The Impact of Declining Birth Rates on Charitable Bequests
As global demographics shift, one of the most significant trends observed is the declining birth rate. The total number of births has fallen approximately 17% since peaking in the year 2007.[1] This phenomenon has far-reaching implications, particularly in the realms of estate planning and philanthropic giving. With fewer heirs to inherit wealth, there is a growing opportunity for individuals to leave a legacy through charitable bequests. This article explores the importance of directing assets to charity, especially in the context of declining birth rates, to ensure that wealth is utilized meaningfully, rather than passing under state intestacy laws.
Declining Birth Rates: A Global Perspective
Declining birth rates are a notable trend in many developed countries, including the United States. In the United States alone, Total Fertility Rate (TFR), which measures the average number of children a woman is expected to have in her lifetime has declined from 2.12 births per woman (replacement level) in 2007, to approximately 1.64 births per woman in 2020.[2] The Congressional Budget Office projects that TFR will remain near 1.67 through 2024, before rising to approximately 1.7 through the year 2054.[3] This demographic shift characterized by fewer children being born leads to an aging population. Several factors contribute to this trend, including age, education levels, and income levels.[4]
Intestacy and the Importance of Charitable Bequests
The Pew Research Center estimates that 20% of American adults do not have children.[5] Many of these same individuals also do not have wills. It is estimated that only half of all childless individuals age 50 or older have a will.[6] Without a will, trust, or other will substitute (such as a beneficiary designation for financial assets), an individual’s assets pass under state intestacy laws. These laws dictate the distribution of assets to surviving relatives (or the state), which often do not align with the individual’s wishes.[7] This is a growing problem in the world of trusts and estates as greater shares of assets are passing directly to states themselves, rather than to the individual’s friends or charities that matter to them.[8]
Individuals without direct descendants have a distinctive opportunity to consider charitable bequests as a means to leave a lasting impact to the organizations and causes that align with their beliefs and affinities. Charitable bequests can be directed to nonprofit organizations through a will, trust, or through beneficiary designations over financial accounts. These bequests can support a wide range of causes, from education and healthcare to environmental conservation and social services.[9] Depending on the charity’s policies, a donor’s bequest may also live in perpetuity by becoming a part of that charity’s permanent endowment.[10]
Benefits of Charitable Bequests
Legacy Building: Charitable bequests allow individuals to create a lasting legacy that reflects their values and passions. By supporting causes the donor cares about, he or she can make a significant difference in communities, educational institutions, and beyond.
Tax Advantages: In most jurisdictions, charitable bequests can offer substantial tax benefits. Bequests to charity can reduce a decedent’s taxable estate, potentially lowering estate taxes and providing more funds for charitable purposes.[11]
Avoiding Intestacy: By leaving assets to charity through a well-crafted estate plan, a childless person can avoid the problems inherent with asset transfers that take place under state intestacy laws.
The Role of Childlessness in Charitable Giving
Research indicates that childlessness is a significant predictor of engaging in charitable estate planning. Individuals without offspring are more likely to leave charitable bequests, as they do not have direct descendants to inherit their wealth.[12] For example, a study of Australian wills found that will-makers without surviving children are ten times more likely to make a charitable gift from their estate.[13]
Encouraging Charitable Bequests
To harness the potential of charitable bequests, it is crucial to educate and encourage individuals to consider this option in their estate planning. Charities and estate planners can play a vital role by:
Raising Awareness: Informing potential donors (especially those without children or current estate planning documents) about the impact of charitable bequests, as well as what would happen to their assets by default should they pass without a valid will under state intestacy laws.
Providing Resources: Offering tools and guidance to help individuals incorporate charitable giving into their current estate plans such as bequest language that will help the donor better effectuate their charitable intentions.
Highlighting Success Stories: Sharing examples of how charitable bequests have made an impact within a particular charity and how to inspire others to follow suit through newsletters or other materials. Similarly, engaging with and thanking donors who have made charitable bequests through their estate plans should be a critical function of any gift planning staff, no matter the size or reach of the charity. Engagement with legacy donors not only is a meaningful way to say “thank you,” but also creates opportunities for the legacy donor to increase lifetime giving to the charity.
Conclusion
As birth rates decline and the population continues to age, the importance of charitable bequests becomes increasingly evident. By directing assets to charitable causes, individuals can leave a meaningful legacy, often enjoy tax benefits, and ensure their wealth is used in ways that align with their values. Charities working in collaboration with estate planning advisors to encourage and facilitate charitable bequests is essential to maximizing the influence of these growing demographic trends.
[1] Ernie Mundell, U.S. Births Continue to Fall, Dropping by 17% Since 2007, U.S. News & World Report (Aug. 20, 2024), https://www.usnews.com/news/health-news/articles/2024-08-20/u-s-births-continue-to-fall-dropping-by-17-since-2007.
[2] Phillip L. Swagel, The Demographic Outlook: 2024 to 2054, Congressional Budget Office (Jan. 2024), https://www.cbo.gov/publication/59899#:~:text=After%20peaking%20at%202.12%20in,when%20the%20projections%20were%20made.
[3] Id.
[4] Why Is the U.S. Birth Rate Declining, Population Reference Bureau (May 6, 2021), https://www.prb.org/resources/why-is-the-u-s-birth-rate-declining/.
[5] Rachel Minkin, Juliana Menasce Horowitz, & Carolina Aragao, The Experiences of U.S. Adults Who Don’t Have Children, Pew Research Center (Jul. 25, 2024), https://www.pewresearch.org/social-trends/2024/07/25/the-experiences-of-u-s-adults-who-dont-have-children/.
[6] Tali Arbel, People Without Kids are Leaving Money to Surprised Heirs, The Wallstreet Journal (Oct. 2, 2024), https://www.wsj.com/personal-finance/childless-inheritance-wills-estates-79879ae3.
[7] David Di Pietro, Information on Intestate Succession (Aug. 7, 2019, last updated Jul. 17, 2023), https://ddpalaw.com/blog/probate/florida-intestate-succession/ (see chart for overview of Florida’s intestacy law summarized under Section 732.101-109 of the Florida Probate Code).
[8] Arbel, supra (Demonstrating how $240 million dollars of unclaimed assets passed to the State of New York over the previous ten years, while $54.3 million dollars passed to the State of California over the same period).
[9] For example, the University of Florida is currently comprised of 16 unique colleges, and even constituent units such as a performing arts center and two museums within its campus.
[10] As of 2023, the University of Florida’s endowment was estimated to be greater than 2.3 billion dollars and is comprised of over 3,000 individual funds.
[11] The top federal estate tax rate is 40%, applied to the value of estates exceeding the annual exclusion amount set by the Tax Cuts and Jobs Act of 2017 (13.99 million dollars in 2025). Barring further action from Congress, the current federal estate tax regime is set to sunset at 11:59 PM on December 31, 2025. Several states impose their own estate taxes with exemption thresholds that are often lower than the federal annual exclusion amount, as well as inheritance taxes levied against the recipients of the decedent’s estate, rather than the decedent, themselves.
[12] Russell James, Inside the Mind of the Bequest Donor 297 (Create Space Independent Publishing Platform, 2013).
[13] Id. (citing research by Christopher Baker in which 1729 Wills were examined).