Baby boomers’ own funds, combined with inheriting money from their parents, just might mean a windfall for charities over the next several years. ©Thinkstock
What accountants know about baby boomers’ wealth is also known by those who run nonprofit charitable organizations: There is a lot of money bound to become available to charity and other types of nonprofit groups in the years ahead.
“It’s very interesting: We’re heading into a period of time when there is a lot of wealth that’s going to be transferred from one generation to the next,” said Rick Chrisman, managing shareholder of the Hungerford Nichols firm of CPAs and financial advisors in Grand Rapids.
Baby boomers are now reaching retirement age and many of them have done quite well for themselves in businesses and professional careers — or just through wise management of the money they set aside from their paychecks over the years.
But the unfolding situation is really a double whammy, in a very positive way: Many of those boomers have or will soon inherit their parents’ estates, leaving some in the pleasant position of being able to contribute significantly to their favorite charity or cause.
In May, the Boston College Center on Wealth and Philanthropy released a report stating that an estimated $59 trillion will be transferred in estates from 2007 through 2061. Heirs will receive an estimated $36 trillion, federal estate taxes will claim $5.6 trillion and charities will receive $6.3 trillion from estates where there is no surviving spouse. However, the report estimates that lifetime giving to charity over those 54 years will yield an additional $20 trillion for charity.
“It’s a great opportunity for some of these nonprofits to try to set up endowments so that they can be funded into perpetuity,” said Chrisman.
Chrisman happens to be the board treasurer for CASA of Kent County, a nonprofit public service organization, and in early October he went with CASA executives to meet with the Grand Rapids Community Foundation to talk to them about setting up an endowment there for CASA.
CASA stands for Court Appointed Special Advocates, an organization that works directly with the county courts. The organization, which was the 2011 Liberty Bell award winner from the Grand Rapids Bar Association, recruits and trains volunteers who serve as advocates for abused or neglected children as they pass through the family court system.
Patty Sabin, executive director of CASA of Kent County, said the organization has been around since the mid-1990s and was originally a part of the court system. She said the judges, realizing the value of CASA, wanted it to grow larger but knew the government could not afford to do that, so it became a nonprofit, allowing it to accept grants from various levels of government as well as collect private contributions.
The volunteers work for nothing — and it really is work, a great deal of time working within the court system to make sure no child loses out in the lengthy arguments and deliberations that are a necessary part of family law. Sabin is aware of one 8-year-old boy who was a ward of the court and had six case workers assigned to him over a period of perhaps 18 months — “but one CASA volunteer had his back the entire time,” she added.
CASA spends money on recruiting and training those volunteers; all receive “extensive training,” she said, and some people who apply to be CASA volunteers are not accepted because the requirements are so specialized, and in some cases, because they would soon realize it would require more time than they can give it.
With Chrisman’s help, CASA has estimated it takes $1,000 per year to support each child for which it advocates. Sabin said they figure a donation of $20,000, if carefully invested and managed, would support one child every year “in perpetuity.”
CASA has 84 active volunteers at this time, and served 312 children last year.
“I could probably use another 20 volunteers,” said Sabin. “We consistently run with a waiting list” of children who need an advocate.
So CASA is now in talks with the Grand Rapids Community Foundation about setting up an endowment fund there for CASA.
“We are an endowment-building organization,” said Shaun Shira, development officer at GRCF.
GRCF is a 100-year-old organization, noted Marilyn Zack, vice president of development. Over those years, it has built up a list of almost 700 ongoing funds.
“Each of those funds reflects the personal interest of the donor who created it,” said Zack.
GRCF offers donor-advised funds, in which the donor can direct his or her contribution to go to specific organizations. The donors can even name a successor who will continue to direct where the contributions go. Donor-advised funds are an alternative for those who want to be involved in philanthropy but do not want to handle the organization and administration of a private foundation.
The foundation also has field-of-interest funds, which have a broader scope. There isn’t as much control of the funds by the donor, but the donor can still offer general suggestions on how to use the money.
GRCF also has scholarship funds and selected recipients for more than $1 million worth of scholarships last year alone.
Shira said GRCF routinely fields calls from people who would like to become donors, and they have the option of supporting one of the existing funds or creating their own named fund, although there are minimum dollar amounts required.
“One of the kinds of funds that can be created at the Community Foundation is something called the nonprofit fund, which a donor would establish specifically for the benefit of an organization like CASA,” said Zack.
With certain types of funds, donors can select among investment options for their named fund.
According to the GRCF website, at a community foundation, an endowment gift remains whole forever, and a portion of the income — about 5 percent a year — is spent on grant-making. The spending rule allows for continued growth of the endowment through reinvestment of earnings and new gifts. Community foundations can accept gifts of various sizes and types from private citizens, corporations, government agencies and other foundations. Gifts can include real estate, closely held stock and artwork, in addition to cash.
The GRCF’s investment objective is to preserve the real purchasing power of the assets after all withdrawals by earning a total rate of return over full market cycles (net of fees), which will support the spending policy. It invests assets to maximize the long-term return while assuming a reasonable level of risk.
The 2012-2013 GRCF Annual Report states that last year it received more than $18 million in gifts, and its new fund structure, with lower fund minimums, helped bring in 20 new funds. About 20 percent of the new gifts were from estate plans. The new gifts and a favorable investment climate boosted the GRCF endowment to more than $285 million, and it made $7.9 million in grants.
GRCF states there are nearly 700 community foundations in the United States and more than 90 community foundations and geographic affiliates in Michigan alone. There are at least 470 community foundations in 41 countries outside the United States, with at least another 140 in development around the world.
“We are an organization more than 100 years old and we plan on being here forever,” said Zack, adding that donors who create a legacy through an endowed fund at the foundation “know that their dollars are going to be supporting this community in a variety of different ways for a long time — forever.”