Wealth Transfer: Philanthropic Opportunity for Community Development Practitioners

Article excerpt

In recent years, many community development practitioners became interested in exploring trends in inter-generational wealth transfer and philanthropic mechanisms as a way to sustain community vitality and quality of life. Fiscal pressures on federal, state, and local government tax revenues increased the importance of alternative non-tax sources of revenue. Enhancing institutional capacity and cultivating a culture that generates bequests, endowments', and end-of-life contributions can enhance resources available for development and charitable purposes.

Key-words: community foundations, endowments, estate planning, philanthropy, wealth transfer

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Iowa is among the states focusing attention on philanthropy initiatives as a tool for enhancing community development. Iowa represents a unique combination of locally available wealth transfer data, state implemented incentives and policies, education and demonstration projects, and philanthropic network development activities. In these regards, Iowa offers an instructive example for community development practitioners across the nation. This article describes Iowa's wealth transfer study, outlines Iowa's philanthropy incentives, reviews its educational and network development activities, and discusses the lessons learned as these incentives and innovative policies were put into place.

ASSESSING WEALTH TRANSFER

To act on the opportunity provided by philanthropy, community leaders must first become aware that the opportunity exists. There are three key questions for leaders to ponder regarding the potential opportunity for enriching local communities. How much wealth is being transferred currently? How much wealth will likely be transferred in the future? Moreover, how much wealth can be reallocated into philanthropic mechanisms to enhance community vitality and quality of life? The first two questions must be answered before the third can be contemplated.

Estimating the Magnitude of Wealth Transfer

Nationally, there has been a long-standing interest in wealth accumulation, wealth distribution, and inter-generational transfer (de Tocqueville, 1841 / 1966; Keister, 2000; Smith, 1980). Of special interest for philanthropic purposes are the end-of-life distribution patterns for accumulated assets. However, lack of available data limited the empirical study of wealth in the United States. Unlike income, there is no comprehensive and uniform reporting system for wealth. Although property taxes are levied on accumulated wealth and collected in all states, the reported property tax information, assessment practices, and types of real, personal, and intangible property that are taxed and exempted vary widely across the states.

Systematic information about the end-of-life transfers of wealth may be even more limited than data on accumulated wealth. Data sources about wealth transfer often locus on analyses of estate tax returns filed with the Internal Revenue Service (IRS) coupled with information from the Survey of Consumer Finances conducted by the Federal Reserve. The richest individuals in the United States hold a substantial portion of its total wealth. Typically, only very wealthy individuals pay any federal estate taxes. In addition, the information coming from these sources usually is confined to the national level. Because of these data characteristics and privacy protections, analysts receive only a partial picture of the national wealth transfer process. Little is known about wealth transfer at the state level, and less is often known for smaller geographic areas such as counties.

Relying on national data, Avery and Rendall (1993) estimate that $10.4 trillion in assets may be transferred nationwide to the "baby boom" generation through inheritance. Havens and Schervish (1999; 2003) conducted further work along this line, developing a simulation model that estimated national wealth transfer projections for a period of 55 years. …