Finding the hidden millions in Minnesota’s small towns

Extension offers county-specific data about wealth that could reshape rural communities.

Minnesota’s baby boomers are preparing to hand down their collective wealth and assets — a whopping $61 billion (that’s billion with a B) — during the next 10 years. 

University of Minnesota Extension educator and rural sociologist Ben Winchester believes that where those billions go could make a huge difference to communities for generations to come.

“Most communities have no idea how much wealth resides in their midst,” Winchester says. “Philanthropic giving represents the greatest underdeveloped financial resource a community can mobilize — and now is the time for communities to start talking about it.”

This massive transfer of wealth is expected to peak in Minnesota by 2040, which is why Winchester and colleagues in Extension’s Community Development department have analyzed and compiled wealth data for every county in the state so that communities can set themselves up for success. 

The Transfer of Wealth Opportunity Analysis (PDF) for Pine County, for example, shows current household net worth at a collective $6.56 billion, with an estimated $275 million to be handed down in 10 years. Capturing just 5% of that 10-year number would create more than $13.7 million in new endowments for grant-making, totaling more than $16.4 million, which could be invested and used to support local housing, business incubators and nonprofit capital projects. 

“A hundred years ago, small-town kids would stick around town or continue to farm or live on the lake,” Winchester says. “Today, many kids no longer continue to live in rural communities. So how do we ensure there’s a thriving community left for those who stay — and for those who move to town?”

Winchester says creating community infrastructure is important for addressing the phenomenon known as brain gain — newcomers in their 30s and 40s who are relocating to rural Minnesota communities in search of a lower cost of living, easier access to natural lands, a slower pace of life and a stronger sense of community.

“Those are the people who are moving into the homes of baby boomers — in many cases bumping up the households from 1-2 people to 3-5 people,” Winchester says. “As a new generation arrives in these communities, they’ll need investments in schools, recreation, housing, streets, businesses, hospitals and more. We have to get past this myth that small towns are dying.”

Capturing 5%

Before boomers pass on billions of dollars in assets, Winchester and others are urging communities to capture just a fraction of that wealth, with a recommended goal of 5%, to keep rural communities healthy and vibrant.

“Traditional sources of funding from local, state and federal entities are never guaranteed,” Winchester says. “If communities, urban and rural, retained 5% of $61 billion, that’s $3 billion.”

Capturing this transfer or wealth isn’t just a rural Minnesota issue. In Hennepin County (PDF), $16 billion will change hands in the next decade, according to Extension’s analysis. Meanwhile, organizers in Iowa, Nebraska and Kansas have already developed strategies for keeping their wealth local, with similar efforts focusing on capturing 5% of residents’ wealth for future community improvements. 

Where would the money go?

Of course, not every city or county offers easy ways for baby boomers to donate 5% of their wealth, Winchester says. To get the conversation going, Winchester and his team at Extension are urging communities to check out their counties’ transfer of wealth reports — regional reports are also available — and to start talking about the future.

Wealth-capturing opportunities might include partnerships with nonprofits or community foundations. 

“If your community doesn’t have a foundation, you could discuss establishing one or partnering with one in your region,” Winchester says. Extension educators are available to assist communities in these kinds of conversations, he says. 

In Minnesota, many communities have already established structures for rural charitable giving, such as the Game Changers nonprofit organization in Hackensack, which works to enhance city life with projects focused on housing, clean energy, community spaces, beautification and more. 

Game Changers Treasurer Kris Biessener says volunteers with the organization join various teams to fundraise for specific causes, often writing requests for privately funded grants. A sports court team recently raised $68,000 to add new tennis and pickleball courts. A housing team raised $150,000 to go toward the purchase of land for a new development. 

“Over the past five years, our teams have fundraised and implemented over $245,000 in infrastructure improvements for our community,” says Biessener, who works as a real estate agent. “I’m proud to be a part of that.”

The power of endowments

“In 10 years, we could be giving out up to $10 million a year — forever — through endowed funds.” 

Game Changers raises funds as a 501(c)3 and accepts grants from the Hackensack Lakes Area Community Foundation (HLACF) — one of many funds with the 14-county Central Minnesota Initiative Foundation. For a small fee, the group manages an endowment for HLACF. Five other foundations serve the remainder of rural Minnesota.

“They take care of all the hard stuff, including the 501(c)3 donation receipts and managing the investments,” Biessener says. “They do the taxes.”

Biessener says local donors can give to the HLACF endowment, knowing their money will support a growing base of investment profits that can be used to grant money to new projects every year. 

Endowment funds are an important part of charitable giving at the Brainerd Lakes Area Community Foundation, which started in 1998, says Executive Director Terri Foster.

“Founders of our foundation wondered: How can we make giving easier? How can we make sure our community is thriving for a long time?” Foster says. “Our baby boomers and residents of rural Minnesota are generous and want to give, but they are unaware that an easy vehicle exists. Donating all or a portion of non-cash assets, which are many times more tax advantageous to give than cash, is a great way for donors to receive some potential tax benefits.”

Since its early days, the Brainerd Lakes Area Community Foundation’s reach and endowment have grown. For the past three years, the foundation, along with fund partners, has been able to grant more than $1 million a year. The foundation is a partner of St. Cloud-based CommunityGiving, which supports community foundations around the state, including assisting with tax-smart charitable giving for people who want to give stock, invested funds, real estate or even business assets such as farm equipment.

Donor support and the partnership with CommunityGiving have boosted the local foundation’s success, Foster says: “In 10 years, we could be giving out up to $10 million a year — forever — through endowed funds.” 

Though those numbers may sound impossibly large for smaller communities, Winchester says starting the conversation about charitable giving in local communities is a first step. Small donations over time can make a big difference. 

“If your community has a spaghetti feed, you want to get to the point where you’re not fundraising annually for the feed, but instead asking for funds for an endowment — so that the spaghetti feed can last 100 years,” Winchester says. “But to capture the baby boomer legacy, you have to create awareness and structures for giving now.” 

Removing barriers for individuals

Foster says individuals who want to get involved in charitable giving may underestimate their ability to give. 

“For most people, 93% of wealth is held in non-cash assets,” she says. “What we’re seeing now is a lot of folks selling real estate or businesses and donating a portion of the asset, prior to selling, to a charitable fund or directly to a community foundation.” 

Foster says donors can simplify a will or a trust, and instead have some of their estate gifts flow directly to a donor-advised fund, an increasingly popular option in recent years to allow more flexibility and typically no fees to make changes to which charities receive support.

Foster says donors should look beyond a will or a trust and instead explore donor-advised funds (DAFs), which have become more popular in recent years. 

“A donor-advised fund is a way for you to have a mini foundation that can carry on after you pass,” says Foster.

Charitable giving is also a way for individuals to take strategic steps to maximize tax breaks for themselves and their heirs, such as exploring gifting options from annuities or minimizing capital gains tax when a home or business is sold.

Because most people aren’t experts in estate planning and charitable giving, many community foundations in the state partner with attorneys and accounting advisors to offer free estate planning ideas and workshops for individuals. 

“Anyone can support their favorite charities, and gifts can be as unique and personal as the donors themselves,” Foster says. “If a community were to capture just 5% of the transfer of wealth, they can go beyond fundraising to meet immediate needs and really dream and invest in creating a community that can thrive for generations.” 

Learn more about this topic and how to contact Ben Winchester on Extension’s transfer of wealth page.