III, American Charitable Bequest Demographics: 1992-2012 (Createspace: Charleston, S.C. 2013), www.amazon.com/American-Charitable-Bequest-Demographics-1992-2012/dp/149121404X.
4. See Ashlea Ebeling, “Precision Wealth Transfer With A CLAT,” Forbes (Dec. 10, 2014), www.forbes.com/sites/ashleaebeling/2014/12/10/precision-wealth-transfer-with-a-clat/.
5. See Christopher P. Woehrle, “Making Gifts ‘Again’ … Accelerating Charitable Remainder Gifts,”Trusts & Estates (April 2015) at p. 10.