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 Warrenor 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, 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 Warrenand 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)