Wealth does not pass three generations

[ncbill]

Right. And as we both note, an additional $100K is hardly what one would call 'wealth' let alone a wealth transfer.

Even if someone flat broke received a windfall of $100K or $200K I doubt they'd suddenly consider themselves 'wealthy'...fortunate for sure and perhaps 'flush'.

It can surely help, though.

The ~$150k my recently-deceased relative received when her mom died allowed her to remain for over a decade in the home she bought 30+ years earlier, since after her layoff at age 60, her only source of income was SS taken at age 62 (had to cash in her pension to bridge that gap)

 

[JustCurious]

Even a "wealthy" family with let's say $10m can be gone in 3 generations easy. They have 2 kids so $5m each. Let's say the kids only spend the income (not likely but let's just say) and they each have 2 kids so each of those kids inherits barely over $1m. 2 kids each... blah, blah, blah. Money be gone pretty quick and that's with some care being shown which is more than most people show with their money.

Money that is properly invested grows over time.

 

[JustCurious]

Population decline is going to be more and more on people's radar in the next decade or so.

Granted the rate of population growth in the U.S. is slowing, but the population is not declining. Current projections show the U.S. population growing from about 330 million today to about 400 million in 2050.

 

[marko]

Even a "wealthy" family with let's say $10m can be gone in 3 generations easy. They have 2 kids so $5m each. Let's say the kids only spend the income (not likely but let's just say) and they each have 2 kids so each of those kids inherits barely over $1m. 2 kids each... blah, blah, blah. Money be gone pretty quick and that's with some care being shown which is more than most people show with their money.

That's why a wealthy family seldom does direct inheritances.

A trust will insure subsequent generations a slice of the pie, even if the slices get smaller as the family grows. A trust fund doesn't always mean a $200K payout; it can very well be an annual check of $20K depending on how may hands are out there.

Most trusts only distribute the income, not the principal.

A lot of trusts also just end (and the residue sent to charities) after X generations pass.

 

[GravitySucks]

This forum is great at opening my eyes to the perspectives that others bring.

In 1983, when I was 25, had a wife & baby, full time job, living in a basement apartment, that $100k would have been worth 40k. I could have bought a two family house in my neighborhood with that and had enough left for a used car. It would have been a life altering event to inherit that much.

Right. And as we both note, an additional $100K is hardly what one would call 'wealth' let alone a wealth transfer.

Even if someone flat broke received a windfall of $100K or $200K I doubt they'd suddenly consider themselves 'wealthy'...fortunate for sure and perhaps 'flush'.

 

[marko]

This forum is great at opening my eyes to the perspectives that others bring.

In 1983, when I was 25, had a wife & baby, full time job, living in a basement apartment, that $100k would have been worth 40k. I could have bought a two family house in my neighborhood with that and had enough left for a used car. It would have been a life altering event to inherit that much.

Right! I wasn't saying that $100k is an insignificant sum and it can be life altering. Heck, I'll take it right now.

The comment was in response to how serious wealth is maintained, managed and distributed over several generations. Multigenerational wealth managed over three quarters of a century or more is different from a one time inheritance.

 

[socca]

A relative married into a wealthy family. It's been fascinating to watch the money flow down the generations. A synopsis:

Generation 1: the founder. Don't know much about him except he must have been smart, worked hard, and been a bit lucky. The products from the company he founded can still be found in your local store.

Generation 2: the son of the founder. Mildly cognitively impaired due to a teenage accident. Didn't stop him from rising to become president of the company (nepotism at work, I suppose). A nasty confrontation on the founder's deathbed led him to sell the company out from under his son. The family was showered with a huge amount of money as a consequence of the sale but lost its reliable large source of corporate income. From that point on, it was all coasting on the already existing substantial wealth.

Generation 3 (my generation): the grandchildren of the founder. All of them screwed up in various ways, with (excessive) family money as a (possibly) major contributor.

Generation 4: great-grandchildren of the founder. The family money hasn't arrived yet for some of them. Some of them are going to (essentially) be disinherited because the corporate trustee of the generation-skipping trusts created by generation 2 has indicated that it's OK for generation 3 to grab the money, which is clearly contrary to the generation 2's intention. Generation 4 could sue, I suppose, but I doubt that this is going to happen. I just watch from the sidelines in amazement.
Generation 5: great-great-grandchild of the founder (just arrived). You would never know that the parents come from a wealthy family based on how they are living now. Will any of the family money ever arrive to help this child? Who knows?

My take: the best way to learn the value of money is to not have any. I started my adult independent life with a mere $20k in the bank (no debt) and some highly marketable college degrees. Many of today's kids seem to start out with quite a bit less.

 

[Gumby]

My take: the best way to learn the value of money is to not have any. I started my adult independent life with a mere $20k in the bank (no debt) and some highly marketable college degrees. Many of today's kids seem to start out with quite a bit less.

I hear you, my friend. I started my independent adult life with 20 bucks in my pocket and the clothes I was wearing. I've never forgotten.

 

[burned out shift worker]

Hello all, Here in eastern Pennsylvania the Mennonite familys must past down the cash for hundreds of years. Thanks, Joe

 

[Badger]

I hear you, my friend. I started my independent adult life with 20 bucks in my pocket and the clothes I was wearing. I've never forgotten.

+1 and a little debt.


Cheers!

 

[target2019]

"Among the most compelling causes are younger family members who are ill-prepared or unwilling to shoulder the responsibility of wealth stewardship. They have grown up with plenty of money and are a step or two removed from the work ethic and drive of the people who made it for them."

Does this change anyone's plans on children's inheritances? I know there are tons of threads on what to do... trusts and such. But I was wondering if this gives anyone pause on whether inheritance is a blessing to the next generation or a curse.

As the OP - The article posting was to get people thinking about how they would pass on generational wealth and if the things said in the article (whether substantiated or not) would make them think any different. Looking at what people posted is helpful to me as I learn from others and get ideas on how to pass on my own wealth because I didn't come from wealth or even middle class. I come from a family of poverty for the most part that didn't have two pennies to rub together.

Threads go in many directions, don't they?

I've thought about this idea of multi-generational wealth for quite awhile. About 2005 I became involved in in-laws finances. I learned many things over 15-year period, with spouse eventually inheriting her share.

What I think is common to all of the negative cases mentioned here, is that those who inherit are usually not prepared in an educational/experience sense to do much of anything with their new-found stash. Hence, a trust provides safeguards.

 

[marko]

"Among the most compelling causes are younger family members who are ill-prepared or unwilling to shoulder the responsibility of wealth stewardship. They have grown up with plenty of money and are a step or two removed from the work ethic and drive of the people who made it for them."

Half of my high school class had trust funds coming their way. Some died way too early (drugs), some frittered everything away but most ended up being solid members of society as lawyers, bankers or just 'unemployed' but stable, good people.

I'd say that the money just amplifies who you are. The loser kids would've been losers no matter what; the successful kids would have made it ok no matter what; I could see who was who in 10th grade.

Also checks can be put in place to avoid the worst case scenarios: no money until a certain age (age 32?), must have some sort of job (art gallery anyone?), a slow ramp up of income as one gets older, must never have been arrested etc.

One thing for certain of the big money recipients: They are terrified that the money will go away, tend to be very distrustful of outsiders other than their current trust manager and have no idea what they'd do to regain things if something went wrong.

 

[Ready-4-ER-at-14]

Maybe it sounds bad to say this but I'm not that sure how committed I am to the future of my great-great grandkids. If you think solely of the genetics of stuff, I am quite diluted by then. half with my kids, 25% with grand kids, 12% great grandkids, 6% great-great grandkids. And this assume female family introduced spouses honored fidelity. Supposedly ~3% of kids are not descended from the fathers anyway.

if you look at it in current life.. my first cousin (my fathers brothers kid) is probably only 6% to 12% me. I don't send a check to her or her offspring.

When I look on genetics matching sites I have people I've never met who are more me than my descendants after 6 generations.

Am I missing something? Is it just so my last name doesn't disappear somehow?

 

[Bestwifeever]

I forgot to mention that in our extended family, both my side and my wife's, there will not be another generation after our offsprings.

As mentioned elsewhere, out of 21 children of child bearing age and the eldest already 50, there's only 1 baby. That's it.

That's gotta be one spoiled (in a good way) baby!

 

[SecondCor521]

I'm generation 4 on my mother's side and generation 2 on my dad's side. Not sure how I'm supposed to behave.

 

[akidagain2018]

No children to worry about, so I'm just gonna...wait for it...

Blow That Dough!

Big smile!! Me too! Heeheeeheee

 

[marko]

Maybe it sounds bad to say this but I'm not that sure how committed I am to the future of my great-great grandkids. If you think solely of the genetics of stuff, I am quite diluted by then. half with my kids, 25% with grand kids, 12% great grandkids, 6% great-great grandkids. And this assume female family introduced spouses honored fidelity. Supposedly ~3% of kids are not descended from the fathers anyway.

if you look at it in current life.. my first cousin (my fathers brothers kid) is probably only 6% to 12% me. I don't send a check to her or her offspring.

When I look on genetics matching sites I have people I've never met who are more me than my descendants after 6 generations.

Am I missing something? Is it just so my last name doesn't disappear somehow?

I don't think it has anything to with genetics as much as it has to do with 'family', however you may define it. "Family" could be blood relatives, adopted, friends, people you just like being with or even a cause that impressed you.

We've all heard about the old millionaire ladies who leave large sums to their personal nurse, butler, walker or even their dog to the chagrin of a son/daughter.

It's really about "after I'm gone and after the charities have been taken care of, what to do with whatever is left?" Do you leave it to those you care about with the hope of them getting a little bit better life or do you let the state have more of a share of it?

Sure, a lot of trust funders are living off of someone who died 50 years before they were born but a least someone is enjoying the money! Of course, in my own town there are trusts set up by sea captains 150 years ago that are still generating hefty scholarships and help to the needy.

On the other side it can also be used as one, last flip of the finger from the grave to a relative with whom you had an issue with. "...the sum of ONE dollar..." (A certain niece of mine comes to mind, but that's for another day)

 

[OddGuy]

I can see how this would happen with smaller fortunes just by basic math.

I'm mid-50's, parents mid-80's. My DF amassed $12M that will be split three ways sometime in the future.

Those three pie slices of $4M each will be likely managed somewhat differently, but even if nothing is diminished, per se, those slices are most likely to fund FIRE plans rather than be used to aggressively increase the wealth.

The next generation is comprised of 8 grandchildren (2, 2 and 4).

Suppose the gains of some of the $12M split and offset by the losees, and in 30+/- years time (God willing), the surviving $12M is now split 8 ways, with 4 GC getting $2M and 4 getting $1M.

The odds are it is more likely the money will be depleted over time rather than one grandchild figuring how to grow the money back 8 fold or more.

 

[marko]

I can see how this would happen with smaller fortunes just by basic math.

I'm mid-50's, parents mid-80's. My DF amassed $12M that will be split three ways sometime in the future.

Those three pie slices of $4M each will be likely managed somewhat differently, but even if nothing is diminished, per se, those slices are most likely to fund FIRE plans rather than be used to aggressively increase the wealth.

The next generation is comprised of 8 grandchildren (2, 2 and 4).

Suppose the gains of some of the $12M split and offset by the losees, and in 30+/- years time (God willing), the surviving $12M is now split 8 ways, with 4 GC getting $2M and 4 getting $1M.

The odds are it is more likely the money will be depleted over time rather than one grandchild figuring how to grow the money back 8 fold or more.

That's one way to do it.
A more common way is to not split it and treat it as one large set of resources, professionally managed, with percentage distributions to future generations but designed to perpetuate, grow and increase in value over the decades.

Some families get less as they grow in size but others get more as the heir pool shrinks. Not every trust funder gets $200k a year....some end up with $5k-$10k depending on fund performance and number of hands out
(Cousin Jim died!! oh no!! Yay!)

 

[Scrapr]

I can see how this would happen with smaller fortunes just by basic math.

I'm mid-50's, parents mid-80's. My DF amassed $12M that will be split three ways sometime in the future.

Those three pie slices of $4M each will be likely managed somewhat differently, but even if nothing is diminished, per se, those slices are most likely to fund FIRE plans rather than be used to aggressively increase the wealth.

The next generation is comprised of 8 grandchildren (2, 2 and 4).

Suppose the gains of some of the $12M split and offset by the losees, and in 30+/- years time (God willing), the surviving $12M is now split 8 ways, with 4 GC getting $2M and 4 getting $1M.

The odds are it is more likely the money will be depleted over time rather than one grandchild figuring how to grow the money back 8 fold or more.

Probably would not happen but if that 12 million is invested in the market wouldn't that grow to 96 million after 30 years? nest egg doubling every 10 years. The hard part is making the kids & grandkids wait until 50 or 60 years old to give the nest egg time to grow

 

[OddGuy]

Probably would not happen but if that 12 million is invested in the market wouldn't that grow to 96 million after 30 years? nest egg doubling every 10 years. The hard part is making the kids & grandkids wait until 50 or 60 years old to give the nest egg time to grow

Applying that to my scenario, wouldn't that depend on me and my siblings not touching the capital ($4M for each of us, $12M total) AND not touching any gains whatsoever, instead reinvesting everything for those 30 years (i.e. the remainder of our lives, considering we're mid to late 50's now and have yet to receive?)

Or is this based on us living off a standard FIRE draw of 3-4% (which is the current plan?)

I would love to leave behind the $4M I get, and I'd be even happier if it grows substantially. The FIREcalc scenarios I run for having $4M and living off $130k/yr for 30 years show 100% success rate, but that is just saying that the money is predicted to be above zero at the end of that run. They currently show a low of $1.2M and a high of $25M at the end of the run, with an average of $9M.

And of course, my siblings would have to follow suit...

 

[Jeffman52]

Probably would not happen but if that 12 million is invested in the market wouldn't that grow to 96 million after 30 years? nest egg doubling every 10 years. The hard part is making the kids & grandkids wait until 50 or 60 years old to give the nest egg time to grow

What would happen to the trust if there were no direct descendants? Would it be next available kin based on hierarchy (next closest next of kin)?

 

[marko]

What would happen to the trust if there were no direct descendants? Would it be next available kin based on hierarchy (next closest next of kin)?

Most trusts have an end of heir clause usually designating a charity or something to disperse in the event that all noted heirs are gone.

They can get complicated the further out in generations you go but that's what high paid lawyers are for!

 

[marko]

FWIW, a fun read is "Palm Beach Babylon" which highlights the residents of that town from it's beginning to about now.

It is interesting to read about so many famous and insanely wealthy people (Singers, Wannamakers, Dodges, Cromwells, Stotsburys Pulitzers, etc and a whole lot of others you never heard of) succumb to the "Ladies, Liquor and Leverage" and who died broke mostly due to overspending their vast inherited fortunes.

Again, nowadays, a trust can put some very strict guardrails to prevent depletion (because it's not the heir's own money, they're only beneficiaries) so these things can now go on for a century or more.

 

[pj.mask]

On the other side it can also be used as one, last flip of the finger from the grave to a relative with whom you had an issue with. "...the sum of ONE dollar..." (A certain niece of mine comes to mind, but that's for another day)

This isn’t always a middle finger. Many times this is advised by the lawyer to reduce the ability of the niece to sue the estate. By giving them something ($1) it is clear they were not accidentally omitted.