In his short story “Rich Boy” F. Scott Fitzgerald wrote:
“Let me tell you about the very rich. They are different from you and me. They possess and enjoy early, and it does something to them, makes them soft, where we are hard, cynical where we are trustful, in a way that, unless you were born rich, it is very difficult to understand.”
Estate plans for rich people are different too. There are the usual decisions and concerns about taxes, trustees, accountings, charities, and individual beneficiaries – all enhanced by the larger numbers involved. But more uniquely there is the realization that too much easy money ruins people.
It is common to recognize that people who create wealth – the “first generation” – usually don’t care that much about money. They have been poor (or at least middle class), have taken risks, and have struggled. Most have failed more than once. Their perspective on life is shaped by those struggles. Wealth to them is secondary to success, and success is good but not all good. They are proud of what they achieved, but often also regretful about what they sacrificed to get there. As a general rule, they have middle class values: hard work, humility and an appreciation that they are not better than anyone else – just more fortunate. What drove them to succeed was not the desire to be rich, but a passion for the thing they did well that allowed them to succeed.
They would love to give their children what they had: a life of struggles and achievement, a sense of accomplishment, the feeling of exhaustion and exhilaration that comes with hard work, but all they have to give is money, and therein lies the rub.
In recent years this realization has developed into an interesting trend to include, as part of the estate planning process, strategies to offset the ill effects of inherited wealth.
These strategies include bringing the children into the family business and placing responsibilities on them only as they demonstrate the ability and commitment to the business. It’s not a perfect system, because, let’s face it, when the kid knows you are going to die and they are going to inherit the business whether they try hard or not, there is a certain lack of reality to this game. And it is also true that not every child of an achiever has the same capacity as their successful parent.
Another trend is the family foundation approach, whereby resources are dedicated to a charity run by the family members. Grant requests are issued, and children of the wealthy participate in the selection of deserving charities and in awarding grant funds. The idea is that this also helps teach the next generation about the value and importance of money. One must wonder though, does it really just feed arrogance and an unjustified sense of self-importance?
There is even a new profession of family wealth counselors who help facilitate the transfer of wealth from one generation to the next, by organizing family wealth meetings and facilitating communication among the family members about this topic and its impact on them.
All of this seems hokey – and it probably is. What it demonstrates is how important this issue is for those who have created wealth. They are typically bright and practical people. They can see that the children of other wealthy people they get to know often turn out to be lazy, arrogant asses.
For planners, it is a difficult issue. Answers aren’t easy, if they exist at all.