In a 55-year period between 1998 and 2052, some $59 trillion of U.S. wealth will be transferred. That total exceeds an estimate of $52 trillion in wealth transfer made in 1999, and includes the impact of the 2007 recession.
The Center on Wealth and Philanthropy at Boston College released a new study, “A Golden Age of Philanthropy Still Beckons: National Wealth Transfer and Potential for Philanthropy Technical Report,” in late May based on data collected in the summer and fall of 2011.
According to the study, the aggregate value of household assets (real estate, business equity, financial assets and other assets, like cars and art) declined by 20% after the start of the recession while household debt rose 2%, leading to a decline in household net worth of about 25%. The dollar losses were spread unequally, with households having net worth of $1 million or more losing an average of $917,000 per household or nearly $10 trillion in aggregate. Households with net worth less than $100,000 lost an average of $12,000 or just less than $1 trillion in aggregate. All dollar amounts are based on 2007 dollars.
On a percentage basis, the wealthy households lost about 21% of their wealth on average, compared with a loss of more than 80% among the less-wealthy households. The wealthy group represents about 10% of all U.S. households and the less wealthy group about 50% of U.S. households.
As the study notes, the majority of wealth transfer comes from the wealthy 10%, who donate more to charity and leave more behind for their heirs. The wealthy have also begun transferring more of their wealth during their lifetimes through trusts, partnerships, direct gifts and other means.
Here is where the wealth goes: about 17% will be transferred during a person’s lifetime and 83% will be transferred as final estates. That means about $10 trillion will be transferred during a person’s lifetime and $49 trillion after a person’s death.
Of that $49 trillion, $5.6 trillion will go to estate taxes, $6.3 trillion to charity, $36 trillion to heirs and $1.1 trillion to estate closing costs, if estate tax levels remain at their current level. The study’s authors point out the obvious:
In terms of final estates, 5% to 20% of these affluent or wealthy households account for roughly 63% to 88% of the wealth transfer through final estates … Although wealth transfer will affect all households, most households will transfer a modest amount.
That modest transfer is due to the heavy concentration at the very top. In 2010, according to Table 1 of the study, 0.13% of U.S. households (156,747) have a net worth totaling $7.27 billion, for a mean net worth of more than $46 million. Some 51% of U.S. households have a total net worth of $3.6 billion, or a mean of just under $60,000. Nearly 15% of U.S. households have a negative net worth totaling $371 billion, or a mean negative $21,630 net worth.
Can that level of inequality be sustained for another 50 years? All the indicators are that it can and that it will.