A new study by the Urban Institute finds that the vast majority of ultra-wealthy people donate to charity during their lifetimes, but most do not make charitable gifts at death.
When they do, however, their contributions are many times bigger, on average, than the donations they made during the last few years of their lives — even though giving earlier would likely have reduced their total tax bill.
Researchers used a file of estate tax returns matched to income tax returns to analyze charitable giving by wealthy individuals at the time of their death — 2007 — compared with giving over their last five years of life — 2002 to 2006. The sample comprised people with wealth ranging from $2 million to well upward of $100 million.
The study period predates the 2010 beginning of the Giving Pledge, which now counts some 200 people globally who have signed a commitment to give the majority of their wealth to charity. It looks at a group of people with a similar level of wealth.
The Urban Institute said matching estate and income tax returns was intended to draw a broader picture of the generosity of the wealthy than can be had from most surveys or from income tax data alone.
The analysis showed that most top wealth holders, whether married or single, were much likelier to give during their last years of life than at death. Those who did give at death contributed so much at that point that, in aggregate, it far exceeded their own total 2002–06 giving.
In fact, differences in risks between the groups aside, those who left gifts at death contributed far more at that point than all estate filers combined for the total given in their last years of life.
The study offers several explanations why those who give out of their income do not do so in their wills, and why rich people do not give more during life rather than wait until death when giving is less tax efficient.
One explanation is that health considerations are a top concern of high-net-worth individuals with more than $3 million of wealth, excluding real estate (based on a 2017 US Trust report), making them reluctant to give away money, at least before they die. But the study notes that lifetime health risks are easily insurable, so not giving during life is still a missed opportunity.
Another explanation is that taxpayers can quickly consume any income-tax charitable deduction by giving away only modest shares of their wealth. This explains low rates of giving out of available wealth during life, but not failure to give out an estate, according to the study.
The research found that for many top wealth holders, consumption is not a main priority. Instead, they often get satisfaction from continuing to run their business or manage their wealth. Again, this helps explain low giving during life, but not why so many fail to give after death.
The study said research shows that people rarely plan for use of their assets at death, and noted that other evidence suggests limited planning with respect to the estate in general, not only charitable giving. It said that although the wealthy are likely to be more engaged given better access to financial planning, human factors are still at play in deferring estate planning.
According to the study, the above explanations combined are inadequate unless they are related to yet another overriding, somewhat overlapping explanation. Many people simply do not look at the opportunities their wealth provides during life and through transfers at death.
As a result, when they are eventually forced to make significant transfers of what they have not consumed, their limited attention to the opportunity shows up in neglect of possibilities for both charitable giving and their heirs.
Two factors may be involved here, societal customs and financial “rules.” These focus mainly on income and not wealth as a source of available funds for consumption or transfers out of the household.
Urban Institute said that however one rates the above explanations, the analysis shows that many people pay too little attention to the potential charitable opportunities their wealth provides.
“Put simply,” the study says, “it is hard to believe that economic circumstances somehow encourage people worth millions of dollars to give money to charity during their life but discourage them to do so when they die. Instead, for most, the habit of thinking of wealth rather than income as a source for giving is a much less advertised and less socially compelled form of giving in life and at death alike.”
— Related on ThinkAdvisor: