Chapter 6: Charitable bequests Dr Christopher Baker

Chapter 6: Charitable bequests

Dr Christopher Baker

Social influence

The French sociologists Durkheim (1858–1917) and Mauss (1872-1950) helped lay the theoretical foundations for our understanding of social solidarity and its influence in relation to many societal phenomena, including inheritance. It was in 1883 that Durkheim (1964) theorised that social ‘solidarity’ is fundamental to the effective functioning of a society. He subsequently argued that the power of obligations to family and within family is especially clear in the expectations that accompany a deceased estate transitioning to the new beneficiaries:

‘… we are all so well-conditioned, so accustomed to it, that the prospect of hereditarily transmitting the fruits of our labour has become the preeminent force behind our activity.’ (Durkheim 1978, 236)

Mauss (1990) subsequently argued that gifts play a major role in establishing and maintaining social bonds and, as such, gifts and their exchange are key to the realisation of social solidarity. Establishing that gifts do not and cannot take place in isolation, Mauss described gifts as ‘“total” social phenomena’ (1990, 76) governed by the complex interaction of societal norms and an ever-evolving network of obligations of giving, receiving and reciprocating. For Mauss, giving inevitably involves a combination of altruism and self-interest which varies with the individuals involved, and with the time and social and economic context in which the exchange takes place.

More recent theoretical contributions on the importance of relationships, trust and reciprocal obligations to inheritance and bequest behaviours in the context of the functioning of society include Sahlins (1972) and Gouldner (1973), who point to the power of culture to motivate individual behaviour and to the fundamental role played by giving and reciprocity in forging and maintaining effectively functioning societies. In relation to contemporary Western society, Kompter and Vollebergh (1997) found that familial giving obligations remain strong, as giving to non-family has not displaced giving to family. Like Mauss, Kompter (2007) also argues that the ‘moral meaning’ of gifts and their ‘conscious and unconscious motives’ vary according to the gift itself and the context in which it is given.

By way of example, an analysis of charitable giving from 17^th century Wills in England provides insights into the extent to which bequest giving was influenced by prevailing social norms in the early 1600s:

‘Perhaps it is not that individuals derive utility from the act of giving, but rather that they derive utility from being perceived of as a generous, compassionate, and philanthropic individual. In the case of wills, individuals give to charity in order to influence how they will be remembered.’ (McGranahan 2000, 1289)

Social influences have also been shown to affect the nature and scale giving to charity. Field experiments conducted in the United States (US) demonstrate that people tend to adjust the amount they give according to the amount that they believe is given by others (Shang and Croson 2009). Others have similarly found that social influence and the perceived behaviours of others influences the amount given in a particular context, and that this amount is largely independent of the individual donor’s personal income or wealth (Shang, Reed and Croson 2008; Wiepking and Heijnen 2011).

Nevertheless, what people say they intend to do is not necessarily the same as their actual behaviour. Reliance on individuals’ self-reporting on their charitable giving is subject to the general risk of socially desirable responding (Paulhus and Reid 1991). This is the tendency for individuals to give responses they believe are socially desirable, how they believe they ‘should’ behave, as opposed to how they might actually behave (Edwards 1982). The tendency for socially desirable responding has been found to be active in surveys of personal charitable giving (Andreoni 2006; Breeze 2005):

‘It is notoriously hard to extract honest answers from people on an issue as charged as personal generosity, because lies and exaggeration are tempting and difficult to detect.’ (Breeze 2005, 2)

In relation to what this might mean for surveys of charitable bequest intentions, a longitudinal study in the US found less than half of the respondents who reported that they would make a charitable bequest one year before they died actually did so (James III 2009). Socially desirable responding is one of the contributing factors to this discrepancy; the Will-maker running out of assets and having nothing left to give is another.

Examination of probate, how estates have been distributed after the Will-maker’s death is one way of studying what individuals have actually done in relation to the distribution of their estates and associated charitable bequests. Probate data do, however, have their own limitations, including that large estates are often underrepresented given the propensity for the wealthy to hold their wealth in structures other than their personal estates, and that probate files provide a snapshot of a particular generation and provide no insights into motivation or past giving.

Changing attitudes and consistent behaviours

During life, parents often provide differential levels of financial support to their children, based on the relative need of the individual child (Chang 2007; Dunn and Phillips 1997). This tends not to be the case when it comes to the distribution of family estates. Researchers in Western nations have consistently found the standard pattern in estate distribution is for the first partner of a couple to leave their personal estate to their spouse, and for the surviving spouse to subsequently leave the estate to the children, in full and in equal share (Finch and Mason 2000; Menchik and David 1983; O'Dwyer 2001). There are exceptions to this prevailing norm of ‘eEqual dDistribution’ of estates to children, such as in relation to business assets (Mulholland 2003), especially the family farm (Barclay, Foskey and Reeve 2007).

There is evidence which indicates the attitudes of older members of society may be changing in relation to the traditional expectations of inheritance as being a form of entitlement. In the United Kingdom (UK) a strong consensus remains in relation to parental obligations to their children (Finch and Mason 1991). The same researchers found widespread agreement across generations that parents are entitled to dispose of their home and other assets as according to their own wishes—that an inheritance should not be viewed as an expected right (Finch and Mason 2000). Others have found a strong move among older Britons away from the view that children have ‘an inalienable right’ to inherit the assets of their parents (Rowlingson 2006, 182) and that most with potential to pass on assets indicate they would not overly worry about leaving an inheritance, but be prepared to spend down their assets in enjoying their lives (Rowlingson and McKay 2005).

In Australia the practice of equal distribution of estates to the children was already the prevailing norm among colonial-era non-farmers (Ferry 1999). In contemporary Australia while older Australians continue to support the principle of equal distribution, surveyed individuals have indicated they are prepared to deviate from the equal distribution norm in response to circumstances (Drake and Lawrence 2000). Inheritance (and the act of estate transfer) has been found to be widely regarded as the final act in a relationship; an act that is highly personal, while at the same time being both public and private, as well as formal and legal (Drake 2007). Another Australian study has found evidence of an attitudinal shift emerging among older Australians away from an attitude of self-sacrifice to preserve assets so that they can be passed on to the children, towards an attitude of greater self-interest—such that ‘the desire to bequeath assets to the next generation seems to be significantly diminishing’ (Olsberg and Winters 2005, 90). Nevertheless, the extent to which this expressed view is converting to greater spending and less bequeathing has yet to be verified.

Testamentary freedom

An important theme in the literature is that of ‘testamentary freedom’. This is the notion that Will-makers (testators) should be free to determine what to do with their estate assets. This belief in the right of the property owner to decide is an important underpinning to inheritance practices in many nations, including the US, the UK and Australia.

In Australia the potential for the intent of a Will-maker to be thwarted if appropriate professional advice is not taken is highlighted by research into the practical operation of family provision laws as they relate to charitable bequests. While the original purpose of family provision law in Australia was to enforce the proper maintenance and support of a Will-maker’s spouse and children, in many state jurisdictions in Australia this purpose has been effectively obscured (McGregor-Lowndes and Hannah 2008). Analysis of court challenges to bequests to charitable organisations found such challenges have become increasingly successful, as the courts have consistently upheld family provision as against all other bequests, to the point that testamentary freedom in Australia has been found to be under serious challenge (McGregor-Lowndes and Hannah 2008, 5). Adult children are the most common claimants, utilising family law provision legislation, and while need is a common cause a sense of entitlement and greed have been found to be equally common (Tilse et al. 2015a).

Wealth, tax and charitable bequests

The relationships between wealth and giving have been investigated, especially from an economic context. In the day-to-day giving has been found to follow a ‘U-shaped curve’ (Banks and Tanner 1997; James III and Sharpe 2007), whereby giving as a proportion of income is highest for low-income earners and again for high-income earners. On the other hand, researchers in both the US (Brooks 2006; Huge and Yang 1994) and the UK (Egan 2001) have found that it is low-income earners who tend to give a higher proportion of their earnings. This relative generosity by low-income earners as a whole has been found to be distorted by a small number of committed individuals who are asset-rich (wealthy) while being income-poor and, as such, have the capacity to gift a larger proportion of their income because of their underpinning wealth (James and Sharp 2007).

These differences highlight the importance of differentiating between income and wealth. The two are different measures; they are interrelated and the existence of underlying wealth may distort measures that rely on income alone. This difference is of particular significance when considering regular, day-to-day giving, which in most circumstances is sourced from income, whereas bequest giving is made from accumulated wealth—from capital: ‘Day-to-day charitable giving is made from income; charitable bequests are made from capital’ (Baker 2014, 23).

Analysis of distributed estates in the US shows that in that country, as the value of estates increase so too on average does the proportion given to charitable purposes (Clotfelter 1985; Havens and Schervish 1999; Schervish, Havens and Whitaker 2006). The trend of larger proportions being gifted from larger estates is supported by an analysis of US federal tax returns which found 43% of all charitable bequest dollars were made from just over 1% of the 16,000 examined (Schervish, Havens and Whitaker 2006).

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