Gates’ vs Waltons: How much will you leave to your kids?

Kimura's picture
Rank: Senior Baboon | 246

I haven't seen this topic discussed much on WSO. When it comes to inheritance, the common wisdom is that when parents pass on, whatever they have goes to their kids. Clearly, this choice is considerably harder for the wealthy than for the rest of population. Considering that a huge percentage of monkeys on WSO are well educated and have high earning potential, I believe that this is the right board for this topic.

Self-made wealthy are more generous than heirs

Bill Gates thinks that people in need depend on self-made millionaires and billionaires to donate money before passing their wealth on to less-generous heirs.

"Our experience worldwide is that first-generation wealth is actually more generous than dynastic wealth," Gates, the richest man in the world, said in 2011 at a press conference in New Delhi. "Both here in India and U.S. and other countries, the biggest givers are those who are receivers of first-generation wealth. The fact that India over the last 20 years has developed these incredible success stories means that a very high percentage of them in their own way will be giving back to society."

Looking at the top 20 ranking of the Bloomberg Billionaires, approximately 70 percent of the listers are marked as self-made (yes, I don't exactly consider Kochs to be self-made). However, according to the liberal group United for a Fair Economy and its 2012 report, just 35 percent of the Forbes 400 list were raised truly poor or middle class.

Twenty one percent inherited enough money to join the 400 without lifting a finger, what UFE calls being "born on home plate." Another 7 percent inherited at least $50 million or a "large and prosperous company," 12 percent inherited at least a million bucks or a decent-sized business or startup capital from a relative, and 22 percent were "born on first base," into an upper class family or got a modest inheritance or startup capital (UFE says it was conservative in assigning people to bases, so its report understates their advantages somewhat). So, at least 62 percent did not, in fact, make their fortunes "entirely from scratch."

Even though it is very hard to generalize because of the enormous wealth gaps, it seems that there are several most popular inheritance choices for the top 1%.

Group A - almost 100 percent

Nowadays, there are quite a few tycoons like Warren Buffett or Bill Gates who won't leave their fortunes to their kids. Whether they decide to give their money to some cause, charity or even a visionary entrepreneur like Elon Musk, these guys will leave a very small percentage of their wealth to their kids and family. For example, Buffett has pledged to give away 99% of his wealth, promising 83% of it to the Bill & Melinda Gates Foundation.

Group B - more than 50 percent

"The Giving Pledge" is a philanthropic campaign kicked off by Warren Buffett and Bill Gates which invites wealthy individuals to join the Gates' lead and donate half their money to charity. Forty US billionaires including Mark Zuckerberg, George Lucas, Barron Hilton and Michael Bloomberg have already signed up.

There are, however, notable absentees. This brings us to the Group C.

Group C - less than 5 percent

Four of the America's 10 wealthiest people are members of the Walton dynasty which founded the world's biggest retailer, Walmart, and are worth a whopping combined total of $175 Billion (as of January 2015). None of the discount shopping heirs has signed the pledge. They do give money through their endowment, however, whereas Gates has endowed his Foundation with around 60% of his wealth, the Walton Family Foundation has only about $2.5 billion endowment - just a small fraction of the family's wealth. Furthermore, according to the report released by Walmart 1 Percent, a project of union-backed Making Change at Walmart, almost none of this largesse is the result of donations from the Waltons themselves.

The central finding of this report is simple: Our analysis of 23 years' worth of the Walton Family Foundation's tax returns shows that Rob, Jim, Alice and Christy Walton--the second generation Walmart heirs--have contributed almost none of their personal fortune to the foundation which bears their family name.

Group D - other

There are also many creative strategies. For example, Peter Jones, a British entrepreneur and businessman, has an interesting approach.

"My children won't get large chunks of cash, no. I've set up an arrangement which gives them something called match-funding. When they finish full-time education and start to work, whatever they earn, they will get the same again. Every year for the rest of their lives the trust will double their income."
He would like at least one of his children to devote their life to charitable work, in which case they'll get 'over-compensated' by the trust. In other words, he plans to incentivize his kids - even from beyond the grave - to do good work.

I'd like my kids to work hard and be productive, but should they decide to pursue a career that is riskier or low-paying, they'll have the finances to support those dreams. The group of my choice would be Group A.

Obviously (and unfortunately), not everyone will have enough at the end of their lives to afford such a decision, but when it comes to long-term financial planning, what are your goals and what do you fellow monkeys think is "the right thing to do"?

Links upon request (new monkey)

Comments (33)

Apr 21, 2015

I'm going to ask them to bury my billions in 100s with me in my casket.

    • 1
Apr 23, 2015

i find it ridiculous that the Koch bros and some other are consistently on self-made lists

i honestly doubt that there are many names who really started from the scratch... Oprah, Howard Schultz, Larry Ellison, Shahid Khan, etc. come to mind; i would't discriminate people who were able to afford to go to ivy league schools or had some startup capital though

in on A team (if i can afford it one day)

@fromtheshadows cremation fueled up with $1 billion sounds better - epic green smoke and ashes smelling like http://www.liquidmoney.com/

Apr 24, 2015

Had no idea Ellison came from nothing. After reading about his life on Wikipedia...goodness so inspiring.

No excuses are sufficient.

Apr 23, 2015

As much as I admire Gates, his no shit Sherlock conclusion on this one ranks pretty high up on the all time list.

Those that received their money from someone passing it on to them rather than donating it away, are less likely to donate it away, whereas if their ancestor had donated it away, they wouldn't appear on his sample in the first place.

Apr 23, 2015

Exactly.

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Apr 23, 2015

I would set my kids up with the opportunity for a good education and the knowledge to invest wisely. Aside from that I will give it away (if I ever reach that level).

Apr 23, 2015

I'm still trying to pay my cell phone bill on time but I'll follow the logic of my grandparents when my mom asked what their will contained. "We're going to leave you with the best thing in the world...advice". They were broke.

Apr 23, 2015

Work-around for the income matching strategy: setup shell company with wealthy friend that exists solely to pay you a salary that maxes out the trust. Receive the match and kick-back the salary+enough return to make it interesting to your friend. Hire expensive lawyers to fend off your siblings as they attempt to draw from the exhausted trust in subsequent years.

Apr 23, 2015

I agree with 'Link_REDev'

I think I will prioritize offering my children a solid foundation rather than planning on what I will leave behind. Also, when I mean building a solid foundation I'm not talking only about a monetary base; sure, giving them something to work is great, but shaping them into good people would be more beneficial in the long-run.

As for the chunk of money on that day Mr. Death comes visit, I would want it to be split between my family and charity, maybe 50/50 or 60/40.

"Suffer today and live the rest of your life as a champion!"

Apr 23, 2015

I'm just going to give 100% to my kids while i'm still around, let 'em go crazy on coke and lambos until they hit rock bottom and realize early in life that there's more important things than money. then they can go move to india and be buddhist or whatever steve jobs did, then take a $1 salary at a company that changes the world.

just gotta convince the wife.

Apr 24, 2015

Solid plan, but good luck with the last part lol

Apr 24, 2015

For me I think it depends 100% on how my kids turn out. Ideally I want to be successful to help my family achieve success and have a better life. If they are smart and motivated I'd leave probably 50%-75% to my kids. However if they are lazy and expecting to just live off a trust fund without having to work then I'll pull a Buffett and give it all away and make them work for it on their own.

Apr 25, 2015

Im giving my kids everything when I die. Don't really care how they turn out. When I die thats it for me might as well give it to my kids. I grew up in a very poor family and my parents didn't have a dollar to their name. I never want my kids to have to live like that ever.

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Apr 25, 2015
jiggider:

Im giving my kids everything when I die. Don't really care how they turn out. When I die thats it for me might as well give it to my kids. I grew up in a very poor family and my parents didn't have a dollar to their name. I never want my kids to have to live like that ever.

I lean towards this. I've worked very hard and taken huge amounts of risk for what I've made, I don't want to give it all, or even a majority, away to everyone else. You give plenty of money away during your life simply through taxes (especially if you're a few standard deviations away from the mean) and you get hit with an inheritance tax. I'm not complaining about those, I give credit that I couldn't do what I've done without all of the infrastructure (and I don't simply mean roads and airports) of our country and I think the wealthy should pay more, but somehow now if you can rub a couple of nickles together you're supposed to give them all away when you die also? They're my kids and it's my money, I want them to have it. Even if a kid turns out to be a fuck up you can put it in a trust restrictive enough with a trustee that's not going to let them blow it all on hookers and coke and you can direct it to the next generation.

And I'm a pretty charitable person both in terms of monetary donations and time, so I'm not a miser but I feel like all of this giving away all your money shit is ridiculous. Although perhaps it's different if you're a Gates, Buffett or merely worth a few billion. Luckily I don't have those problems...

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Apr 26, 2015

Solid post, agree on all counts.

I also won't feel morally shamed by Gates et al when it comes to keeping money in the family. Unlike the general public, I haven't forgotten what dickholes they were on their way to the top.

Apr 26, 2015

My children will receive 100% of my estate (when there is one). I believe there is no greater mission in life than teaching your children to be good people and if by the time I die I haven't succeeded in teaching them the importance of helping others with our good fortune then I haven't been the proper parent and educator.

I'd just rather teach my kids how to be charitable rather than give it to someone else. We will help many others and work with many charitable organizations, but I won't just be giving it to the Gates foundations. There are plenty of needing initiatives we can find and support with out time and wealth.

But apart from the charity stuff, I have an crazy sports memorabilia list I plan to assemble with my kids and it will be one of the most epic entertainment rooms ever!

Apr 26, 2015
TheBigBambino:

My children will receive 100% of my estate (when there is one). I believe there is no greater mission in life than teaching your children to be good people and if by the time I die I haven't succeeded in teaching them the importance of helping others with our good fortune then I haven't been the proper parent and educator.

I'd just rather teach my kids how to be charitable rather than give it to someone else. We will help many others and work with many charitable organizations, but I won't just be giving it to the Gates foundations. There are plenty of needing initiatives we can find and support with out time and wealth.

But apart from the charity stuff, I have an crazy sports memorabilia list I plan to assemble with my kids and it will be one of the most epic entertainment rooms ever!

If you plan on having your kids give to charity, then you should just give some to charity yourself, you'll save a lot on inheritance taxes. You can still have them manage your foundation after you're dead or even while you're still alive.

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Apr 26, 2015

really depends on how much you have. while I'm alive I'll make sure my kids have everything. the sons will need nice cars and a place to party with girls. and then gotta make sure you have enough cash to cover up any trouble they get into and also pay for their private educations.

if you marry a trophy wife, make sure everything goes to your kids in the will.

and if you have serious money, then it probably feels best to do something to help other people.

Apr 26, 2015

To me it's none of the public's goddamned business what people decide to do with their own money.

While I couldn't care less what a person does with his own wealth, it should be pointed out that posthumously giving away one's wealth isn't particularly "generous." What you're really saying is that you can live in a $100 million house today, own sick yachts today, fly private jets today, and when your body is being eaten by worms someone else can have your money. How is that generous?

But it's sure a great way to live large while also receiving the praise of men for your "generosity."

Apr 26, 2015

Anything you leave in your Will eventually becomes public record. In theory if i knew your name, i can read what you wrote in your will. (Don't shoot the messenger, I think its ridiculous)

Another reason why trusts are popular is the privacy aspect for this reason.

Apr 26, 2015

It's not a rocket science. I see it this way:

It is generous because you are (hopefully) giving back to the people in need. It doesn't have to be some big-name organization, you can help in many other ways.

I'd prefer to give back while I am alive and to teach my kids to do the same with their and my money. Maybe I would donate my money to some organisation which I like and think is well managed.

Say the society rewarded you for something and you've lived a rich life of abundance. Living on such a high level must give people an unique perspective on the world. Not sure how to define that moment of epiphany, but after years of fucking around on yachts and enjoying the fruits of your labour, one might realize that there is more to life than that.
Sure, you don't have to give anything back, it is 100% your choice. However, I believe that humans rise by lifting others.

You can make a huge impact on the world and see tangible results. It is scary how little is needed to turn around somebody's life. You can literally give some kids' lives by saving them from illness, or maybe change the whole community by giving few bright young minds access to the education.

I think public should be educated and inspired to help others. You don't have to be rich to do it. People are too concerned about preserving their own wealth.

Apr 26, 2015
animalz:

It's not a rocket science. I see it this way:

It is generous because you are (hopefully) giving back to the people in need. It doesn't have to be some big-name organization, you can help in many other ways.

I'd prefer to give back while I am alive and to teach my kids to do the same with their and my money. Maybe I would donate my money to some organisation which I like and think is well managed.

Say the society rewarded you for something and you've lived a rich life of abundance. Living on such a high level must give people an unique perspective on the world. Not sure how to define that moment of epiphany, but after years of fucking around on yachts and enjoying the fruits of your labour, one might realize that there is more to life than that.
Sure, you don't have to give anything back, it is 100% your choice. However, I believe that humans rise by lifting others.

You can make a huge impact on the world and see tangible results. It is scary how little is needed to turn around somebody's life. You can literally give some kids' lives by saving them from illness, or maybe change the whole community by giving few bright young minds access to the education.

I think public should be educated and inspired to help others. You don't have to be rich to do it. People are too concerned about preserving their own wealth.

What? What the hell are you talking about? You completely and utterly missed the point of my post. I'm not saying it isn't "generous" to give away your money; I'm saying it isn't actually generous to give away your money once you're dead. You get all the benefits of wealth without any of the sacrifices of generosity. It's a complete sham.

Apr 26, 2015

Didn't read OP but my $0.02 is that wealth lasts 3 generations.

The first gen comes over/immigrates/starts/creates something, and builds the wealth. The second gen, after the first gen, sees there parents working hard, be conservative and live a good solid life, as well as do well for themselves. The second gen "preserves" the wealth. The 3rd gen is the one that spends it. They are your artsy/drama class, snowboarding partying type. (That's a generalization)

Point is, people with the means should be working with the right professionals to help them with wealth transfer, simple as that. if you're worth more than 25mm consider a family office, but that's on the small side.

Apr 26, 2015

To further add...I've had many meetings with people face to face talking about death and how much they want to leave to their heirs or charity etc. The tax strategies/opportunities with charitable giving is huge.

Most of these people are not the "I want a cancer centre after my name" rich. I'll call them "mass affluent" between 1-5M. I think Warren Buffet said it best, although im paraphrasing its something along the lines of "Leave your kids enough so that they can do anything they want, but not so much that they don't have to do anything". I use that line in meetings and it works great.

to each there own though, my job is not to judge, but provide non-biased counsel and do what the client wants in the most efficient way possible.

Apr 26, 2015

replied to wrong user

Apr 26, 2015

OK, so i read some of the OP. Everyone talks about Buffet giving away 99% of his wealth, or whatever it is this week. There is reason for it, and although i dont know his situation im going to guess that a big one is taxes. Here's a question...what's his ACB on his Berkshire shares? I'd imagine upon his death he will have massive capital gains, probably in the billions. Donating shares/money lowers your estate value, thus having a lower tax liability.

Apr 26, 2015
PeeHoleFarts:

OK, so i read some of the OP. Everyone talks about Buffet giving away 99% of his wealth, or whatever it is this week. There is reason for it, and although i dont know his situation im going to guess that a big one is taxes. Here's a question...what's his ACB on his Berkshire shares? I'd imagine upon his death he will have massive capital gains, probably in the billions. Donating shares/money lowers your estate value, thus having a lower tax liability.

For now, you get a stepped up cost basis on everything you own in the US when you die. That is the good news. You might owe more than 50% to the government through inheritance taxes anyway, which is, of course, the not so good news. If all he owed was capital gains taxes when he died, he'd be in a much better spot.

Apr 27, 2015
DickFuld:

"PeeHoleFarts" wrote:OK, so i read some of the OP. Everyone talks about Buffet giving away 99% of his wealth, or whatever it is this week. There is reason for it, and although i dont know his situation im going to guess that a big one is taxes. Here's a question...what's his ACB on his Berkshire shares? I'd imagine upon his death he will have massive capital gains, probably in the billions. Donating shares/money lowers your estate value, thus having a lower tax liability.

For now, you get a stepped up cost basis on everything you own in the US when you die. That is the good news. You might owe more than 50% to the government through inheritance taxes anyway, which is, of course, the not so good news. If all he owed was capital gains taxes when he died, he'd be in a much better spot.

I'm from Canada so not too up to date with the US Estate laws. But yes, should it all be cap gains he would be in a much better spot

Apr 26, 2015

Good, serious video (Bill Gates Harvard Commencement Address 2007)

Apr 26, 2015

I highly doubt that I'll be having kids or getting to a wealth threshold where I'd be thinking about giving a large chunk away. Personally, the only way I'd be bringing kids into a future world of shit is if I was able to set them up with enough money to not worry about every day survival. The bare minimum I'd want them to have at the age of adulthood is $1mm each-figure the lump sum protected by myself and interest bringing them $30,000-$50,000/yr. I've thought about future inheritance for shits though:

net worth under $50MM: 95% will go to children & family. Maybe leave a low six figure donation to one organization that directly affected my life.

$50MM-500MM: 90% to my children.

$500MM-3 billion: Here is where it get's tricky because you're guaranteed to be a public figure and everyone knows you're worth major money. I wouldn't want to make my kids targets for the underbelly of wealth (kidnappers, moochers, Occupy types) and I'd also have to keep a good public image so I'd lie and say I was giving 99% away but have enough money hidden offshore to keep it more at 75%

over 5 billion: when you're this deep the percentage of money left to charity hardly matters.

My opinion is that at some point in my life and especially my future children's life the world will be turned upside down. The US could become totalitarian, we could have a worldwide depression, Crusades part II, etc. Most of human history has been shitty for non-elites and I expect the world to return to that standard. If I ever made fuck you money I would certainly make sure my kids had it too just for the purpose of surviving whatever the world throws at them.

I also don't believe that money is a quick route to drugs and hedonism. I've never spent time around the extreme wealth, but during my experiences with the moderately wealthy/upper middle class, middle/working class, and poor, the poor were most likely to abuse life ruining drugs (meth/crack), followed by the middle class (heroin/painkillers). The middle class and poor were both more likely to engage in conspicuous consumption than someone from a posh background. Most of the Justin Biebers, celebrity burnouts, and lottery bankruptcies have two things in common: a sudden windfall of money and fame/public knowledge of that money. If you can prevent those two things along with teaching discipline and morals, money will just be an extension of your kids morals.

Lastly: Warren Buffett. I read his sons autobiography which said his dad gave him less than $100k in total. I think it's a complete slap in the face to give away everything you've ever earned to strangers over your own children. Imagine if you didn't get any toys for Christmas because your parents decided to give them to somebody else. Sadly, a good percentage of Baby Boomer parents will follow his example-the ultimate selfish act.

Apr 26, 2015
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