Wealth does not pass three generations

[SecondCor521]

I wonder about this a lot lately.

I have three kids with very different money personalities.

I am very frugal and my oldest makes me look like a profligate wasteful spender. I predict he will get a good professional job when he graduates from college next year and lean-FIRE at about age 37.

My middle likes to work and likes to earn and likes to spend. I think he'll end up working until he's in his 50's and will have more than he needs at that point. Of my three kids, he is the one most likely to spend a lot of any inheritance he gets.

My youngest really doesn't spend money either, but has decided to pursue being a music teacher. I suspect she'll either be living a happy but low-cost life (more likely) or will decide she wants more money and will change careers after about 10 years to her second love but higher paying field via a PhD in biology (less likely).

My plan is still to give them 1/3 each of whatever is left over when I die. Statistically it's likely to be a lot of money about 30 or 40 years from now.

 

[pacergal]

My sibs and I inherited some when our folks passed. I am using that now to help kids as needed (help with college loans, house down payment, etc.)
I expect we will pass on a bit from our retirement accounts. Not millions, but probably enough to help our kids have a nice retirement. They are both doing well, can pay their bills, and have some retirement savings started.
DH and I would rather spend available $ now and have experiences with our kids and grands. We stay within our yearly budget, so I expect some to be left. But you never know. Main thing is to have the money if needed for future care needs.

 

[FIREchief]

I expect my children to learn some level of work ethic...even if it's just checking in at the family office everyday.

I suspect that this is the type of scenario that the article is based upon.

Back where I grew up, there were three classes of kids in my very small high school:
a) those who worked crappy part time jobs to pay for their own cars and entertainment
b) those who just used their parents cars or road around with friends
c) those whose parents bought them new cars when they started driving

I was in the first group and feel it has helped me immensely over the decades. I've never had problems with receiving and performing menial assignments from awful bosses. I've valued the steady paycheck over "glory and fulfillment." I FIRE'd on my own schedule. If I had received a new car on my sixteenth birthday and only had to check into the family office once a day during ensuing years, I would probably be in awful financial health right now. To each their own.

 

[dirtbiker]

I'm not wealthy by any means, but I'm doing well, and hope that with my current rate of savings to be quite well off in my retirement. I've done everything myself without an inheritance. I bought my first car with savings from working as a teenager. I joined the army to pay for college. I took loans for medical school. I've worked hard, and I continue to work hard. I'm trying to pass this work ethic on to my children.

I talk to my oldest two children, who are both teenagers, about money management on a regular basis. They each have bank accounts that they have been contributing to regularly while working their part time jobs. Once they turn 18 they will open their Roth IRAs, which I'll give them some money to get a good start on it. My youngest two (infant and 2 years old) will get the same thing. One difference I will do, which my parents didn't, is to pay for their undergrad degrees. But, it will be on them to provide for themselves and to save for their retirement.

I say all this because my wealth being passed on is a minutely small concern of mine. I'd love to have enough saved that even with luxurious retirement spending, I'll have a bunch to leave to my children. However, if I don't. I'm not worried. Working hard and saving builds good character. And nobody should be expecting an inheritance. I hope to get next to nothing. I'd rather my parents and my in-laws have a great time spending all of their money down in retirement and pass away at old age. They worked hard to fund their retirements. Who am I to hope to get a piece of it?

 

[FIREchief]

They each have bank accounts that they have been contributing to regularly while working their part time jobs. Once they turn 18 they will open their Roth IRAs, which I'll give them some money to get a good start on it.

Why not open Roths's now?

 

[ckelly78z]

I am at the point financially where I will be comfortable in retirement, and able to travel as wanted, but not to leave large sums to my heirs. Likely what will happen in my future, will be my early demise (hopefully ^75), while my wife will live to be 95, and use up any reserves we had saved.

I would love to shower kids/grandkids with vacations, home down payments, college trust funds, and special occasion cash gifts, but just don't see that happening while remaining solvent.

 

[Philliefan33]

If all goes as planned, DH and I will leave a nice inheritance to our DDs and/or any grandchildren we may have. Depending on how we decide to divide, It may be enough to be significant help to one generation but it won’t be the kind of wealth that gets passed down through generations.

 

[marko]

If all goes as planned, DH and I will leave a nice inheritance to our DDs and/or any grandchildren we may have. Depending on how we decide to divide, It may be enough to be significant help to one generation but it won’t be the kind of wealth that gets passed down through generations.

Usually, notable wealth is passed through to several generations (years) not by direct inheritances (parent to child to grandchild), but through trusts which control and regulate the funds.

That way, no one generation has the opportunity to fritter it all away.

 

[Philliefan33]

Usually, notable wealth is passed through to several generations (years) not by direct inheritances (parent to child to grandchild), but through trusts which control and regulate the funds.



That way, no one generation has the opportunity to fritter it all away.

Right. We won’t be leaving notable wealth.

 

[kgtest]

I suspect that this is the type of scenario that the article is based upon.

Back where I grew up, there were three classes of kids in my very small high school:
a) those who worked crappy part time jobs to pay for their own cars and entertainment
b) those who just used their parents cars or road around with friends
c) those whose parents bought them new cars when they started driving

I was in the first group and feel it has helped me immensely over the decades. I've never had problems with receiving and performing menial assignments from awful bosses. I've valued the steady paycheck over "glory and fulfillment." I FIRE'd on my own schedule. If I had received a new car on my sixteenth birthday and only had to check into the family office once a day during ensuing years, I would probably be in awful financial health right now. To each their own.

Ahhh, I don't know if I was in the first or second group. Pops made me earn the car, lots of hard labor (re-roofed the family home, cleaned out all the lanscaping rock and put it back, mowed his lawn until I moved out and then I even mow it for him now sometimes).

We were middle class, didn't rent or live in an apartment or anything but lived around plenty and grew up with plenty who do.

I always laugh when I see the people's profiles on LinkedIn that have a job title of "CEO of Family Office" etc etc.

Why even bother, just don't even make a linked in lol...

 

[target2019]

I came across this site several years ago when first reading about family wealth and related subjects:
Families Of Affinity

There is an ARTICLES page, as well as links to a couple of books written by James Hughes.

In this particular article, Hughes discusses what goes wrong, and how successful families succeed at preserving wealth.
http://www.jamesehughes.com/articles/Owner.pdf

My own great-grandfather started a wholesale business in the city, and six children worked to build upon his success. The next generation had many problems, took it no further and went out of business.

 

[foxfirev5]

I suspect that this is the type of scenario that the article is based upon.

Back where I grew up, there were three classes of kids in my very small high school:
a) those who worked crappy part time jobs to pay for their own cars and entertainment
b) those who just used their parents cars or road around with friends
c) those whose parents bought them new cars when they started driving

I was in the first group and feel it has helped me immensely over the decades. I've never had problems with receiving and performing menial assignments from awful bosses. I've valued the steady paycheck over "glory and fulfillment." I FIRE'd on my own schedule. If I had received a new car on my sixteenth birthday and only had to check into the family office once a day during ensuing years, I would probably be in awful financial health right now. To each their own.

As an outlier I was in none of the groups. I worked tough construction jobs due to my fathers connections. Made good money but DF would not let me squander my earnings on a car. He told me to get though school and get a good job so I could buy any car I wanted. Half way through college I did buy a $300 dollar car but only after enough was stashed for tuition.

 

[scrabbler1]

I suspect that this is the type of scenario that the article is based upon.

Back where I grew up, there were three classes of kids in my very small high school:
a) those who worked crappy part time jobs to pay for their own cars and entertainment
b) those who just used their parents cars or road around with friends
c) those whose parents bought them new cars when they started driving

I was in the first group and feel it has helped me immensely over the decades. I've never had problems with receiving and performing menial assignments from awful bosses. I've valued the steady paycheck over "glory and fulfillment." I FIRE'd on my own schedule. If I had received a new car on my sixteenth birthday and only had to check into the family office once a day during ensuing years, I would probably be in awful financial health right now. To each their own.

I was partly in the first group and second group. I had a part-time job (not really a crappy one!) which paid for my entertainment, but my parents let me use their cars. I didn't need a car when I soon went off to college.

 

[Rambler]

My folks came up with what I believe to be a brilliant idea a few years back. They aren’t rich or even we’ll to do by any stretch of the imagination, but they’ve been frugal all their lives. Aside from a donation the the building fund of their church, each of us 4 kids will receive whatever is left. I am their executor. They are mid-80s in age. Their instructions, per their will, and in a list of instructions, is that the remainder is to be divided equally among the four of us, or whoever is left if one of us dies first, and I’m to pay off any debts of these siblings directly out of the remainder first, before I write a check to them. If their debts exceed their portion, then they will not receive any cash, only a reduction of their debts. Two of my siblings have significant debt. The third has some mortgage debt left, but no other debt. My folks reasoning is that all three of those siblings would take that hard earned, hard saved money, and use it on a vacation or in one’s case maybe even quit her job and relax for a couple years, and then find she has no job and no money. In my case, I have no debts, and have already committed to donate whatever comes to me to their favorite charitable cause, which is their church’s building fund. I think this is a fabulous idea...not fool proof, but if my siblings are smart, they’ll be grateful for the reduced debt load.

In our case, we have decided that we want to help our kids along the way, when we can, and receive the thank you’s while we are still alive to hear them. For example, my daughter and son in law decided to buy a home this year. So last year, my wife and I each gifted each of them some money, and again this year, such that they have $100,000 for their down payment. When my son and his wife come to the point in their lives that they’re ready to own their own home, we’ll do the same for them, staying within the gift tax guidelines so as not to run afoul of the tax man. We are comfortable enough to do this without any ramifications to our lifestyle. Something this big can only happen once for each child. If they decide to move somewhere else, sell the home and use the proceeds wisely, that’s great. If they use them frivolously, that’s their problem. But, the more frivolous they are with the gifts we’ve given them, the more frivolously we will spend our hard earned money. Recently, I was faced with the necessity of replacing my truck, and was fretting over the high cost of doing so. That day, my daughter was a bit mean spirited to my wife. While I was at the showroom, my wife called me up and in essence said “get the one you want, we have enough, no need to have any leftovers for the kids.” I was still careful, but I did get a little more truck by virtue of my daughter’s naughty comments to my wife that day. I would still like to leave enough to support each of them a little in their own efforts to retire, because it is already pretty evident that their career successes will not come close to those I enjoyed...but that is by their choice. I made a lot of sacrifices to have the outcomes I enjoy, but they aren’t willing to make those or similar sacrifices.

So, bottom line? Will my wealth last 3 generations? No. Absolutely not. Some will be passed on to my kids or maybe my grandkids, but in principle, WE, are going to enjoy the fruits of our labors, with perhaps just enough to help the next generation or two have a little bit, but not a lot, of comfort.

 

[LastBoomer]

I was sort of the first and second. Worked part time job all through high school while also participating in varsity track and cross-country. I was very driven, disciplined and college oriented. But my parents made a deal with me: they would match me dollar for dollar everything I saved for college. They did, and I also earned two academic scholarships. That was all the financial assistance they gave me for college. I also had to work through most of my college years.

 

[ychuck46]

Won't make 3

My wife and I can be considered 1st generation since our parents were lower class, and we went went beyond them. Unfortunately it won't make it back two generations since we had only one child and she cannot have children. Unless they adopt the line ends but we are okay with it, since it is what it is. Between the two generations we'll hopefully be able to look back and say we had a lot of fun in life.

 

[GrayHare]

To extend wealth more than 3 generations, what about establishing a trust that pays out some long-term, safe-withdrwal rate (3%?) annually to descendants in perpetuity? Would that run afoul of anti-perpetuity laws, at least in the US?

 

[Ger0n1mo]

OP: "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."

I have a friend that used to head up wealth management at a bank (i.e. paying bills, managing finances, etc. for the very wealthy). He seen first hand how generations differed. He told me that people in his line of work had a saying, "Inheritance is to ambition as opium is to the soul".

 

[robnplunder]

To extend wealth more than 3 generations, what about establishing a trust that pays out some long-term, safe-withdrwal rate (3%?) annually to descendants in perpetuity? Would that run afoul of anti-perpetuity laws, at least in the US?

That'd work if the descendants do not multiply like rabbits.

My uncle became rich in his life time and had 3 children. When he passed away, his wealth was divided equally to the three. Each of the three children has multiple children of their own. So, the 2nd generation must accumulate more wealth on top of what their inheritance or the 3rd generation will inherit even less. Me? I only have one child so the wealth will last at least for 2 generations. 3rd gen? I'd be long gone by their time so I choose not to worry/think about it.

 

[esterhazy]

The shirt sleeve to shirt sleeves in 3 is more anecdotal than fact based.
https://qz.com/694340/the-richest-f...7-are-still-the-richest-families-in-florence/

I n the U.S. the Rockefeller and Kennedy families seem to be holding on to their wealth.
As for inheritance plans, splitting it even with no restrictions.

I agree.

The obvious continued existence of groups that deviate from average (either up or down) -- blacks in America, Muslims in Bengal, indigenous natives in most of the New World, Coptic Christians in the Middle East, Jews in America, Germans in Chile, Gypsies in England -- should immediately make us suspicious of "every one returns to average in 3 generations" claims.

But there's more reason to think being rich provides a benefit that persists for hundreds of years. The book The Son Also Rises is a compilation of research papers from a variety of times & places dispelling the "3 generations" myth. Some of their findings:

• Descendants of Swedish nobility from 1626 are still richer than normal people 300+ years later.
• Descendants of Ivy League graduates in 1650 in the US are still richer than normal people.
• In 1923 & 1924 Federal tax returns were open to the public, the New York Times published a list of the 30,000 richest Americans. 100 years later their families are still richer than normal Americans.
• Descendants of Ashkenazi Jews, Sephardic Jews, and Japanese Americans are all still richer than the average American despite 3+ generations of inter-marriage.
• The descendants in England of William the Conquerors lords are still richer than normal people 1,000 years later.
• A list of rich families from a Canterbury probate court of 1350 showed that 700 years later their descendants were still richer than normal people.
• Electoral registers from Kolkata (previously called Calcutta) from 1860 shows that 150 years later rich families are still richer.
• In China, despite the Communist revolution, the descendants of Confucian elites of 1820 are still richer than normal families.
• In Japan, despite the end of the samurai system, the descendants of samurai families in 1871 are still richer than normal families.
• In Chile, the richest landowners of 1920 have descendants who are still rich

 

[Michael Moore]

Past a certain point the money makes money faster than any number of heirs can fritter it away. The super-rich can pay legions of specialists to protect their money both from governments and wastrel scions.

IIRC the vast amount of privately held land in Great Britain is still in the hands of the families of aristocracy who held it hundreds of years ago. Go and look at how much property the British royal family alone owns, for example:

https://www.independent.co.uk/news/...tes-wedding-meghan-markle-queen-a8352401.html

and then start looking at the rest of the inherited aristocracy in England, Wales, Scotland, etc.

The Ford and Rockefeller Foundations are probably not going to run dry anytime soon, and I suspect that is true for Bezos and most other billionaires, and that is just looking at a few of the superwealthy in the USA.

So sure, penny ante rich that depend on a business remaining a going concern to generate their money can probably suffer from the "three generation" syndrome where the goose is killed and lays no more golden eggs. But when you get to the point where your money easily has pocket change to finance legions of lobbyists and legislators (the Kochs are a good example but it is in no way confined to them or others of their political persuasion) to establish laws that protect your money, it is pretty much safe for the foreseeable future.

Every country has its own aristocracy, even those that are nominally considered "democracies". Once the money is large enough, it takes on a life of its own.

cheers,
Michael

 

[marko]

To extend wealth more than 3 generations, what about establishing a trust that pays out some long-term, safe-withdrwal rate (3%?) annually to descendants in perpetuity?

Well, that's usually how it works.

Generational wealth is generally seldom accomplished by great-granddad leaving all his money to his children hoping they are good stewards and their children will do the same.

It's usually done by creating trusts, structures and custodians who mete out distributions responsibly, are tax efficient and with the specific plan to insure for future generations.

Most great-granddads know/knew that their heirs were idiots, planned accordingly and were seldom disappointed by that belief.

 

[MarieIG]

To extend wealth more than 3 generations, what about establishing a trust that pays out some long-term, safe-withdrwal rate (3%?) annually to descendants in perpetuity? Would that run afoul of anti-perpetuity laws, at least in the US?

Anti-perpetuity varies by jurisdiction (here by state to state), so settlor of a dynasty trust would need to keep that in mind when choosing an appropriate jurisdiction for that trust.

 

[atmsmshr]

Rambler - great post!

 

[atmsmshr]

Like many posting here, my ancestry is pretty humble except for a great grandfather who was a train conductor in the early 20th century - and then he struggled when his wife died during birth of their 12th child. One of my grandmothers was given away to be a milkmaid when her family of another 12 kids could not feed her. For DW, one set of grandparents died as sharecroppers.

As a result, no material wealth has reached my grubby little hands from inheritance.

However, DW and I were extraordinarily fortune to have the wealth building benefits of great family role models in our living memory. The grands and parents showed us great work ethics, life long marriages, family and moral habits that we copied, and pursuit of education.

Both of our kids are now university graduates. Younger DD is on her second year of work in comp science field. Older DS is married and has a year to go for his doctorate.

DW and I frequently comment on how blessed we have been - not with money but: role models, family support, and a very healthy dose of dumb luck.