Gone by the third generation

[ncbill]

The old adage of wealth going “shirtsleeves to shirtsleeves in three generations” is called to mind by today’s news story of Elvis’s granddaughter trying to save Graceland from foreclosure.

It’s cited that 90% of wealth is lost by the third generation, and the pattern is typically (if reductively) cited that Gen 1 are the builders, Gen 2 are the maintainers, and Gen 3 are the squanderers.

What have members here seen play out?

Appears to be fraud on the part of a company claiming to be a lender with the loan secured by Graceland.

Especially since the notary who supposedly notarized her signature on the deal has said they never met.

 

[SecondCor521]

It varies both up and down my family tree.

I'm either the second, third, or fourth generation depending on which set of ancestors you choose to trace back in time.

I could be viewed as a builder (because I worked for 23 years and added to my stash) or as a depleter (because I retired earlier than strictly necessary). And time will only tell if my assets continue to grow at X% for the next Y years, or if I spend Z years in a dementia ward and deplete it all. Unlikely but could happen.

My parents have nine grandkids. They have varying earning potentials, spending habits, personal finance interest and knowledge. There are also potential future spouses, kids, and careers that will happen (or not). So I think the results there will vary widely.

 

[GrayHare]

No family member along direct paths from me back to my great grandparents has gone bankrupt or blown it all, so FWIW at least some of the modest amount some of them built has survived 4 generations. I've set aside some for the 5th generation, but we're not talking Vanderbilt-level wealth, or anything even close to that.

 

[target2019]

The third generation needs development and education to continue the business in the face of competition. James E. Hughes Jr. Has a website and books that describe the process.

 

[AudiDudi]

“My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel.” — Rashid bin Saeed

 

[Chuckanut]

This from the WSJ about the Graceland lawsuit.

Naussany Investments couldn’t be reached for comment. A phone number associated with the group didn’t work. A lawyer for the group couldn’t be identified. One of the associated addresses for the group was for a UPS store in Jacksonville, Fla.

According to the complaint, the notary public listed on Presley’s purported loan documents said she didn’t notarize the papers.

The notary public also said she has never met Presley.

 

[Milkman]

Interesting thread. Luckily my father taught me discipline. I was blessed to get two separate inheritances. The first was from my father, but I managed it and gave the income to my step mother for 8 years before I saw a penny. I was conservator for an out of state aunt and oversaw her trust for 6 years before she passed and then split the amount equally with two cousins. The discipline my father taught me made me grow my tax deferred retirement assets to several times more than the inherited money. I guess that makes me second generation. Fortunately my two daughters have master's degrees and seem to be doing well (third generation). I plan to split my estate equally between my two daughter's, two grandchildren (fourth generation) and my Church. With the exception of education or catastrophic illness, the grandkids won't be able to touch the money until they are 40. Will they thank me or hate me? For some reason I always viewed money as family money, and I was merely the caretaker for the next generation.

 

[marko]

Well..........I'm cashing quarterly checks from a man who died 30 years before my mother was born. My grandfather's grandfather who died in 1899.

Depends how you set it up and manage it I suppose.

 

[MC Rider]

A huge estate is generally a money pit anyway.

Look at Hearst Castle for one.

 

[donheff]

It is probably a useful cautionary tale for those prepared to listen but, in my experience, it is all down to the individuals. My grandparents came on a boat with nothing, my parents made a decent living and sent all of us to college but left a minimalist estate (my share bought a jet ski). It seemed to me that my uncles and aunts were a mixed bag in that regard although none were big builders. In my generation (my immediate family only) three out of six did about the same as my parents, the other three (including me) "built" modest estates that will significantly help our kids. In the generation following mine (26), there is a mixed bag with about half being modest "builders," a quarter getting by at about the level of my parents, and a quarter that could be described as somewhat lost. In the next generation (the children of my kids and my nephews' kids, some of whom are now adults), we are beginning to see a mixed bag - it looks to me that they are tending to reflect their own parents more than anything else, again, with variations.

My takeaway is it is all a mishmash of genetics, family values, and luck. The builders clearly pass on a bit more "luck" to those who are inclined to use it, either because of genetics or the builders' family values.

 

[pb4uski]

My maternal grandmother was born in Spain and came over to the US when she was 4. She got married and had a son and her husband was abusive so she divorced him, which was unheard of in those days. She remarried and had 3 daughters. When her youngest daughter was 4 her husband was killed in an auto accident that injured my mother and my grandmother almost lost her sight. She was frugal and worrked hard and saved prodigiously and did ok. My uncle attended college and my aunt says that she never knew that they were poor until much later in life.

My paternal grandparents immigrated to the US from Quebec and had a farm in town. Things were hard and grandpa filed for bankruptrcy at least once, but later recovered and owned a couple different local businesses... a farm equipment dealership and later a home building company. He did well... I remembered that he owned a Cadillac.

My parents were similarly frugal and built some closet wealth. Other than that we owned a summer camp we were very middle income. Our town was generally frugal with many banks and many "closet" millionaires... wealth that you would never think about given their modest lifestyles.

We and my sisters continued the trend. We are all doing well and more than half have significant closet wealth. DD and DS seem to be continuting the trend, albeit modestly so far.

 

[DuluthGA]

I believe it’s true but mostly for very high net worth families where 3rd generation has so much they don’t have to work. I’ve seen it with a local family but it was also from industry changes as well as squander. We’re 3rd gen with nice income (low 5 figures) from oil rights that are now split 11 ways. Had to work. The next gen splits will have much less and eventually the oil will give out

 

[target2019]

I've read many of the articles at this site (James E. Hughes Foundation | Family Wealth Management), as well as the book.

We have not inherited enough to place us in a 2nd generation category., so we're 1st generation. I've used the family bank concept with my adult kids, to start discussion, and explain the importance of working together on some goals.

On my paternal side, great-grandfather started a produce business in the city. Eventually it grew to support all of his sons (4). That fell apart in the 3rd generation. We did not have much contact with the extended family, as my grandmother did not want my father in the business. That turned out to be a good thing for us.

For us, having a father at home after work (no long hours), serving as a role model, supporting higher education, had an outsized payoff for the children. There's no family business, of course, but looking back I see that my parents planted the seeds of five capitals mentioned by Hughes.

Human, Intellectual, Social, Spiritual, and Financial Capital.

Unless the elders focus the following generations in getting better in each area, bad behavior will surely creep in to the family tent.

 

[athena53]

My takeaway is it is all a mishmash of genetics, family values, and luck. The builders clearly pass on a bit more "luck" to those who are inclined to use it, either because of genetics or the builders' family values.

I agree, which is why results are scattered all over the place in subsequent generations. My parents were solid middle class, LBYM, Dad had a college education and they made paying for our college a high financial priority (which they did for all 5 of us). Those values can be "watered down" in subsequent generations.

And the difference between my Ex (died from years of alcohol abuse after living off social programs) and his sister (hugely successful entrepreneur but very solid, down-to-earth values) is a good example.

 

[Fermion]

Why don't really wealthy people set up some sort of trust. Put a spare billion in there and have rules such that it is invested in total stock market and only 2% after taxes each year can be spent by verified descendants.

 

[athena53]

Why don't really wealthy people set up some sort of trust. Put a spare billion in there and have rules such that it is invested in total stock market and only 2% after taxes each year can be spent by verified descendants.

It will still get watered down eventually. My parents had 5 children, 13 grandchildren and (so far) 23 great-grandchildren. Some of the grandchildren are young enough that they may have a couple more.

 

[Koolau]

My parents were married during WWII and were both employed in defense plants. When GIs returned from the war, all the actual defense w*rkers were let go because they weren't really needed anymore AND the country chose to make j*bs available for the GIs. So what do two unemployed defense plant w*rkers do? They took their meager savings and started a small retail business.

Both w*rked endless hours to build the business and make it a stable, going concern. Kids came along and I, especially, got dragged into the business much as farm kids become farm hands. I knew I wanted nothing to do with the business when I "grew up."

BUT, DW showed a talent for the business and chose to manage when mom and dad wanted to withdraw (retire - more or less.) Mom and dad sold the business to the kids (only DW was really still involved other than being "stock holders.") The "deal" to the kids was very favorable but not "free."

DW managed for almost 30 years. At that point "we" wanted to get out in time for my impending retirement from Megacorp. Something we found out as business owners was that "it's a lot easier to get into a business than it is to get out of it." We showed our business records to a potential buyer and she said "I can do that from scratch - like you did." And, she did - becoming a competitor. She eventually failed for family reasons as much as anything.

Our kids had zero interest but a niece (for what ever strange reason) realized that she liked w*rking for the business and wanted to buy it. So we sold it to her (again, at very favorable terms.)

She has done very well with the business and has made a decent living at it. Now SHE wants to get out and is discovering what we discovered (easier to get in...) This part of the story is ongoing as there seems little chance of future family involvement.

Here is what I think is the difference in our experience of the successful 3 generations vs the more typical "shirt sleeves to shirt sleeves" scenario: When each generation INVESTS their own money in the business (rather than inheriting) it makes a huge difference in how much effort the new generational owner is willing to invest. YMMV

 

[Octogirl]

Interesting to think about. My family is Not wealthy by any means but my grandparents were builders (commercial RE), their 2 children were maintainers. When that RE was left in trust to us grandchildren, about half sold out and spent the money. Those of us who stayed in, formed an LLC and continue to benefit from the revenues. Its been 20 years now, and its doing well. We re not continuing to build the LLC but individually, the revenues allowed 3 of us to make RE purchases that have grown over past 10 years.

 

[athena53]

Here is what I think is the difference in our experience of the successful 3 generations vs the more typical "shirt sleeves to shirt sleeves" scenario: When each generation INVESTS their own money in the business (rather than inheriting) it makes a huge difference in how much effort the new generational owner is willing to invest. YMMV

I think that's true even for those of us who didn't inherit family businesses. An inheritance will get you a rung or two up the ladder but unless you leverage it- investing wisely, sinking it into real estate, getting a marketable education... it disappears fast. My Ex inherited $300K from his mother and $100K went into the house. The rest got spent on a new car, a $6,000 (in 1984) sound system, a $7,000 Jaeger-le-Coultre watch and helping to pay household expenses the last 5 years of the marriage when he was unemployed and couldn't find anything splendid enough to suit him. Same thing happened when he walked out of the divorce with $100K- his share of the equity after debts were paid- it was gone in a couple of years.

 

[MC Rider]

Some people just pizz it away.

One of my cousins got some money after his Mom died. Burned it up on a road trip from CA to NY to see Billy Joel. Later cried about paying the rent. Not one of my smarter cousins I guess.

 

[AudiDudi]

My small inheritances ($200k ish) generate maybe $1800/mo in income. Every little bit helps and most can be passed on.

 

[GrayHare]

An inheritance will get you a rung or two up the ladder but unless you leverage it- investing wisely, sinking it into real estate, getting a marketable education... it disappears fast.

That makes lots of sense. It might help explain why so many huge inheritances don't last many generations: they leave no incentive to do well the things you mention.

 

[tulak]

It will still get watered down eventually. My parents had 5 children, 13 grandchildren and (so far) 23 great-grandchildren. Some of the grandchildren are young enough that they may have a couple more.

I wonder the same as Fermion, and I’m tempted to set something up like that if I get bored in retirement.

It might get watered down eventually, but even if it’s only a few k/year, I think future generations would get a kick out of it. I know I would if it was me.

 

[bigcmagor]

Why don't really wealthy people set up some sort of trust. Put a spare billion in there and have rules such that it is invested in total stock market and only 2% after taxes each year can be spent by verified descendants.

Two cautionary examples of plans gone amuck; My father served on the finance board of their church. A small, rural church of the same denomination had been the beneficiary of a $1 million perpetual trust. Only the trust earnings could be used annually as the trust was intended to last (and benefit the congregation) forever. Membership at the rural church dropped to the point that the church closed and was merged with the larger city church, who became the beneficiary of the trust proceeds. Struggling to meet financial obligations, the board voted to hire a lawyer to break the trust, which they did and spent the proceeds. Dad was so angry that he quit the board and stopped attending the church. This "forever" trust lasted less than 20 years.

The second example was a small town senior center that my uncle patronized. Even though he was usually unkept, they welcomed him and made him welcome. He left the center $25,000 in his will as a token of his appreciation. The center was a branch of a larger community charity. The director of the local center insisted that the bequest be retained and used as intended by the local center. As it turned out, the home office decided to close the local center to gain access to the funds. The local director called to explain the situation and asked that the family get involved legally to prevent the closure or confiscation of the funds. No good deed goes unpunished.

 

[Koolau]

My small inheritances ($200k ish) generate maybe $1800/mo in income. Every little bit helps and most can be passed on.

That is a very nice return. Good going!