Reining in local wealth

New study articulates intergenerational transfer of wealth, identifies the need to keep it in our communities

By Gina Mangan

There’s a groundswell taking place in America’s heartland, and community leaders throughout Wisconsin can’t help but notice. 

It all began in 2000, when folks in Nebraska learned that $94 billion is expected to pass during the next 50 years between the state’s generations.

That prediction prompted 250 Nebraskan communities to establish foundations to capture a small percentage of that wealth in the form of charitable endowments to be used for building and sustaining stronger communities. The Nebraska Legislature passed a tax credit for individuals and businesses who donate to endowments. Many of those foundations have already captured 5 percent of the annualized wealth since a Transfer of Wealth Study estimated the $94 million figure.

“To achieve that goal within just five years is really very impressive,” said Don Macke, senior advisor to the Nebraska Community Foundation and co-director of the Nebraska Center for Rural Entrepreneurship, the policy research institute that conducted the transfer of wealth study. “What Nebraska experienced was a loud call to action.”

But what does this have to do with Wisconsin? 

Plenty, considering the rumbling in Nebraska captured the imaginations of nonprofit leaders throughout Wisconsin, who wondered how much money might be passed down from generation to generation in their own state. 

They recently received an answer. 

A “Wealth in Wisconsin” study, released in early September, is predicting that $687 billion will be passed down from generation to generation through the year 2050.  Approximately $105 billion will be passed down within the next ten years, representing an annual transfer opportunity of about $10.5 billion statewide.

“This is a remarkable legacy and reflects on the hard work, prudence and enterprise of the current generation,” states the study’s Center for Rural Entrepreneurship authors. The $25,000 study was commissioned by the Donors Forum of Wisconsin in collaboration with each of the state’s 21 community foundations.

Macke said Wisconsin stands out as a state that prospered during the past 50 years, bucking economic downturns that have crippled other areas of the nation. Combine that with the fact that Wisconsinites have done a good job of saving, investing and building their estates, and it’s no surprise that Wisconsinites’ net worth is higher than the national average, he said.

“There’s a massive nest egg right now in Wisconsin and a very strong entrepreneurial and philanthropic culture,” Macke said. “You put all of this together and you have a lot of opportunity in Wisconsin.”

Polishing the nest egg
Expect to hear plenty of buzz about the study results on both a local and statewide level. The Donors Forum of Wisconsin spent the first half of the year developing a statewide plan to roll out the results. Community foundations in Oshkosh, the Fox Valley, Fond du Lac, Green Bay, and Menominee and Marinette counties are collaborating to promote the study, as well as the concept of donating 5 percent of that wealth to community foundations and other charities, said Kelly Edwards, the Oshkosh Area Community Foundation’s marketing communications coordinator.

Foundation leaders will discuss the study and its implications with individual donors and the professionals involved in writing wills and estate planning, such as wealth advisors, attorneys and accountants.

“What we have found is that we have this tremendous capacity for giving throughout Wisconsin and in our region,” said Eileen Connolly-Keesler, executive director of the Oshkosh Area Community Foundation. “We would like people to think seriously about giving a small percentage of their estates back to the communities they care about, to think about adopting their community as one of their children – their heirs. It’s a philosophy of people born in the 1930s and 40s, but it’s been lost over time.”

The study estimates that if just 5 percent of the money over the next 10 years were pledged to community endowments, a cumulative statewide endowment of $5.3 billion could be created. Well-managed and prudently invested endowments could pour approximately $263 million into the state’s communities. It’s money that many community leaders feel is needed as Wisconsin undergoes an economic transformation and government funding continues to shrink.

“Government is changing right now. All that it used to fund, it’s no longer funding,” Connolly-Keesler said. “It’s up to communities to pave the way for partnerships that ensure they maintain their quality of life. In many cases, the only way to do that is through charitable dollars.”

Paying for community
Wisconsin’s individuals and businesses already have a tradition of establishing or donating to endowed funds in community foundations.

The Oshkosh Area Community Foundation’s funds have been used to support a myriad of community, education and social betterment projects. The Foundation has been a major catalyst in downtown redevelopment, as well as the creation of a new Pollack Family Aquatic Center and the Leach Amphitheater, each project being more than $6 million and being primarily funded without taxpayer dollars.

To make it easier for foundations and nonprofit organizations to predict the capacity for giving at the local level, the Wealth in Wisconsin study breaks down the transfer of wealth county by county. For example, the study estimates that in Winnebago County alone, there will be $19.13 billion changing hands by 2050, $2.9 billion of which will be passed down over the next decade. If 5 percent of Winnebago County’s wealth transfer was captured in charitable endowments, nearly $145 million would be realized during the next 10 years. Assuming a conservative fund payout of 5 percent, an estimated $7.25 million would be available each year for the county’s communities.

“You can see how major of an impact this could have on our communities,” Connolly-Keesler said. “The other point is that you don’t have to be wealthy to include money for community charities in your will. If we have hundreds of families who only give $1,000, it still adds up.”

The study estimates Fond du Lac County’s 50-year transfer of wealth opportunity at $11.02 billion, $1.78 billion of which will occur during the next 10 years. Outagamie County’s wealth transfer could total $21.46 billion, $2.80 billion of which could occur during the next 10 years.

No better time than the present
The Center for Rural Entrepreneurship’s methodology is based on that used by Boston College researchers in their landmark study, Millionaires and the Millennium, which predicted that as much as $41 trillion dollars will pass nationwide from one generation to the next during the first half of the 21st century – indicating the U.S. is in the midst of the largest intergenerational wealth transfer in history.

The research takes into consideration U.S. census data regarding property ownership, investments and life insurance – the three primary forms of wealth passed down to subsequent generations.

Because much can change over 50 years, Macke suggests looking closely at the 10-year transfer of wealth data. The shorter term predictions are especially valuable in a state like Wisconsin, which like many rural northern states, is expected to grow slower in terms of population and wealth creation in the future.

“These studies represent a moment in time, a call to action for communities to work now with potential donors,” Macke said. “In a state like Wisconsin, many people who have created the wealth are retired or close to retiring. At this point, they still have strong connections to their communities, but as you get a generation out that connection may weaken, especially if their children are moving out of the state.”

That’s why Donors Forum of Wisconsin president Deborah Fugenshuh said she was eager to commission the study.

“We are in many ways a replica of Nebraska because we are seeing the sale of many of our businesses, and people leaving and not coming back,” she said. “At the same time, government is cutting like crazy, cutting grants to nonprofits and community block grants. Cities have historically relied on those block grants for redevelopment.”

Fugenshuh calls it “the perfect storm,” one that elevates the importance of charitable giving and keeping money within Wisconsin communities.

“I always believe perfect storms afford perfect opportunities, and we have that opportunity right now,” she said. “I think we were all shocked at the dollar value of what Wisconsinites will be passing down in the future, and we also know that it was a very conservative estimate, so there’s a lot more out of there … now we have to take these numbers and make them real to people.”