Intergenerational Transfer of Wealth: Implications for Philanthropy

Intergenerational Transfer of Wealth: Implications for Philanthropy

Introduction 

The Great Wealth Transfer represents an unprecedented passage of capital and values from one generation to the next, with approximately US$30 to $60 trillion passing from baby boomers to 90 million millennials over the next decade. The story goes that the transfer will transform young consumers into alpha buyers of real estate, other big-ticket items, and convert them into great next-gen philanthropists. If only 10 percent of this wealth went to selected charities, it would have the power to utterly transform the charity sector. 

So, what does generational wealth transfer mean for philanthropic giving? 

Philanthropy pioneer Robert Sharpe Jr. discusses the impact of generational wealth transfer in his article Is the Wealth Transfer Bus Finally Leaving the Station? He believes that we are entering the “golden age of philanthropy” and that organizations should be prepared. 

The implications for non-profits could be profound. Millennials are great supporters of philanthropy, but if major gift departments continue to use the same tried-and-true methods of solicitation that they used for Baby Boomers, they may find themselves falling short. While Baby Boomers tended to hold on to their riches until the end of life, millennials may be unpredictable with their financial contributions. It will require different tactics to build relationships and ask for donations with this group. 

One of the biggest areas that may need some work is your non-profit’s marketing strategy. Reconsider your target audience. How will you reach both the Baby Boomers that are still in control of their finances, and the up and coming millennials? Since you are dealing with two groups with differing psychology and behavior, it is neglectful to assume that your current strategies will work for both groups. 

Second, major gift departments should shift their focus to gaining annual donations from millennials, as opposed to end-of-life planned giving arrangements. While millennials still may divvy up their money at end of life, they are also a “here and now” generation. They want their charitable contributions to help people today, not in 40 or 50 years from now. 

Family philanthropy can be challenging, as each generation is drawn to different causes and has different ideas on how to deploy wealth to support those causes. Baby Boomers are inclined to donate to churches, local social services, children’s charities, and animal rescues; while Millennials tend to gravitate toward health charities, environmentalism, human rights, and international development. Additionally, Boomers are more likely to spread donations across a greater number of charities and donate a higher dollar amount relative to Millennials.

Another key difference is how each generation prefers to make an impact. Due to the acceleration of technology, Generation Z and Millennials are unlikely to limit philanthropic endeavors to traditional donations, viewing social media and online fundraising as avenues for social good. This is in contrast to Boomers, who grew up at a time when marching for a cause and cutting checks to charities were some of the only ways to make an impact. 

Social media has enabled individuals to amplify their views, which can play an important role in addressing social causes. Similarly, the proliferation of technology has armed younger generations with information that would have been hard to come by years ago. Those who are more technologically savvy are empowered to do their own due diligence on causes they support as well as charitable organizations. 

But Wait: Reasons Why The Great Transfer May Be A Grand Flop 

While non-profits should always be adjusting their strategies to attract new support, reports abound of parents skipping their adult children in their wealth transfer plans. Reasons vary. Boomers have record high divorce rates adding complexity to relationships with adult children, complicating wealth transfer plans, and often producing unplanned costs. For some, skipping is retribution for adult children deemed as undeserving, lazy, immature, or otherwise irresponsible. 

For others, skipping is a motivational strategy. Shark Tank’s Mr. Wonderful, Kevin O’Leary, wants to protect his children from the “curse of not having to work and finding their own success.” O’Leary, and others, are making use of trusts that may provide some income but effectively skip giving large sums of wealth to their children and instead distribute income across generations to help grandchildren, even great grandchildren, get started, but not make adult children rich. 

Warren Buffet made news when he began giving the majority of his vast wealth away. While we can bet that his children will be just fine, Forbes notes that Boomers may leave more money to charities than previous generations. Many Boomer parents, with far lesser means than Warren Buffet, may be more interested in leaving a legacy with a cause they cherish, than an inheritance for their children. 

The intergenerational wealth kinetics between parents, adult children, and grandchildren are only one dimension complicating the overly simplistic great wealth transfer thesis. The most obvious factor is longevity itself. People are living longer creating a Janus-faced outcome for Boomers and their adult children. Good news, Boomers are likely to live longer than their WWII parents. Not so good news, at least for those that stand to inherit, as life spans increase, wealth is spent down.

Unlike the WWII and Silent Generations that had pensions providing lifetime income to supplement their savings, fewer than one in four Boomers have a pension to rely upon. Moreover, a 2019 Insured Retirement Institute study reports that nearly 45% of Boomers have no retirement savings at all. Instead, most Baby Boomers are banking on the casino luck of the markets, extended work life, and government pension to ensure that their life spans don’t outlive their wealth spans. Some may even find that selling their single largest source of wealth (and future inheritance), their home, may be necessary to live in retirement. 

For those with considerably more wealth, many have a different idea from previous generations of what they will pass on when they ‘pass on.’ The pandemic has resulted in a reframing of life for many Boomers – rather than save for life tomorrow, they are choosing to live life today, retire early, and, for some, to live large. 

No one ever accused the Boomers of having the frugality of their Great Depression WWII hardened parents. A 2021 survey of 1,500 Baby Boomers indicates that a full 75% are less interested in leaving an inheritance and more committed to living well today. Upsizing rather than downsizing, travel, and making memories with their adult children rather than guaranteeing adult children’s mortgages. 

The reality is that overall, research indicates only approximately 30 percent of all wealth transfers are successful (with success being defined as the family retaining control of its assets and family harmony post-transfer to heirs). A recent study by the Williams Group found that 95 percent of the failures were attributable to the family itself — namely, a breakdown or lack of family communication, inadequately prepared heirs, and failure to establish a family mission. 

The Great Wealth Transfer is far more complex than today’s dominant storyline that reads something like this – Boomers have lots of money, Boomers will die soon, Millennials (and a few Gen X) will inherit money to buy big, invest big, give big, etc. That might have been true if all Boomers had money, reflected the same values as their WWII parents, enjoyed relatively uncomplicated family dynamics, and were unlikely to live longer than previous generations. Some good advice for Millennials, and to the charities eager to cash that Great Wealth Transfer check – wait until it clears. 

For Further Information 

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