What ever happened to the Boston College/Havens-Schervish Wealth Transfer predictions?

I probably owe some part of my career in planned giving to the so-called “Wealth Transfer” predictions by John Havens and Paul Schervish in the late 90’s.  They created an incredible amount of publicity with bold predictions of “Trillions” of dollars heading to nonprofits via planned giving/bequests.  Every few years, I like to revisit their predictions and see how close we are 🙂

Here is my updated slide looking at Schervish and Havens’ minimum (I mean minimum!) wealth transfer to nonprofits:

Wealth Transfer Prophecy

Oops.  So they were off target by more than a $Trillion on their first prediction.

All kidding aside, and putting aside their ridiculous predictions (you make big predictions like theirs, you better at least be close), something is still coming.  But, the impact on planned giving (as a result of the aging of the baby boomers) won’t be felt for another 5 years – according to Dr. Russell James in his recent webinar (click here for a free viewing).

Dr. James’ reason for the 5-year period is simple:  that is when the oldest boomers will start reaching age 72 and  up.  In other words, planned giving won’t feel any Wealth Transfer uptic until boomers start passing away in noticeable numbers.

Maybe I need to  come up with realistic predictions for 2018 and beyond! It won’t be the tidal wave that my slide is showing but it will surely be a big jump from these relatively flat bequests years that we are currently in.

What is our takeaway from this dose of reality?  Nonprofits need to put aside the fantasy predictions (and their failure to materialize) and focus on the facts that we need to invest over the next five years in our planned giving programs to be ready for the real wave that is coming.  Not based on faulty predictions  but a reality that people get old and eventually pass away.  There are just more people in the baby boomer generation – so much more that it’s inevitable that the impact will reach nonprofits via planned giving.

Here are two other visuals from Dr. Russell James on the same issue – sorry Professors Schervish and Havens, your predictions look like duds 🙂

The prediction

The reality

12 comments

    1. Thanks for the comment. See my previous post for another “problem” – that baby boomers apparently rely less on wills than their predecessors. That means planned giving needs to expand more into account designations and other “outside of will” transfers.

  1. Jonathan, I enjoyed reading this post. It would be interesting to hear from Schervish and Havens.

    While none of us can safely and accurately predict future bequest giving numbers (Schervish and Havens have proven that point), one thing is certain: If the nonprofit sector wants more planned gifts, organizations actually need to ask for them. Charities need to ask the right people, for the right gift, in the right way.

    The wealth transfer will not automatically benefit the nonprofit sector. That could explain the difference between the Schervish/Havens prediction and reality. It’s possible that the disconnect is not solely due to a faulty prediction. It could be, at least in part, due to poor practice by the nonprofit sector.

    So, my takeaway from your blog post is: While the Schervish/Havens prediction is off, the nonprofit sector can and should do more to acquire more planned gifts.

  2. The charitable component to the wealth transfer is more than simple bequests. I know CLT’s, CRT’s, PIF’s are not a huge share of the market but DAF’s are rising, people are taking advantage (or will take advantage) of CLID’s and other wealth transfer strategies that benefit charities that may not be captured in what has been given because the “true dollar values” haven’t been disclosed yet.

    One thing to keep in mind is that no one predicted the collapse of 2007ish to 2010 (and in some ways continuing); Mom and Pop Main St businesses that may have retired and transferred at ’62 to ’65 years of age pay push it into their 70’s and delay all transfers. Moreover, (and I’m not making a political commentary) but they could never have predicted the changes in tax law that have happened these past few years along with the Affordable Care Act that has implications on charity.

    With today’s news that wealthy tax brackets are going to be limited to 28% for charitable deductions this all could have further implications.

    They made a prediction based on the wealth that was being accumulated in the country at the time, tax laws that existed at the time (and seemed to be working) and what people we’re giving charitably through their estates at the time.

    Perhaps it was ambitious to make the claims they made but couched in their predictions were presumptions that things remain “about the same” as the time of their predictions. The Great Recession changed this quite a bit IMHO.

    I still see quite a bit of transfer’s through beneficiary designations, wealthy taking advantage of Retained Life Estates, Bargain Sales, Personal Family Foundations and of course Donor Advised Fund’s. The traditional WWII generation “Bequest by Will) I believe is behind in terms of being 85% of most planned giving shops.

    I think the opportunity in my opinion for PG Officer’s is less about getting people to quantify for the sake of being part of a legacy circle and more about working with them to augment their annual giving to 4.5 to 5% of their overall intentions so that the organization can demonstrate while the donor is alive the impact their legacy will have. For the most part I’m finding that today’s PG donors want ROI and ownership of what they are supporting and investing in a life today comforts them the charity will live up to their end of the bargain on their estate plans maturing.

  3. Good post. The national average for bequest and planned gift maturities has been 7% to 8% for the past several years. See GivingUSA. The actual realized $25B per year could be the Schervish $85B estimate if most nonprofits were reaching the 25% of giving goal of very successful gift planning programs. Five years ago there were 2,800 age 65 birthdays each day — now that number is 10,000. Within the decade the combination of baby boomer “graduation classes” and multi-channel marketing will lead to a large increase in maturities.

  4. Response from Paul Schervish, Center on Wealth and Philanthropy at Boston College.
    Jonathan has stumbled upon old news-say almost 8 years ago. There was a story in Chronicle on Philanthropy and our response by e-newsletter http://www.bc.edu/content/dam/files/research_sites/cwp/ssi/vol10.html. We discovered this problem and were in midst of writing an explanation when the Chronicle article came out. Turns out that the wealth transfer predicted for 1998 through 2017 is coming true and more than coming true (heirs alone will receive the $13 trillion we predicted for heirs, taxes, bequests, and settlement costs together! So wealth transfer is exceeding our middle 2% estimate. And charitable giving, especially during lifetime also increased until the Great Recession. What isn’t happening is the measured distribution to charitable bequests.
    However, from that time forward, we readily stated in talks and in responses to queries that charitable bequests are not occurring as the model predicted. We knew that and what Jonathan writes as expose is, as I said, old news. To predict bequests we took each wealth group from the middle to late 1990s and then modeled the level of bequests for each wealth level (see Russell’s first chart). What happened is what Warren Buffett did: began to transfer to foundations and direct charitable giving what he planned to leave as charitable bequests in his estate. The data shows that in the 2000s there was great increase in foundation formation, donor advised funds, and lifetime giving (see Russell’s second chart). Our concern about the 2000-2001 NASDQ drop, recession, and 911 that we cite in our newsletter, it turns out was not as telling as what we discovered later about foundation formation and contributions to foundation.
    People who were financially secure changed behavior from the 1990s and started and filled foundations with the money liquidated from the entrepreneurial growth, sale of firms, and public offerings. Until the around 1999 the amount going to bequests each year was about the same amount going to foundations (Russell has incline in charitable bequests correct for 1990s). After that date foundation growth skyrocketed and not as much was left in estates for charitable bequests—even though on average gifts to foundations or DAFS is still the major destination for charitable bequests). Simply change in behavior. In fairness to Jonathan and Russell, we have presented this information at conferences but have not published this finding.
    Still, a courtesy would have been for both Jonathan and Russell to contact us for an explanation before questioning our work with an outdated criticism. We could have provided the answer about bequests, namely, as I said, foundation formation and distribution of assets to foundations and DAFS as well as life-time giving which is now deemed substantially greater in the post-recession by some reports than the amount of individual giving provided by GUSA. This would have made for a more informed and helpful blog.
    But we do make allowances for this in our soon to be released wealth transfer model. The new model takes into account the question “where have the bequests gone?”
    (As an aside, let’s think about all the billionaires (both who have and have not made the giving pledge), not to mention hecta-millionaires, who are yet to settle their estates before the 2052 deadline approaches.)
    As to the possibility of charitable bequests being put more on the map, Legacy Leaders’ Chris Heldman (cheldman@legacyleaders.com) has argued and shown that bequests are still low hanging fruit and charitable organizations do not have or commit the resources to do large scale bequest requests except from their top prospects. Obtaining committed charitable bequests for charities is something for which Legacy Leaders has a talent, method, and proven track record demonstrated by its bequest accomplishments for major charities around the US and Canada (see insightful comment by Michael Rosen).
    Finally, back when Robert Sharpe served with John Havens and me on the methodology advisory board for GUSA, Sharpe provided an answer to part of the discrepancy. He sought to persuade the methodology advisory group that smaller bequests by lower wealth individuals not captured in IRS data led to a value of bequests approximately double ($35-40 billion) the approximately $20 billion reported by GUSA.
    A new Wealth Transfer Model with new and updated data, modules, and estimate will be published soon. This new model takes into account giving to foundations and other lifetime giving, and provides a lower estimate of charitable bequests. We always said that behavior on the part of charities could prove our estimates false in obtaining more or less lifetime giving and charitable bequests than we predicted.
    We would be grateful if Jonathan could offer us a space to summarize the new wealth transfer model estimates after we announce findings from the forthcoming updated and improved wealth transfer study.

    1. I would be glad to put out your new approach/findings. I apologize for the tone of my approach – my sarcasm sometimes goes a bit far. Actually, since your original Wealth Transfer projections have not been usable for some time, the field has been sorely lacking credible projections. My direct email is Jonathan@plannedgivingadvisors.com

      1. Thanks, Jonathan, for your gracious comment. We have been remiss in taking so long to get get the report out of our dirty little hands and into public circulation.
        Paul

  5. I thank Paul Schervish for taking the time to provide a detailed response to Jonathan’s post. I also appreciate and share his desire to see nonprofit organizations doing more to secure planned gifts. After all, planned gifts just won’t fall into our laps regardless of what the wealth transfer numbers might be.
    Since Paul mentioned one Canada-based service provider that can help charities market planned giving by phone, I thought I would share the names (in alphabetical order) of three experienced, USA-based service providers:
    Advantage Plus, http://afrcplus.com/plannedgiving.asp
    Covenant Calls, http://www.covenantcalls.com/
    Ruffalo CODY, http://www.ruffalocody.com/planned-giving/

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