A nonprofit publication of the Kentucky Center for Public Service Journalism

Will Eastern KY capture a share of the enormous wealth to be transferred in the next generation?

By Ron Daley
Special to KyForward

Eastern Kentucky and the United States of America are in the midst of the greatest “transfer of wealth” (TOW) in the nation’s history. Research estimates that $72 trillion will transfer from one generation to another in the next decade, 2017 through 2026, representing a TOW opportunity of over $7.7 trillion. TOW is an estimate of American household wealth from which charitable giving could be realized.

This private wealth is a great opportunity for communities in the mountains with a compressive plan to advance the quality of life and economic potential for its citizens.  Hopefully, community leaders will recognize this potential and use it as a catalyst for planning.

In Kentucky, the Kentucky Philanthropy Initiative (KPI) commissioned a Transfer of Wealth study in 2010 and updated in 2017 identified significant wealth transfer over the next 50 years. In fact, Kentuckians will likely transfer $761 billion to the next generation.

This intergenerational Transfer of Wealth offers an unprecedented opportunity to create a profound legacy – if we can count our communities among our heirs. Imagine what just a 5 percent legacy investment could do for the long-term economic development and quality of life of our communities.  By capturing just 5% of this wealth transfer within community foundations, Kentucky would realize over $35 billion in locally controlled, non-governmental funds to meet critical needs

All communities and counties in Kentucky have enormous household net worth.  Rural communities have an opportunity to retain some of the wealth in their communities for sustainable foundations and endowments which will generate funds to improve the quality of life in their region. It is critical that citizens understand the philanthropic efforts in their community and get involved. Communities which may not have a philanthropic foundation should work with others to gain this capacity.

The chart below shows the TOW potential in the eastern Kentucky counties served by the Kentucky Valley Educational Cooperative (KVEC) consortia of 22 K-12 school districts.

The first column (2016 value) shows in billions of dollars the current household worth of permanent residents followed by the amount of wealth to be transferred in the next 10 years in millions of dollars. This does not include the wealth value of corporations, no-profit organizations or governments. The 5 percent capture indicates the amount of funds which can be put in endowment if 5 percent of the transfer is captured. Research demonstrates that 5 percent is a reasonable goal. The final two lines are figure for a 20 year period of transfer of wealth.  The figures are presented in “2016 dollars” and “real” or “inflation adjusted dollars.”

Source: 2017 Transfer OF Wealth Opportunity: The Kentucky Philanthropy Initiative. You can visit the report and learn more about the KY Philanthropy Initiative on their website at http://www.kyphilanthropy.com/. Click to enlarge

Eastern Kentucky is served by three community foundations. The Foundation for Appalachian Kentucky with offices in Hazard, was formed in 2006.  The Foundation for the Tri-State serving southern Ohio, southwestern West Virginia and eastern Kentucky is 44 years old.  The Bluegrass Foundation of Kentucky which serves central and eastern Kentucky and has offices in Lexington, is 50 years old.

There are hundreds of community foundations across the country and around the world. Community foundations are set up by people, corporations and families that are dedicated to improving the quality of life in a specific community or region.

These foundations are nationally-accredited, tax exempt public charities that allows people to establish permanent endowment funds and gift funds under the umbrella of one large foundation. They offer an inexpensive, value-added way to establish a named family foundation or to contribute any amount to a permanent endowment for a specific county, nonprofit, or area of interest. The income from these funds is available to make grants in the community that respond to donors’ wishes, emerging priorities and other opportunities in the community, in order to make our communities stronger.

The state is fortunate to have the legislatively enacted Endow Kentucky tax credit which allows any Kentucky taxpayer, business or individual, to receive a state tax credit up to 20% of their charitable gift to a permanent endowment at a Community Foundation. The credit is in addition to the normal federal deduction for a charitable gift. This credit is up to $10,000 per taxpayer per year (20% of a $50,000 charitable gift).

There are only $1 million in credits available statewide annually, but efforts are being made to increase the amount.

Ron Daley is the strategic partner lead for the KY Valley Educational Cooperative, on behalf of the Appalachian Innovations Collaborative.

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