October 15, 2007
THE FACT IT'S DISASTROUS IN PRACTICE...:
Are your kids better off with no inheritance?: Giving your money away may be best for society, and your family (JOHN INTINI, October 15, 2007, Macleans)
A recent survey revealed that most millionaires and billionaires plan to leave their children at least 75 per cent of their fortunes. In fact, about US$30 trillion will be silver-spooned to rich kids in the U.S. between 2002 and 2052. In Canada, $1.2 trillion will move from one generation to the next between now and about 2030. But should it? As one study of 3,250 successful families indicates, the transition of wealth between generations fails -- the family splits up, fortunes are lost -- about 70 per cent of the time. [...]Those who have earned their fortunes, say experts, understand they're not doing their kids any favours by putting them in a position where they won't have to work and instead shop or socialize -- "or," says Ricker, "overdose on drugs because they're so bored and so self-disgusted." "Even if people think their kids are pretty good, they worry about their grandkids," says Rod Zeeb, an attorney and co-author of Beating the Midas Curse. No one wants to be responsible for creating the next Paris Hilton.
Or one of the stars of Born Rich, the 2003 documentary directed by Jamie Johnson, heir to the Johnson & Johnson fortune. The film, which featured Ivanka Trump, S.I. Newhouse IV and Georgianna Bloomberg, among others, provides a glimpse of the lives of the world's richest kids. Some struggle with insecurity, and the constant fear of disinheritance, not to mention a strange sense of entitlement -- at one point, Juliet Hartford, A&P supermarket heiress, jokes that she'll give all her money to the homeless ("no, I'm kidding"). It's enough to make one question the whole idea of inheritance.
This is actually a notion with some pedigree. Most of us don't see anything wrong with giving our children a start in life -- a comfortable home, an education -- or leaving them a little money. But hereditary privilege has long had its critics. Adam Smith, the father of capitalism, believed social privilege should be earned. "Every generation," he wrote in The Wealth of Nations, "has an equal right to the earth and to all that it possesses." And Thomas Jefferson raised the question of whether such privileges should be banned altogether, for much the same reason (an idea some might have revived in light of Leona Helmsley's recent bequest of $12 million to her beloved white Maltese, Trouble).
Most people, of course, wouldn't disavow inheritance in their own lives. Chuck Collins did. A member of what Buffett describes as the "lucky sperm club," the great-grandson of the German meat-packing millionaire Oscar Mayer wanted no part of his family's fortune. He feared it would be a barrier to his future success. So at 26, he gave every penny of his US$500,000 share to charity. "When you're in your 20s you don't want your life defined by something that happened three generations earlier," says Collins. "I've seen friends inherit money and have it be, as Andrew Carnegie said, a curse. They couldn't figure out what their own calling was."
In Collins's case, issues relating to inheritance have become his life's work. As executive director of the Fair Economy Action Fund, Collins leads the effort to preserve the estate tax in the U.S. He even wrote a book with William Gates Sr. (Bill's dad), Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes. Now 47, with an 11-year-old daughter, he says he's often asked by friends if he regrets not keeping the money for her sake. He doesn't. He estimates his fortune would be worth about US$6 million today, but Collins, who grew up in a "bubble of privilege," doesn't think he could better provide for his daughter if he had more money.
Peter Munk's view that wealth shouldn't be hoarded by the generations who didn't earn it was shaped in large part by his working-class upbringing. "In Europe every generation had to start again -- unless you were a British aristocrat," says Munk. "That added the most important ingredient that I used for my success, which is self-confidence." He adds that he has "very little sympathy for all those extra crutches you need in life."
So when Anthony, Munk's eldest son, wanted to work in Alberta's high-paying oil fields one summer during university, his father, who could have easily bought him any car that he wanted, told his twentysomething son to hitchhike (Anthony did). He is now a managing director at Onex Corp. All of the Munk siblings have found success independent of their dad's fortune. "Imagine how distorted that would be if I were to leave $50 million to each," says their father. And though Munk jokes that he doesn't "know what they say behind my back," his kids fully support their father's charitable efforts; since launching his foundation in 1992, Munk has given tens of millions to worthy causes.
Experts say it helps that, like Buffett and Gates, he set out the ground rules for his kids early on. "Otherwise, they're lottery winners," says Zeeb. The key is starting conversations about money when they're young. That way nobody is surprised by what they get -- or don't. Increasingly, the wealthiest families are setting up foundations, not unlike Buffett's and the Gates', which allow them to be altruistic but also provide a sense of meaning and direction for their kids. "Philanthropy is a great training ground for preparing the next generation," says Ricker. "It keeps the family together and does good things." Not to mention, she adds, "it's now sexy to give your money away."
...doesn't mean we oughtn't prevent what is in republican theory a malignant policy. Posted by Orrin Judd at October 15, 2007 12:07 AM
I bet these billionaires who give their money away and feel good about themselves would spend their billions fighting tooth and nail against Uncle Sam's confiscating their fortunes when they passed.
I support giving to charitable causes on one's own free will, but against giving on Uncle Sam's will.
Posted by: ic at October 15, 2007 1:37 PMIt's been a staple of Western political discourse since Plato (not to mention 1 Samuel) that great and good men often have reprehensible and worthless sons. Why don't we take away the children of the rich and powerful, and raise them in state orphanages with paupers' children? Just because it's disastrous in practice?
"A good man leaveth an inheritance to his children's children, and the wealth of the sinner is laid up for the just." Proverbs 13:22.
Posted by: Random Lawyer at October 15, 2007 1:52 PMcf., Galton's Law of Filial Regression.
http://cancerweb.ncl.ac.uk/cgi-bin/omd?Galton's+law
Quite simple, actually. It were surprising if it were otherwise.
The republic doesn't require that the rich have worthwhile children. It does require that riches/power not be concentrated in the hands of a few.
Posted by: oj at October 15, 2007 3:05 PMIf it's concentration of wealth we're worried about, why even wait for the rich man to die? The wealth is much more concentrated in his hands than in it will be in the hands of his widow, kids, ex-wives, mistresses, estate lawyers, accountants, and assorted hangers-on.
As long as his capital is close to freely alienable -- no primogeniture or entail, a vigorous Rule Against Perpetuities, etc. -- there is no need to worry about even his wealth becoming concentrated in a few hands, much less about a material portion of the wealth of the nation as a whole being so concentrated. If the kids can spend it, they will. Concentration of wealth has never been much of a problem in America and the richer our society as a whole gets, the less of a problem it is. Let a thousand billionaires bloom.
Posted by: Random Lawyer at October 15, 2007 4:44 PM...Leona Helmsley's recent bequest of $12 million to her beloved white Maltese...
People should at the very least be prevented from leaving money to non-humans.
Posted by: Brandon at October 15, 2007 4:54 PMHe has rights while he's alive.
Posted by: oj at October 15, 2007 7:26 PMEliminating copyright and patents would go a long way to preventing the hoarding of illegitimate wealth.
Physical property should be able to be willed, destroyed, given, whatever. But "intellectual property" must be treated for what it is, ideas, not property. Ideas are the ultimate inheritance to the society they were born in, and the world. The current climate of being able to own an idea forever is not conservative, but evil.
Posted by: Randall Voth at October 15, 2007 8:25 PMTo the contrary, they're so important they're explicitly provided for in the Constitution. We want to encourage ideas and protect them because they create wealth. Mere inheritors don't.
Posted by: oj at October 15, 2007 9:57 PMAmong the many hoots in this thread, the biggest must surely be the notion that deploying money to the government gaurds against the concentration of wealth. An obviously asinine assumption...and anyone making such a claim is deranged.
Money to the govermment implies two things:
1) The destruction of wealth and wealth generation capability.
2) The simple massing of money for legalized thievery.
Neither of the above are pretty and run counter to the good of a republic.
Further more, the assumption would require that any inherited wealth not taxed stays concentrated in the hands of the {victim}, something we know not to be true.
Lastly, if the wealth is in the form of corporate holdings or businesses, does breaking it up to pay the tax man help anyone except the brokers, auctioneers, liquidators and other vultures?
Starving the government is moral, not feeding it.
Posted by: Perry at October 15, 2007 10:54 PMYes, breaking corporations is tremendously helpful as witness the success of telecommunications when the phone company was broken and the failure of IBM when it fought off the feds.
Posted by: oj at October 16, 2007 7:22 AMWasn't it Carnagie who wrote, 'He who dies rich, dies disgraced.'?
Posted by: Mike Earl at October 16, 2007 2:04 PMCopyrights and patents don't encourage ideas, they stifle the derivation of ideas.
Witness the fact that the Franklin stove saved much of the east coast's firewood -- an idea Benjamin Franklin gave away freely -- but the stove failed in England, where it was granted a patent to the fraud who stole the idea from Franklin.
An idea becomes successful though derivation, something specifically impeded by copyrights and patents.
It is no accident that Switzerland's and the U.S.'s greatest growth came during a time they ignored patents and copyrights from other nations.
Posted by: Randall Voth at October 16, 2007 6:40 PMNot that anyone is still reading this thread, but here is another contrary example:
Maybe 7 years ago, I bought my wife a Steinway & Sons grand piano. This old company holds something like 70 or 90 patents (all run out long ago, obviously) and have contributed more to the development of the piano than any other.
Steinway was family owned from 1853 until 1972 and one of the greatest examples of maintaining a brand name in history. (It has been sold and now merged into a conglomerate... we'll see what happens to them when they inevitably go the way of, say, Cadillac or Chrysler...)
Breaking up Steinway at the turn of the century would have been disastrous. Sure, the great grandchildren lost interest, but they sold it (the company, not the patents), as was their right.
My point is that the patents Steinway had were not what made the company or its products great, it was the dedication to the highest standards and the consistent marketing of their brand. After seven years, anyone was allowed to copy their innovations, but, still, no one was able to compete. The Chinese could build a Steinway copy today, but, instead, they build Pearl River, the laughinstock of pianos that are barely good enough for decoration.
Marketing and quality are not subject to patents or copyright. They are the only things that matter with regard to the products we all enjoy.
Apple, Harley-Davidson, BMW, etc. etc. etc.
Posted by: Randall Voth at October 16, 2007 8:03 PMDidn't need to break it up, just pay their taxes. If it was making the product that mattered to them the money didn't matter.
Or take it public.
Posted by: oj at October 16, 2007 10:11 PMTo the contrary. People don't share ideas nor send time having them and proving them unless it';s worthwhile, which is why we have the world's most innovative economy and the most patents per year.
Posted by: oj at October 16, 2007 10:17 PMThat last bit is silly. It is the product that sells, not the idea. Read up on G.M.'s burying of the McPherson strut patent and how the Japanese car industry thrived on it once the patent ran out to add some facts to your fallacy.
You fail to address the stifling of derivation and improvement upon ideas, all of which is hurt by patents and copyright. How high the price can never be known, because the ideas were stifled.
Of course America wants to hoard ideas forever (witness the continuous extending of copyright) because monopolies are the foundation of empires -- exactly the opposite of what you claim to desire.
Plus, your expressed angst for inheritance flies in the face of the major benefit of HSAs --inheriting them to your children.
Of course, it is ironic that this very blog is built upon the work of Dave Winer, who is an advocate of open ideas and the free development that results. His work developing "blogs" has created a fabulous freedom of the press that would never have resulted if, say, the New York Times had a patent on blogs.
We must never forget what Jesus said, "freely ye have received, freely give." (Mt 10:8)
Posted by: Randall Voth at October 17, 2007 12:29 AMBecause it's false. Nearly all Japanese patents are just "improvements" on our ideas. Adding gewgaws is insignificant.
Blogs are a perfect example of how little value the derivative add to the original.
Posted by: oj at October 17, 2007 6:10 AM