Ever since former President Bill Clinton, the first Baby Boomer president, was elected, more and more attention has been focused on what the Baby Boomer generation will do next. They’ve been hippies, they’ve been entrepreneurs, and now they are on the path to becoming the largest generation of philanthropists the world has ever seen.
Anyone with an eye on personal finance knows that the much-heralded great intergenerational transfer of wealth is upon us. Baby Boomers, the leading edge of whom are already well into their 50s, are inheriting what their World War II-era parents accumulated. Advisors like you were key players in making this possible for the older generation. Can you do it now for the Boomers?
Not only are Boomers inheriting what was accumulated; they are inheriting the appreciation on those accumulated assets as well. The cottage that was built in 1958 on 80 feet of lakefront about a two-hour drive from the city for $25,000 is now worth 10 times that amount for the land alone. The problem is that the Boomer and her siblings live in different states and haven’t been to the lake since they graduated from college. Now that they’ve inherited it, they want to sell it.
The reality of the situation is that the Boomers don’t often need the money from the sale. They may decide to put it into a donor-advised fund at a charitable foundation to get the charitable deduction. Timing is an important factor in making these kinds of decisions. When is the best time of life to make these charitable gifts?
Going by the numbers
Looking at some demographics might be helpful. They tell us how other people are doing it. The U.S. Census Bureau conducted a survey in 2002 on spending on cash contributions to charities and other organizations by age group (www.nspend.com). The average American household gave $137.62 to charity that year. Not surprisingly, people under the age of 25 who were just starting out were giving only $20.24 on average.
ANYONE WITH AN EYE ON PERSONAL FINANCE KNOWS THAT THE GREAT INTERGENERATIONAL TRANSFER OF WEALTH IS UPON US.
It’s interesting to note that with each 10-year increase in the age of the sample, giving nearly doubled, until we reach the jump between those aged 45 to 54 and those aged 55 to 64. Giving stalled at that point and increased only from $180.63 and $186.43. This is the leading edge of Baby Boomers. They’re paying college tuition for a couple of kids and trying to put the maximum into their pension plans at the same time.
Charity gets put on hold
But those aged 65 to 74 were the most generous of all, with average household charitable giving at $227.83. Giving tapered off again after age 75 to an average household donation of $213.82.
If you combine the facts that the 65-year-old of 2012 (Bill Clinton) will be substantially wealthier than today’s 65-year-old (due to the inheritance the Boomer received in 2005 when his mom died) and that there will be hundreds of thousands more 65-year-olds in 2012 than there are today, the multiplication factor of those charitable dollars will be enormous.
This is good news for two groups of professionals: financial advisors and fundraisers.
I was amazed last year when counseling some new clients about their charitable-giving options. They are leading-edge Baby Boomers. She is a professor at a distinguished university, while he is a highly-skilled software engineer. They have six academic degrees between them from four different institutions. Despite their numerous connections to institutions with aggressive, fund-raising programs, they were totally in the dark about the planned-giving options open to them.
“What do you do with all those pamphlets and brochures you get from the development office?” I asked.
“We throw them away without looking at them,” they replied, simply.
“Why haven’t you discussed this with your accountant?” I asked.
“We belong to the same church and we don’t want him to try to push us into something for the church when we really haven’t decided where we want to concentrate our estate giving,” they answered. It was an honest answer.
My clients were fortunate that they were able to find a good financial planner without his own agenda to help them through the maze of options of charitable plans available to them.
This couple is a good eight years away from retirement, but they recognized that they needed help. They have great charitable inclinations, but their other advisors—their accountant, attorney, etc., failed to recognize their need for advice because they don’t yet fit into the “big-giver” demographic of the 65-to-74 age group.
What can you do?
As a financial advisor, this tells you three things:
First, start talking with your clients about charitable estate-planning options early. Remember that the average giving difference between the 45- and the 64-year-old is minimal. Don’t wait until they are on the verge of retirement.
Second, learn more about charitable financial planning, both for retirement and estate planning. Take advantage of workshops and seminars offered by your professional associations.
Third, if you feel that you are out of your depth, find other professionals like philanthropy consultants who can become your partners. They can add value to your work.
Talking to your Baby Boomer clients about these options now will strengthen your relationship with them and give them another reason to offer referrals.
Doris Rubenstein is principal consultant with PDP Services in Minneapolis, specializing in private philanthropy planning and corporate citizenship program development and administration. You may reach her at 612-861-7429 or at www.pdpservices.com.