Ageing and estate transmission: legacy beyond the family?

Written by, Christopher Baker, Research Fellow – Centre for Social Impact, Swinburne University of Technology: One of the issues associated with an ageing society is that of the inheritance and the distribution of wealth. In Australia, a high proportion of private wealth is made up of property and older Australians are those most likely to own their own home. The transmission of wealth is not only of interest to daughters and sons, but also to the not-for-profit sector. Charitable fundraisers in particular have demonstrated a growing interest in charitable bequests and the potential for a boost in bequest funds simply as a result of the increased rate of intergenerational asset transfers.

Large scale wealth transfer is likely to gather material momentum via the demographic wave of baby boomers (generally considered to be people born from 1946 to 1964). In Australia, where the average life expectancy is in the low 80s, that means that this large and wealthy demographic will begin the intergenerational wealth transfer at the end of the 2020s, and continue for about two decades. Even a small increase in the proportion of individuals who leave something to charitable purposes from their estates would result in a significant increase in the value of charitable funds.

The potential is highlighted by what is currently a considerable gap between high rates of regular charitable giving and very low rates of participation in charitable bequest giving. Giving Australia 2005 estimated that 87% of adult Australians made a monetary gift to charity over the course of one year, but of the 58% of adults who had a will, only 7% indicated they had included a charitable bequest. A more recent analysis of a national sample of probate files in Australia found that 6.5% of probated estates had included a charitable bequest (Baker 2014). At the time of writing this article the 2016 version of the Giving Australia research study is well underway and we can expect by the end of this year to have new data on will making and charitable bequest inclusion by Australians.

Direct comparisons of giving between people in different countries are difficult because the definition of what is charitable varies by country, as does the way in which participation is measured. Nevertheless, in Canada, the UK and the US participation rates in day-to-day giving are consistently much higher than the rates of participation in charitable bequest giving.

The potential for reducing this gap has been well demonstrated in a US context by way of an examination of the potential import of demographic trends for charitable bequests (James 2013). Many of the basic demographic trends are in the same direction in Australia:

  • an ageing population – research indicates a positive association between age and charitable giving, and a positive association between age and charitable bequests
  • an increasingly educated population – higher levels of education are associated with higher levels of charitable bequest giving
  • an increasing proportion of adults who do not have children – childlessness has been shown to be the strongest demographic predictor of including a charitable bequest.

The implications of these demographic factors include ‘an enormous potential’ (James 2015 :74) for charitable organisations to benefit from initiatives that may enhance the propensity of individuals to include a charitable bequest, be they fundraising methods, changes in tax and related policy, practices of estate planners and other advisers, or other changes that may help to influence community norms, expectations and behaviours.

Among the research into this area is a focus on the way in which charitable giving, inclusive of bequests, is influenced by both taxation and social context; and inextricably interwoven with the attitudes, beliefs and behaviours associated with inheritance.

In relation to tax, Western countries generally structure their tax regime so as to stimulate charitable giving by those with the greatest financial capacity by providing them with incentives to give. For charitable bequests, this most often takes the form of making charitable gifts exempt from tax. Australia, however, is one of the few countries in the Organisation for Economic Co-operation and Development without estate/inheritance taxes, and consequently does not have the standard economic lever for encouraging charitable bequests from wealthy estates. Put simply, there is no taxation incentive to give.

Social influences have been shown to affect the nature and scale of giving to charity. Field experiments conducted in the US demonstrate that people tend to adjust the amount they give according to the amount that they believe is given by others. Similarly, social influence and the perceived behaviours of others influences the amount given in a particular context. The amount is largely independent of individual donors’ personal income or wealth. UK field experiments show that a simple behavioural ‘nudge’ can boost charitable bequest giving to a similar level as the estates tax, at a much lower cost.

The Behavioural Insights Team (BIT) of the UK Cabinet Office highlighted the importance of social influence in a series of randomised, controlled trials. The BIT analysis showed that when solicitors or will-writers simply mentioned to people that leaving a gift to charity was an option, the percentage of people who did so rose from just 5% to 11%.

  • When no mention was made to leaving a gift to charity, some 5% of will-writers included a charitable gift.
  • When will-writers included that leaving a gift to charity was an option, the percentage of people who did so rose to 11%.
  • When will-makers were ‘nudged’, advised of the practices of others and asked if there were any charities that they were passionate about, those including a charitable bequest rose to 15%.

We are all influenced by the actions of those around us, which means we are more likely to give to charity if we see it as the social ‘norm’ (Behavioural Insights Team 2013: 11)

The importance of this in the Australian context is that professionals involved in providing financial advice and estate planning services have been found to be reluctant to raise giving with their clients (Madden 2009) and the analysis of a national sample of Australian wills processed in 2012 found that advised wills were no more likely to include a charitable bequest than those prepared using a will kit (Baker 2014).

Another thread of insight into ageing and influences over charitable bequeathing behaviour emphasises the important link between making a decision to include a charitable bequest and self-reflection on personal life history and mortality. In an unprecedented use of brain scanning, US researchers (James and O’Boyle 2014) have observed that visualising desired outcomes is important to decisions to give. As bequest outcomes necessarily occur outside a will-maker’s lived experience, it is more difficult to visualise outcomes for bequests than for life-time giving. The authors argue that while there may be an inherent reluctance for individuals to visualise the final chapter of their lives, once engaged they ‘may seek to leave an enduring legacy’ (: 355).

These findings are consistent with evidence from other studies on a range of influences that are particularly relevant to charitable bequest decision making, including:

  • the importance of being remembered beyond the grave (Scaife, Williamson et al. 2012); especially amongst the wealthy (Routley and Sargeant 2015)
  • the ways in which charitable bequests are ‘laden with symbolism, a function of the reminiscences of the individual and reflective of the need for the self to live on and achieve a degree of symbolic immortality’ (Routley and Sargeant 2015: 869).

This takes me back to the fundamentally reciprocal nature of giving. Giving is two-way process. For those who give to charitable purposes, at the very least there is often an accompanying warm inner glow and/or an enhanced sense of self-worth. Despite the increasingly egocentric nature of our society and a near-maniacal obsession with retaining all wealth within the family, with ageing there still comes reflection, wisdom and hopefully generosity – beyond the immediate family.

 

References

Baker, C. (2014) Encouraging Charitable Bequests by Australians. Melbourne: Asia-Pacific Centre for Social Investment & Philanthropy, Swinburne University of Technology.

Behavioural Insights Team (2013) Applying Behavioural Insights to Charitable Giving. London: Cabinet Office.

James, R. N., III (2013) American Charitable Bequest Demographics (1992–2012). Lubbock, TX: Texas Tech University.

James, R. N., III (2015) ‘The Family Tribute in Charitable Bequest Giving’, Nonprofit Management & Leadership 26(1): 73–89.

James, R. N., III and M. W. O’Boyle (2014) ‘Charitable Estate Planning as Visualized Autobiography: An fMRI Study of Its Neural Correlates’, Nonprofit & Voluntary Sector Quarterly 43(2): 355–373.

Madden, K. (2009) Is Philanthropy Relevant? A Study of Professional Advisers in Australia. Working Paper No CPNS 43. Brisbane: Centre for Philanthropy and Nonprofit Studies, Queensland University of Technology.

Routley, C. and A. Sargeant (2015) ‘Leaving a Bequest: Living on Through Charitable Gifts’, Nonprofit and Voluntary Sector Quarterly 44(5): 869–885.

Scaife, W., et al. (2012) Foundations for giving : why and how Australians structure their philanthropy. Brisbane: Queensland University of Technology.

 

 

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