Intergenerational Transfer of Wealth

Cornell University economists Michael Rendall and Robert Avery (1993) caught everyone's attention in the early 1990s when they published research indicating that, during the first four decades of the twenty-first century, America's World War II and baby-boom generations will bequeath estates amounting to the staggering sum of $10.4 trillion, with $4.8 trillion of this passing by the year 2020. This enormous amount was nearly twice the U.S. gross national product in 1996 and more than fifty times the total of private savings in the United States for that year.

Rendall and Avery, however, conducted their research before the unprecedented economic growth of the 1990s both created vast new wealth and dramatically multiplied the value of previously existing wealth. Researchers John J. Havens and Paul G. Schervish (1999), using more recent data, have revised the estimated value of the intergenerational transfer of wealth dramatically upward. According to their calculations, during the fifty-five-year period from 1998 to 2052, the total wealth transfer will amount to a figure in the range of $41 trillion to $136 trillion. Havens and Schervish also estimate that $6 trillion to $25 trillion in charitable bequests will take place during that period. This would include bequests to charities of all types, of course, and not just foundations, but it could still fuel the establishment of thousands of new foundations. Because the number of foundations more than doubled (from 22,000 to over 58,000) during the twenty years from 1980 to 2000, it does not seem unreasonable to assume, in light of Havens and Schervish's research, that the intergenerational transfers will accelerate the rate of growth. It seems safe to predict, therefore, that the number of foundations will exceed 250,000 by the year 2050.

This prospect of greatly increased numbers and magnitude of foundations bodes well for strapped nonprofits and innovators hoping to start new social ventures. There is no reason to suspect that the overall asset profile of foundations will change (the great majority of new foundations will probably be smaller than $10 million in assets, as is the case today), but the types may well be different. Community foundations, once a mainly midwestern phenomenon, are becoming more popular around the nation. Women's funds and foundations created by communities of color are likely to increase rapidly. Corporate giving programs, too, are likely to see significant growth in numbers.

All of these new foundations will require more workers, so there will no doubt be an increased demand for program officers and other types of foundation employees. The magnitude of the increased demand remains to be seen. As the 1990s came to an end, U.S. foundations of all types employed about six thousand employees of all sorts. If the new foundations tend to choose lean grantmaking models of operation, that number will increase relatively slowly. If they choose to operate programs or choose other staff-intensive grantmaking styles, the number will rise rapidly.

Many of these positions will be open to people who have been traditionally underrepresented on foundation staffs and boards. These new foundations will control vast new resources and give rein to new and creative approaches to philanthropy. But, on the principle that every silver lining surrounds a dark cloud, it is also likely that an influx of new foundations, new employees to serve them, and new trustees to govern them will bring a small percentage who, whether from naïveté or mendacity, will do things to show disrespect for applicants, cross ethical boundaries, or even violate the law. Foundations will need to do a far better job than they have in the past of identifying best practices in grantmaking, training new professionals in these best practices, and insisting on “obedience to the unenforceable” in ethical standards. If they are content with the status quo in these areas, foundations undoubtedly will come to remember the intergenerational transfer of wealth with all the affection of Carthaginians remembering the Romans sowing their fields with salt.