Transfer of wealth believed to be key to future of Maine

Rudy Elis was a farmer who worked on his family farm all his life. When he died at age 92, his community was astonished to learn that his frugal habits and hard work had resulted in an estate worth $2.3 million. Elis was from north-central Nebraska. In his will, he left the wealth he worked so hard to create to the betterment of the state he loved. The bequest will be used to fund grants promoting job creation, business transition and youth entrepreneurship.

Elis is an example of a type of philanthropy that Mary Ann Hayes, executive director of Maine Rural Partners (MRP), hopes will develop as communities begin to discuss the future of Maine and the transfer of intergenerational wealth occurring over the next 10 years. According to MRP, the Maine Community Foundation and a number of other contributing organizations, the potential power of local bequests to build Maine's future is worth exploring and promoting.

In a report issued by MRP, "Realizing Maine's Worth: Our Community Legacy," research indicates that over that 10-year timeframe Mainers will transfer about $29 billion to the next generation. The report suggests that, if Mainers decided to leave as little as five percent of their estate to their communities in a gesture of support and hope for the future similar to Elis', the commitment to Maine's future could grow by 2020 to supply an additional $74 million in annual funding that could be used for community development.

The report suggests that the necessity of this kind of investment by people for their community is growing. "Capital flows to places of certainty, and communities with permanent endowment funds will stand out as demonstrating serious and longstanding commitment from the people who matter the most." The report calls for action to reverse the cycle of disinvestment in rural communities by creating a long term savings and investment strategy to combat the out-migration of the state's youth. "Our younger generations will have a far better chance to sustain a viable asset-based economy in the communities we love," the report argues. The conversation about investment needs to happen sooner rather than later, it says. "We're getting a late start. Maine's window of opportunity has been open for several years already. It will start closing by 2030, when the U.S. Census projects that our state's total population will start decreasing."

"Realizing Maine's Worth" shows Washington County's 2005 household net worth reported as $2.5 billion, with $568,758,923 estimated as the amount of intergenerational transfer occurring between 2010 and 2019. If five percent of that transfer is committed to organizations or programs important to the person leaving the bequest, this would equal $28,437,946. The report specifies, "A conservative estimate is provided for the net worth of Maine households -- the estimates presented are neither statistical projections nor economic forecasts. Instead, this scenario illustrates the financial return our five percent legacy commitment could provide for future generations."

Hayes says, "This is an opportunity for the older generation to leave something for the future." Assets come in many forms, not just cash, she notes. Land, farms, forests are all of great value and often for different reasons. Bequests can be directed to "anything that matters to them and accepts bequests. It could be very local like a library or museum, community college, hospital, grange." She also lists state and county-based economic development organizations, associations and land, farm and forest trusts or easements.

The Maine Community Foundation (MCF) is another option. Elis, a Nebraska resident, chose to leave his bequest to the Nebraska Community Foundation. MCF Vice President of Philanthropy Laura Young explains that the community foundation has permanent funds to support community building. "We're hoping that this [MRP report] starts a discussion C that people think of themselves as philanthropists. What are the priorities?" she asks. "Family is a high priority, but community is high for people, too."

The Washington County Fund of MCF was one of three funds started 24 years ago as an effort by three counties C Washington, Aroostook and Piscataquis C to "raise philanthropy into rural areas of Maine where there was a perceived notion that there was no wealth," says MCF Foundation Officer Cherie Galyean. When the fund was first started in 1986, the opening balance was $3,000 with a check for $150 coming in as one of the contributions.

The fund has grown to $1.46 million and distributes approximately $75,000 to $80,000 annually in grants to county organizations. Over the life of the fund, "We've awarded 240 grants totaling over $500,000," says Galyean. The fund is administered by MCF, but all grant applications are read and awarded by a committee comprised of Washington County residents. Over the life of the fund, 30 residents have served on the committee.

Barriers real and perceived

Washington County has significant economic barriers to development, including a 20% poverty rate and a median household income of $29,721 recorded by the 2005 U.S. Census. Intergenerational wealth transfer will not be a possibility for every household. However, the MRP report indicates that after discounting personal assets, defined-benefit pensions, quickly depreciating assets, closely held assets such as farms and family businesses and the assets of households whose wealth would be spent on retirement costs, the estimated $568,758,923 of intergenerational wealth transfer occurring in the county between 2010 and 2019 is "conservative." This suggests that while economic barriers are very real for many of the county's residents, there is considerable wealth present in the county.

Barriers are documented in a 2008 study entitled "Poverty in Maine Update," released by the Margaret Chase Smith Policy Center of the University of Maine. The study explains that personal income reflects three sources of income: wages, transfer payments and investments. Washington County has the highest rate in the state at 33.8% for transfer payments. Transfer payments are given where no service is performed and can include Social Security, military pensions, medical payments such as Medicare, food stamps and unemployment insurance benefits. The update explains that in Maine almost 50% of transfer payments are medical payments made to providers. The high rate of transfer payments as a part of reported income for Washington County residents reflects both the higher percentage of older residents and the higher rate of poverty in the county. Transfer payments were discounted from the MRP report before calculating the value of intergenerational wealth.

The perceived idea that there is a lack of wealth in the county is discounted by the MRP report when considering primary indicators, which included real estate values, both of coastal and some privately held forest holdings, and income derived from dividends, interest and rental property. Don Macke of Rural Policy Research Institute Center for Rural Entrepreneurship, one of the principal researchers of the Maine Rural Partners report, says that the rate of investment income reported to the IRS by residents "gives us an indication. Where there are a high percentage of older residents, investments tend to go up. Counties that have 65-plus populations C on average the DIR goes up." DIR stands for dividends, investments and rents.

Washington County's population that is 65 and older is 18.6% while Maine as a whole averages 15.1%. The technical committee found that of the approximately 13,700 households in the county, the 2005 investment income equaled to $6,761 per household. The "Poverty in Maine Update" reported that investment income made up 11.3% of the average county resident's income. There were only three counties with investment income above 20%, three below 10% and the rest falling between 18% and 11%. The MRP report estimates that Washington County residents with a capacity to give 5% of their estates to their community would place the county slightly above the level of giving of Franklin and Piscataquis counties and slightly below Aroostook and Somerset.

Skepticism about the ability of Washington County residents to transfer wealth Macke says, "[is] part of the conversation C there's a healthy caution and questioning." He adds, "People who have lived through tough times tend to save at higher rates. Every month they put away a small amount, they've lived in a modest home, didn't buy new cars, invested." He cites Elis, a fellow Nebraskan. "People were just blown away. Since he did this, there have been five more gifts." While Elis was able to accumulate significant wealth during his lifetime, Mary Ann Hayes notes, "This isn't [about] just a few wealthy people leaving something to the community. It's not depending on one person. Everyone pitches in. If an estate leaves $10,000, then that estate would leave $500 to a fund."

"We have been doing this kind of [transfer of wealth] analysis all over the country," Macke adds. "One of the things we've found -- an important start of the conversation -- has been for us to watch places who have used this information. Montana, Ohio, Indiana, Wisconsin -- states that struggled before the recession -- have done a remarkable job of using this research to begin a discussion."

Three pilot communities have begun to work towards this new approach to local philanthropic community building: Unity, Strong and Rockport. To read the full report of "Realizing Maine's Worth" or to learn more about the pilot programs visit <www.mainerural.org>.