Giving While Living: Not Just For Billionaires

In 1982, philanthropist Chuck Feeney decided to devote his entire wealth to the service of humanity during his life-time. The Atlantic Philanthropies, which was set up off the back of this vision, reports that it has now donated over $8 billion to good causes. The organisation’s website claims that Feeney’s example has been ‘an inspiration’ to billionaires such as Bill and Melinda Gates and Warren Buffet, who have also donated huge sums from their personal wealth rather than leave it in the form of bequests.

Most people can only dream of wealth of this magnitude and might reasonably assume that programmes of this sort are only for the super-rich. That would be a mistake.

‘Giving while living’ is something for all of us to consider

An older person with even modest wealth should see the attractions in passing on some of their wealth during their life rather than storing it up until their death.

First and foremost, wealth passed on before death is more likely to reach adult children and/or grandchildren earlier in their lives, and potentially at a time when it can have more impact.

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For example, if someone lives to 90 and only passes on their wealth at death, the chances are that their children will be aged around 60 and perhaps contemplating retirement themselves. Whilst inherited wealth will always be welcome, it could have done more for the recipient while they were building a career, buying a home or paying for education.

If this is true for gifts to immediate descendants, it is true even more so for gifts to grandchildren and other family members. A cash inheritance early in their working life could make a real difference to a young person who is at the beginning of their career or looking to start a family

There are other advantages to be considered of ‘giving while living’. 

Most obviously, there is more pleasure to be had in seeing the recipient of your generosity enjoying the gift rather than no longer being around when the wealth is passed on. There are also potential tax advantages in some jurisdictions, where money passed between the living may be treated more favourably than money passed as part of an estate.

The barriers to ‘giving while living’

The biggest barrier is probably a cultural assumption that we manage our wealth through our lives and then any un-needed residual is passed on after we are gone. 

Whilst this is a cultural norm, there is no reason why things have to be done this way.

No-one is advocating that older people deprive themselves or give away so much that they become in need of welfare support, but many older people are comfortably provided for in terms of guaranteed regular income and could give away surplus wealth without risking their own standard of living.

A second barrier is the illiquid nature of much of later life wealth. For many, a large amount of their wealth is tied up in their home, and it is not straightforward to release it. Financial products that release this wealth can sometimes charge high interest rates and need to be taken out on the basis of high quality impartial financial advice.

Nonetheless, it is hard to see why a parent would want to sit on large amounts of property wealth while their children or grandchildren have little or no housing equity or remain stuck in high cost rented accommodation.

Probably the biggest barrier to handing over wealth is the risk of it being needed in later life for large and unpredictable costs, such as long-term care. A potential solution to this problem would be greater access to insurance products, which would enable older people to ensure that their potential care costs would be met. This could allow them to give with greater confidence.

We hear much about ‘intergenerational unfairness’, and governments around the world are looking at tax policies designed to lever wealth from older generations to younger. But governments should also think about incentivising earlier wealth transfers on a voluntary basis within families.

Billions of dollars are set to ‘cascade’ through the generations in the coming decades as relatively wealthy baby boomers leave behind increasing amounts of wealth. But that cascade needs to start today when it can do far more good.

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