How Intergenerational Wealth Transfer Will Change Philanthropy
Within the next 20-30 years, between £4-£5 trillion is estimated to be passed down to inheritors in Canada, the UK, the US and Australia.
Past favourable circumstances have led our Baby Boomers – the post-World War II generation who have made a significant impact on the economy – to become the wealthiest older generation to date. Now in their late 60s and 70s, the Boomers are poised to transfer an unprecedented amount of wealth to the next generation.
The increased value and number of transfers set to take place over the next two decades presents the opportunity of a generation for major philanthropy. If only 10 percent of this wealth – that’s between £400-500 billion – went to selected charities, it would have the power to utterly transform the charity sector.
According to the Coutts’ Million Pound Donor’s Report 2017, philanthropy is increasingly becoming a central feature of wealth succession, whether or not children are on the scene. Donations to charities are now commonplace in wills and the establishment of family charitable trusts are often seen as a beneficial way to equip the next generation with the skills and knowledge required for successful wealth management. Moreover, some individuals are committing to giving most of their wealth to charitable causes on their death, rather than to family or friends.
The Giving Pledge, for example, is making this kind of philanthropic giving more visible. Created by Bill and Melinda Gates and Warren Buffett to expand levels of generosity amongst the ultra-rich, the Giving Pledge invites the world’s wealthiest individuals and families to “commit to giving more than half of their wealth to philanthropy or charitable causes either during their lifetime or in their will.” Now including 175 of the world’s wealthiest individuals and spanning 22 countries – and with many of these individuals set to give through their wills – the Giving Pledge highlights the potential that the upcoming wealth transfer holds for philanthropy.
But this upcoming wealth transfer – what the Financial Times is calling “one of the biggest intergenerational wealth transfers in history” – pales in comparison with the transfer forecasted to happen between Chinese billionaires and their heirs in 40 years’ time.
Despite the Chinese proverb, “wealth does not pass three generations,” China has never before had such exceptional wealth creation – and with it, such exceptional capacity for transferring wealth.
According to the UBS and PwC Billionaires Report 2016, Asia is creating one billionaire every three days through the success of young entrepreneurs working in Technology, Consumer & Retail and Real Estate – and Chinese billionaires are retaining this wealth despite setbacks. Inevitably, this huge creation of wealth will soon be followed by an even larger wealth transfer than that of Europe, Australia, Canada and the US when it comes. Given that, based on all the recent research, China is set to become the fastest growing philanthropic market of the last century, charities and fundraises must make preparations for this second wave of major giving.
How UHNWIs and HNWIs choose to transfer their wealth to the next generation is of critical importance – both to the perpetuation of their family legacy, and the impact they will have on society.
Rebecca Constable, director of private banking at Kleinwort Hambros, recognises that transferring wealth isn’t just about preserving it, but about creating a legacy that fits with your values. She adds that if the current generation successfully pass on their knowledge as well as their wealth to the next generation, they will enable inheritors to achieve greater success in wealth-preservation, driving economic growth and having a long-term impact on society.
It seems that, for organisations dependent on major donors, an opportunity of a generation has arrived. Over their lifetimes, UHNWIs and HNWIs’ wealth has accumulated; now in their mature stages of life, they will be looking to transfer their wealth to the next generation. If this intergenerational transfer is handled wisely, this could have implications beyond this generation’s imagination.