Iowa Wealth Transfer and Projected Wealth Transfer

Transcription

1 Iowa Wealth Transfer and Projected Wealth Transfer Sandra Charvat Burke and Mark A. Edelman Findings This study highlights the wealth transfer that was recorded in Iowa and its counties during along with wealth transfer that is projected to occur during a fifty-year period in the future. Probate records of wills and estates of decedents are the basis for the analysis. The purpose is to increase understanding about actual wealth transfer in Iowa using data from state and county records and to examine variations across the state and among the counties. This study finds that: During the period, Iowa s probated estates annually averaged $574,067 statewide (Figure 1, Table 1). Nine counties exceeded $800,000 in average estate value during the five year period while the figures for seven counties were lower, on average, than $400,000. It is estimated that annually, Iowa averaged $7.805 billion in total wealth transfer during 2008 through 2012 (Figure 3, Table 2). Polk County s estimated annual average total was highest ($622.8 million) and Decatur County s annual average total was lowest ($11.7 million). In general, the annual total transfer amounts varied by the population size of the county. Wealth transfer for Iowa is projected to be $824.4 billion for the fifty-year period between 2010 and 2059 (Figure 5, Table 3). Statewide, 22.6% of the 50-year transfer could be expected in the first 20 years. Counties with an older age structure are projected to have a higher proportion of transfer in the earlier part of the 50 years (Figure 7, Table 3).

2 Introduction Wealth, generally described as assets, money, valuable resources, material possessions, property, and things of value, is passed to others when the owner dies. Guidelines for how and to whom this transfer of wealth should proceed is often written in wills, estate or trust plans, and other documents that are prepared while the decedent is still living. The Community Vitality Center has carried out an analysis of wealth transfer in Iowa and its counties for the period of 2008 through The goal of this study is to increase understanding about actual wealth transfer in Iowa and to examine variation in wealth transfer among the counties. What is reported here is a new study that follows a similar analysis carried out previously for the period 1998 through Data from both studies are included in the tables. The Study Probate records of wills and estates of decedents that were filed with Iowa s Probate Court are the basis for this analysis. Iowa is, perhaps, uniquely situated to examine wealth transfer using these types of records. The probate records for a decedent in Iowa show the various court fees paid by the estate. One of these fees is an estate settlement fee that is based on the value of the decedent s estate. The fee is determined by a formula outlined in the Iowa Code (Section ) and is roughly proportional to the value of the estate. There is no maximum or cap to the fee, thus the values of even large probated estates can be calculated based on the estate settlement fee. Table 1. Annual Average Wealth Transfer per Recorded Probated Estate, and , 2 Change in Adjusted for Inflation Average Wealth Transfer per Recorded Probated Estate, to , Iowa Counties. Annual average wealth transfer per recorded probated estate, Change adjusted for inflation, to adjusted for inflation to $ 2010 Annual average wealth transfer per recorded probated estate, County $ 3 Rank % $ change $ 2010 $ 3 Rank Adair 718, , , , Adams 766, , , , Allamakee 522, , , , Appanoose 337, , , , Audubon 691, , , , Benton 583, , , , Black Hawk 504, , , , Boone 632, , , , Bremer 602, , , , Buchanan 595, , , , Buena Vista 795, , , , Butler 681, , , , Calhoun 755, , , , Carroll 713, , , , Cass 659, , , , Cedar 652, , , , Cerro Gordo 577, , , , Cherokee 647, , , , Chickasaw 627, , , , Clarke 407, , , , Clay 664, , , , Clayton 543, , , , Clinton 386, , , , Crawford 487, , , , Dallas 715, , , ,010 9 Davis 413, , , , Decatur 367, , , , Delaware 668, , , , Des Moines 458, , , , Dickinson 779, , , , Dubuque 401, , , , Emmet 632, , , , Fayette 545, , , , Floyd 606, , , , Franklin 761, , , , Fremont 741, , , , Greene 895, , , ,780 8 Grundy 897, , , , Guthrie 730, , , , Hamilton 955, , , , Hancock 654, , , , Hardin 674, , , , Harrison 588, , , , Henry 556, , , , Howard 486, , , , Humboldt 829, , , , Ida 900, , , , Iowa 549, , , , Jackson 451, , , , Jasper 505, , , , analysis carried out in 2016; 2 previously reported from analysis carried out in 2004; 3 current dollars of the year of probate, not adjusted for inflation page 2 Community Vitality Center

3 Table 1. Annual Average Wealth Transfer per Recorded Probated Estate, and , Change in Adjusted for Inflation Average Wealth Transfer per Recorded Probated Estate, to , Iowa Counties (continued). Annual average wealth transfer per recorded probated estate, Change adjusted for inflation, to adjusted for inflation to $ 2010 Annual average wealth transfer per recorded probated estate, County $ 3 Rank % $ change $ 2010 $ 3 Rank Jefferson 556, , , , Johnson 732, , , ,526 5 Jones 636, , , , Keokuk 754, , , , Kossuth 793, , , ,818 4 Lee 428, , , , Linn 502, , , , Louisa 412, , , , Lucas 423, , , , Lyon 648, , , , Madison 516, , , , Mahaska 457, , , , Marion 566, , , , Marshall 587, , , , Mills 735, , , , Mitchell 725, , , , Monona 536, , , , Monroe 406, , , , Montgomery 488, , , , Muscatine 515, , , ,432 2 O'Brien 808, , , , Osceola 461, , , , Page 587, , , , Palo Alto 802, , , ,343 3 Plymouth 714, , , , Pocahontas 827, , , , Polk 506, , , , Pottawattamie 446, , , , Poweshiek 753, , , ,393 1 Ringgold 592, , , , Sac 796, , , , Scott 414, , , , Shelby 705, , , , Sioux 903, , , , Story 715, , , ,934 6 Tama 639, , , , Taylor 395, , , , Union 394, , , , Van Buren 482, , , , Wapello 323, , , , Warren 455, , , , Washington 585, , , , Wayne 621, , , , Webster 580, , , , Winnebago 744, , , , Winneshiek 466, , , , Woodbury 314, , , , Worth 741, , , , Wright 786, , , ,297 7 State of Iowa 574, , , ,425 1 analysis carried out in 2016; 2 previously reported from analysis carried out in 2004; 3 current dollars of the year of probate, not adjusted for inflation Computerized output files of probate records for each county for the years of 2008 through 2012 were obtained from the Iowa Court Information System. 1 The county records are based on the location where the decedent s will and other estate records were filed. The probate information in each record in the output file included the estate settlement fee paid for the estate of each decedent. The Iowa Legislature, which determines the estate settlement fees, changed the formula for the fees in mid Thus, for this study, two different formulas were used based on the year and date of the probate records. In general, for records from 2008 through mid 2009 (as well as records from the earlier study in 2004), each $100,000 value of an estate was assessed a fee of $100. For example, an estate settlement fee of $1,000 was roughly equal to an estate of one million dollars during those years. From mid 2009 onward through all of 2012, the fees were approximately doubled. Thus, for these later years, a fee of $1,000 was roughly equivalent to an estate of $500,000 and an estate of one million dollars would have a fee around $2,000. Using the estate settlement fee reported for each decedent s estate, along with the appropriate formula from the Iowa Code, a value of the estate for each decedent was calculated. Across the five years of decedent records, there were many year-to-year variations for a given county. To smooth out these variations, the findings given here in the tables and figures report the annual averages over the five-year period. Community Vitality Center page 3

4 Wealth Transfer per Estate For each county, the estate values from each decedent were summed to get a total estate value for the county for the years The county totals were summed to get a statewide estate value total. The average estate values were calculated by dividing the total summed estate value by the number of probated estates to get an annual average estate value centered on the mid-year, 2010, of the five years. For the period, Iowa s probated estates annually averaged $574,067 statewide (Figure 1, Table 1). Fifty-nine counties had average estate values higher than the statewide figure. There were three counties (Hamilton, Ida, Sioux) that exceeded $900,000 in average estate value. Hamilton County s average estate across the five years was $955,712 and ranked highest in the state. Probated estates averaged less than $400,000 in seven counties. Those for Woodbury ($314,483), Wapello ($323,954) and Appanoose ($337,036) ranked the lowest. Although the dollar amounts vary, there is a clustering of higher estate counties in north central and north western Iowa and another clustering of lower estate counties in southern Iowa (Figure 1). Local county factors such as housing, land, farm, and real estate values provide variations in net worth and wealth among the counties that, along with occupational and income levels over a lifetime, provide the basis for net worth and average estate value variations among the counties. Adjustment for Inflation Because of inflation of prices over time, financial or income data reported in dollars from one period of time are usually not equivalent in purchasing power to those data from another time period. Direct comparison of dollar values across time can be misleading because the value and purchasing power of those dollars have changed. This comparison problem is remedied by adjusting a given year s dollar values to account for inflation during the comparison period. In order to compare estate values between the two study periods, the annual average wealth transfer per probated estate for the counties in the earlier study ( , centered on the year 2000) have been adjusted using a Consumer Price Index from the Bureau of Labor Statistics (CPI-U) 2 to dollar values of 2010, the center year of the new study (Table 1). Between the two time periods, after adjusting for inflation, average estate values increased 65.2% statewide. All the counties experienced increases as well (Figure 2, Table 1). It is clear, however, that some counties had a large change in average estate value while other counties experienced relatively small gains. Eleven counties had at least a 125% increase in average estate value. Adams (+163.5%) and Ida (+161.6%) Counties noted the largest gains. These counties contrast with Muscatine (+5.4%) and Dubuque (+9.0%) Counties for which gains were less than 10 percent. page 4 Community Vitality Center

5 Total Wealth Transfer The total wealth that has been transferred can be estimated by summing the individual estate values. For this study, the estimated total of wealth transfer includes the summed estate values plus an adjustment, using the average estate size for each individual county, for missing probate data. The sum of all five years of transfer was divided by five to get an annual average centered on the year A similar process was used in the earlier study to get an annual average centered on the year It is estimated that each year during 2008 through 2012, Iowa decedents transferred, on average, $7.805 billion in their estates (Figure 3, Table 2). Polk County averaged the highest wealth transfer total of any county with estimated transfers annually averaging $622.8 million. Linn County had the second highest annual total transfer with $325.9 million and was joined by Black Hawk, Johnson, and Scott Counties with at least an estimated $200 million transferred annually in each. These counties are all metropolitan counties with large cities. In contrast, Decatur County s $11.7 million annual total transfer was the lowest amount of any county. Clarke, Davis, Lucas, Monroe, Ringgold, and Taylor Counties also were below $20 million in estimated annual total wealth transfer (Figure 3, Table 2). The county ranks for total annual transfer amounts (Table 2) varied, in general, by the population size of the county. Many of the counties with the lower amounts of annual transfer are those that are relatively rural with small populations. The counties with the large cities that have more people also have more deaths, more probated estates, and thus more estates to include in the total sum of wealth transfer. In order to compare the total wealth transfer amounts between the two study periods, the annual average total transfer for each county in the earlier study was adjusted, as before, to dollar values of 2010 using the CPI-U 2 (Table 2). Statewide, after inflation adjustment, the average annual total wealth transfer increased by 24.9% between the two study periods. Two counties (Delaware, 123.8%; Jones, 102.0%) recorded gains greater than 100%. For 14 counties, however, the total wealth transfer did not keep up with inflation across the 10 year period between the two studies. For some of these counties, the decline after inflation adjustment was fairly modest, but six of them had declines greater than 10 percent. Three (Dubuque, -27.0%; Jasper, -25.8%; Mahaska, -21.8%) recorded more than a 20% decline after inflation was taken into consideration (Figure 4, Table 2). Community Vitality Center page 5

6 Projected Wealth Transfer An additional part of this wealth transfer study is the projection of wealth transfer that may occur in the future. The projections reported here build on and utilize the actual wealth transfer recorded in the probate records during 2008 through 2012 and reported in Tables 1 and 2. The projection process also uses the age structure of each county reported in Census 2010, 3 a life table of mortality by age for 2010, 4 and an assumed future real growth rate of 2% annually. The life table provided rates to calculate both the deaths and survivors for each five-year age group reported for each county in Census The process involves first determining deaths for the age groups at the starting year (2010) and then applying the mortality rates successively for each survivor group, as they age, through the next 50 years. This process was utilized to project the number of expected deaths, based on the initial age data in 2010 for each county, for each five-year period through Estimated wealth transfer per death for the initial projection year of 2010 was calculated from the total wealth transfer. The transfer per death was multiplied by the number of deaths expected for 2010 to get the total wealth transfer in the first year. Then the wealth transfer per death was increased by two percent real growth and that new figure was multiplied by the deaths expected in the second year for the total wealth transfer in the second year. The wealth transfer per death was again increased by two percent and multiplied by the deaths expected in the third year. This process was repeated for the full 50 year Table 2. Estimated 1 Annual Average Total Wealth Transfer, and , 3 Change in Adjusted for Inflation Annual Average Total Wealth Transfer, to , Iowa. Annual average total wealth transfer, $ Millions, Change adjusted for inflation, to adjusted for inflation to $ 2010 Annual average total wealth transfer, $ Millions, County Millions 4 Rank % Millions Millions Millions 4 Rank Adair Adams Allamakee Appanoose Audubon Benton Black Hawk Boone Bremer Buchanan Buena Vista Butler Calhoun Carroll Cass Cedar Cerro Gordo Cherokee Chickasaw Clarke Clay Clayton Clinton Crawford Dallas Davis Decatur Delaware Des Moines Dickinson Dubuque Emmet Fayette Floyd Franklin Fremont Greene Grundy Guthrie Hamilton Hancock Hardin Harrison Henry Howard Humboldt Ida Iowa Jackson Jasper adjusted for missing probate data using average estate values for each county individually; 2 analysis carried out in 2016; 3 previously reported from analysis carried out in 2004; 4 current dollars of the year of probate, not adjusted for inflation page 6 Community Vitality Center

7 Table 2. Estimated 1 Annual Average Total Wealth Transfer, and , 3 Change in Adjusted for Inflation Annual Average Total Wealth Transfer, to , Iowa (continued). Annual average total wealth transfer, $ Millions, Change adjusted for inflation, to adjusted for inflation to $ 2010 Annual average total wealth transfer, $ Millions, County Millions 4 Rank % Millions Millions Millions 4 Rank Jefferson Johnson Jones Keokuk Kossuth Lee Linn Louisa Lucas Lyon Madison Mahaska Marion Marshall Mills Mitchell Monona Monroe Montgomery Muscatine O'Brien Osceola Page Palo Alto Plymouth Pocahontas Polk Pottawattamie Poweshiek Ringgold Sac Scott Shelby Sioux Story Tama Taylor Union Van Buren Wapello Warren Washington Wayne Webster Winnebago Winneshiek Woodbury Worth Wright State of Iowa 7, , adjusted for missing probate data using average estate values for each county individually; 2 analysis carried out in 2016; 3 previously reported from analysis carried out in 2004; 4 current dollars of the year of probate, not adjusted for inflation projection period. The wealth transfer projected for each year for each county was summed to get the transfer projected by county for each decade and then for the entire fifty year period of 2010 through The statewide figure is the sum of the county wealth transfer projections. This process resulted in a projected wealth transfer for Iowa of $824.4 billion between 2010 and 2059 (Figure 5, Table 3). Among Iowa s counties, the fifty-year projected wealth transfer ranged from $963.3 million for Decatur County to almost $86.3 billion for Polk County. Linn ($42.5 billion), Johnson ($39.2 billion), and Scott ($27.8 billion) Counties have the next highest projected fifty-year transfers following Polk County. Decatur County s fifty-year transfer was the only one projected to be less than a $1 billion, but nine others were less than $2 billion. The fifty-year wealth transfer findings are strongly related 5 to the population size of the counties. Counties with the smallest populations in 2010 have the lowest projected wealth transfers across the fifty years. Polk County and other large metropolitan counties have the highest wealth transfer projections. The wealth transfer projections are reported for the total fifty-year period as well as for each decade between 2010 and 2059 (Table 3). Because the projections incorporated an assumed annual real growth rate of two percent, the statewide projection ($75.18 billion) for the first decade ( ) was smaller than that for the second decade ($ billion, ). The compounding effect accelerated the amount of transfer expected at each decade. For example, Polk County s projected transfer for the first decade of $5.91 billion was Community Vitality Center page 7

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9 projected to be more than $31 billion by the fifth decade (Table 3). The uneven distribution of wealth transfer across the decades reflects compounded real growth, but, for the individual counties, the expected transfer by decade is affected by the age structure as well. Some of Iowa s counties, such as Ringgold County, have a significantly older age structure with larger proportions of older residents than do other counties. In contrast, counties such as Dallas have a very young age structure (Figure 6). The percent of the total projected transfer is reported for each decade of the period. Statewide, approximately 22.6 percent of the fifty-year transfer would be expected in the first 20 years with the remaining 77.4 percent expected in the final 30 years (Figure 7, Table 3). The counties with a larger proportion of older residents at Census 2010 were projected to have a higher proportion of deaths in the earlier part of the fiftyyear projection period than those counties with a younger age structure. Most of Iowa s counties (80) were projected to have a higher proportion of wealth transfer in the first 20 years than the statewide figure of 22.6%. Twenty-six counties could expect at least 26 percent of the projected transfer during the first 20 years. Among these, Ringgold, Calhoun, Monona, and Audubon were the highest (Table 3). In general, these counties are relatively rural with small populations. In contrast, the projections for Iowa s metropolitan counties showed lower proportions in the first 20 years. Less than 21 percent of the projected wealth transfer would occur in Dallas, Johnson, Polk, Linn, Scott, Story, Woodbury, Warren or Mills Counties from 2010 to 2029 (Table 3). One final word regarding these wealth transfer projections. Any type of future prediction or projection involves assumptions about what future trends may be. Some of the assumptions used in a projection method may turn out to be faulty. In addition, the shorter term scenarios are more likely to be accurate than those that go further out into the future. Overall, any set of projections, including those reported here, should be used with caution. This report on the wealth transfer study and additional reports on other analyses that will follow will be available on the Community Vitality Center web site at: as well as on the Iowa State University Extension and Outreach Indicators Portal at: Community Vitality Center page 9

10 Table 3. Projected Wealth Transfer ($ Millions 1 ) and Percent of 50-year Transfer by Decade, Iowa Counties, County $ Millions $ Millions % $ Millions % $ Millions % $ Millions % $ Millions % Adair 2, Adams 2, Allamakee 3, , Appanoose 1, Audubon 2, Benton 9, , , , , Black Hawk 23, , , , , , Boone 9, , , , , Bremer 9, , , , , Buchanan 6, , , , Buena Vista 8, , , , , Butler 6, , , , , Calhoun 5, , , , Carroll 7, , , , , Cass 5, , , , Cedar 8, , , , , Cerro Gordo 13, , , , , , Cherokee 5, , , , Chickasaw 6, , , , Clarke 1, Clay 6, , , , Clayton 5, , , , Clinton 11, , , , , , Crawford 4, , , Dallas 21, , , , , , Davis 1, Decatur Delaware 7, , , , , Des Moines 7, , , , , Dickinson 9, , , , , , Dubuque 11, , , , , , Emmet 3, Fayette 6, , , , Floyd 6, , , , , Franklin 5, , , , Fremont 3, Greene 5, , , , Grundy 7, , , , , Guthrie 5, , , , Hamilton 9, , , , , Hancock 5, , , , Hardin 8, , , , , Harrison 4, , , Henry 5, , , , Howard 2, Humboldt 7, , , , , Ida 3, , Iowa 5, , , , Jackson 6, , , , Jasper 7, , , , , $1,000 Millions = $1 Billion page 10 Community Vitality Center

11 Table 3. Projected Wealth Transfer ($ Millions 1 ) and Percent of 50-year Transfer by Decade, Iowa Counties, (cont) County $ Millions $ Millions % $ Millions % $ Millions % $ Millions % $ Millions % Jefferson 4, , , Johnson 39, , , , , , Jones 8, , , , , Keokuk 5, , , , Kossuth 8, , , , , , Lee 6, , , , Linn 42, , , , , , Louisa 3, Lucas 1, Lyon 5, , , Madison 4, , , Mahaska 5, , , , Marion 7, , , , , Marshall 10, , , , , Mills 5, , , , Mitchell 5, , , , Monona 2, Monroe 1, Montgomery 2, Muscatine 12, , , , , , O'Brien 7, , , , , Osceola 2, Page 4, , , Palo Alto 4, , , Plymouth 11, , , , , , Pocahontas 5, , , , Polk 86, , , , , , Pottawattamie 14, , , , , , Poweshiek 7, , , , , Ringgold 1, Sac 5, , , , Scott 27, , , , , , Shelby 4, , , Sioux 17, , , , , , Story 24, , , , , , Tama 7, , , , , Taylor 1, Union 2, Van Buren 1, Wapello 4, , , Warren 8, , , , , Washington 8, , , , , Wayne 1, Webster 10, , , , , Winnebago 4, , , Winneshiek 4, , , Woodbury 10, , , , , Worth 4, , , Wright 7, , , , , State of Iowa 824, , , , , , $1,000 Millions = $1 Billion Community Vitality Center page 11

12 Acknowledgments The authors wish to thank and recognize the organizations in Iowa that have contributed to this current wealth transfer study. Without their support and financial contributions this new study would not have been possible. The organizations include: The Mid-Iowa Planned Giving Council; Iowa State University s Extension and Outreach to Communities and Economic Development; Iowa Farm Bureau Federation; Community Foundation of Greater Des Moines; South Central Iowa Community Foundation; Iowa Area Development Community Foundation; Community Foundation of Northeast Iowa; Greater Cedar Rapids Community Foundation; Community Foundation of Greater Dubuque; Jones County Community Foundation; Jackson County Community Foundation; Foundation for the Future of Delaware County; Allamakee County Community Foundation; Greater Poweshiek Community Foundation; and the Iowa State University Foundation. Notes 1 Probate records are part of Iowa s publically available court records. Court records can be accessed online through the judicial branch of Iowa s government at: or by special request. 2 Bureau of Labor Statistics, (CPI-U), 3 Decennial Census 2010, 4 United States Life Tables, 2010 National Vital Statistics Report, Volume 63(7), National Center for Health Statistics 5 correlation coefficient Sandra Charvat Burke 181 Heady Hall Iowa State University Ames, IA scburke@iastate.edu October, and justice for all The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, age, disability, and where applicable, sex, marital status, familial status, parental status, religion, sexual orientation, genetic information, political beliefs, reprisal, or because all or part of an individual s income is derived from any public assistance program. (Not all prohibited bases apply to all programs.) Persons with disabilities who require alternative means for communication of program information (Braille, large print, audiotape, etc.) should contact USDA s TARGET Center at (voice and TDD). To file a complaint of discrimination, write to USDA, Director, Office of Civil Rights, 1400 Independence Avenue SW, Washington, DC , or call (voice) or (TDD). USDA is an equal opportunity provider and employer. Issued in furtherance of Cooperative Extension work, Acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of Agriculture. Cathann A. Kress, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa