Author Topic: Dynasty? Empire? What to do with unconsumed assets?  (Read 10422 times)

zolotiyeruki

  • Handlebar Stache
  • *****
  • Posts: 2156
  • Location: State: Denial
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #50 on: June 15, 2017, 07:59:57 AM »
On the subject of only giving money to inheritors who would use it well, I'm reminded of a story (probably apocryphal, since I haven't been able to find it again) about a billionaire who promised each of his kids $40million when they had completed the following:

--graduated from college
--held a full-time job for 10 years
--been married to the same person for 10 years
--spent 2 years overseas
--spent 2 years volunteering for a charitable organization
(I don't remember the whole list, but it was along these lines)

TomTX

  • Magnum Stache
  • ******
  • Posts: 2558
  • Location: Texas
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #51 on: June 15, 2017, 02:10:37 PM »
On the subject of only giving money to inheritors who would use it well, I'm reminded of a story (probably apocryphal, since I haven't been able to find it again) about a billionaire who promised each of his kids $40million when they had completed the following:

--graduated from college
--held a full-time job for 10 years
--been married to the same person for 10 years
--spent 2 years overseas
--spent 2 years volunteering for a charitable organization
(I don't remember the whole list, but it was along these lines)

OH, sweet! I just need to spend 2 years overseas! I've got more than double the other "years" categories.

Got enough FU money for THAT!

Where can I sign up?
Credit card signup bonuses:

$150 bonus on $500 spend for Chase Freedom:
https://www.referyourchasecard.com/2/MU4TDQ1N3K

$50 bonus (no min spend, just use it once) plus double all cash back at the end of 1 year for Discover, including the initial $50:
https://refer.discover.com/s/37e3u

$500 bonus on $4,000 spend for Chase Sapphire Preferred:
https://www.referyourchasecard.com/6/Z8JIP66H7G

protostache

  • Pencil Stache
  • ****
  • Posts: 709
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #52 on: June 15, 2017, 02:36:57 PM »
Thanks for all the ideas and suggestions. This forum is worth it's weight in gold!

I bought this book:

https://www.amazon.com/Family-Wealth-Keeping-Intellectual-Financial-Generations/dp/157660151X/ref=sr_1_1?s=books&ie=UTF8&qid=1495583925&sr=1-1

and the insights are fascinating. It is possible to retain wealth over multiple generations. Not easy, but possible and this book explains. Written by an attorney who spent his life tackling this problem. For just a few dollars, you can have the distilled essence of an attorney's life work. Best deal I've found this year.



This topic has been on my mind for a long time. Thank you very much for the book suggestion. I've read the first chapter so far and it's very interesting and inspiring. So far it's just my wife and I and our one daughter, but I imagine in time there will be other kids and grandkids, along with a sizable stash, and my goal is the same as the author's: preserve and the ability for every member of the family to purse their own individual happiness.

I've been thinking an awful lot about this book over the past few weeks. The lessons really apply to any family, any amount of financial wealth, and any amount of charitable giving the family wants to do.

Hughes' thesis is that every family has three types of capital: human, intellectual, and financial. The human capital is the people that make up the family. Adding new people, either through birth, adoption, marriage or other affinity adds to the human capital of the family. The intellectual capital of the family consists of everything that everyone "knows". Formal education and lived experiences add to the intellectual capital of the family. Financial capital, straightforwardly, is the combined financial net worth of the family.

In order to continue as a coherent unit for more than three generations a family must maintain and grow all three types of capital. Hughes argues that financial capital is merely a tool for maintaining and expanding the other two types and focusing solely on it is what causes the "shirtsleeves to shirtsleeves in three generations" phenomenon.

The first generation generates the initial family wealth. The second generation knows life without wealth and thus maintains it and does not take it for granted. The third generation takes advantage of the wealth and spends it all frivolously. Hughes argues that a family must cultivate an attitude within each generation that it's both a first and second generation simultaneously.

It's a fascinating book and I'm not doing it justice here, but I believe it reflects the attitude of this forum better than the title would suggest.

FIREby35

  • Bristles
  • ***
  • Posts: 407
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #53 on: June 16, 2017, 06:53:53 AM »
I bought the book as well. I agree the title is misleading. It's much more holistic in its attitude about preserving wealth and developing a well-rounded family than its title would suggest.

maizeman

  • Handlebar Stache
  • *****
  • Posts: 1259
  • Location: The World of Tomorrow
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #54 on: June 16, 2017, 07:26:51 AM »
Great article that shows a little math on why a trust fund designed to benefit all future heirs doesn't really work, math-wise. Within a number of generations the family tree is so large that the share of assets is diluted down to practically nothing. It discussed a neat alternative idea though.

http://actionecon.com/building-generational-wealth/

I'm not sure I followed the math here. He assumes two children per couple, and a generation time of 25 years (which corresponds to an annual growth rate of 2.8%).* If we assume 5% real growth for a portfolio the doubling time for the trust would be about 14 years, so it seems like it, given enough money, it should be possible to set up a trust that would continue to provide about the same inflation adjusted benefit descendants for many generations.

Now the author also makes the (very valid) point that after a dozen or so generations the current generation will share only a small fraction of your DNA. Whether this influences your decision making will vary from person to person. People are obviously able to put a lot of emotional investment into others who share no direct genetic relationship with them (for example adopted children). OTOH, people who share no genetic relationship with you, have no memories of you, and who you'll never have the chance to interact with...

The final point that tax laws may change in the future in ways that are unfavorable to dynasty trusts is also well taken and something folks will need to be aware of.

*In America, excluding first generation immigrants, our fertility rate is now down to 1.79 children per woman and continuing to decline. Average age of the mother at first birth is up to 26.3 years, while average age of the mother at second birth is up above 28, and both numbers are continuing to increase. So two children per couple with an average generation time of 25 years is actually more pessimistic than the statistics would indicate. 27 years and 1.8 kids drops the annual growth rate of descendants from 2.8%/year to 2.2%/year, so a significant decrease even if current trends stopped tomorrow.
"Its a selective retirement," Richard explained, "a retirement from boring s**t."

My source code & my journal

WoodStache

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #55 on: June 16, 2017, 01:22:54 PM »
Great article that shows a little math on why a trust fund designed to benefit all future heirs doesn't really work, math-wise. Within a number of generations the family tree is so large that the share of assets is diluted down to practically nothing. It discussed a neat alternative idea though.

http://actionecon.com/building-generational-wealth/

We recently completed our will and living trust* with our lawyer. We had a child this year, and were we to kick the bucket before he reaches 18 our money would go into a trust. He would get a dollar for dollar match on any income he earns through age 35. At 35 he gets the balance. This obviously divides into smaller pieces with each subsequent kid.

If he or his future siblings pursue a high paying job they can take advantage of TVM and get a higher match in earlier years. Conversely, if he wants to be a teacher and earn 40 grand per year, this affords him the opportunity to follow his dreams and still live and save comfortably with a larger payday at 35. What it doesn't allow him to do is nothing. At least until he reaches 35. At some point we felt the money shouldn't be controlled forever.

Assuming we live to a ripe old age it would be nice to set up a similar trust that matched payments for schooling or something to that effect. Only with the way things are going who knows if that will even be relevant. A neat idea I thought of was using the estate (or a portion of it) to match charitable dollars. So if Grandchild X is passionate about saving tigers in India or building wells in Africa, she can have her donations doubled every year within certain constraints.

Accountant007

  • 5 O'Clock Shadow
  • *
  • Posts: 99
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #56 on: June 19, 2017, 10:32:12 AM »
Been thinking about this as well over the last year.  Up until my generation (in my family), there has been very little money to pass to the next generation.  At least at this point we have settled on the idea that we will try to leave our money where it can have a large impact on someones quality of life.  I am not convinced that place is with my kids, who will have many advantages in their lives.  We may yet leave them a small inheritance.

cheapass

  • Bristles
  • ***
  • Posts: 498
  • Location: Dallas, Texas
  • On track for FIRE @ 40
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #57 on: June 19, 2017, 01:25:43 PM »
Been thinking about this as well over the last year.  Up until my generation (in my family), there has been very little money to pass to the next generation.  At least at this point we have settled on the idea that we will try to leave our money where it can have a large impact on someones quality of life.  I am not convinced that place is with my kids, who will have many advantages in their lives.  We may yet leave them a small inheritance.

It's interesting to think about. I presume our children will be about 50 or 55 by the time my wife and I die, and hopefully the kid(s) will be FI/RE well before that age. Maybe we will "leap-frog" and leave it all to our grandchildren so that they can be FI in their 30's...
Every single decision you make with money either shortens or lengthens your working career.

FIREby35

  • Bristles
  • ***
  • Posts: 407
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #58 on: June 20, 2017, 07:16:17 AM »
Swordguy
This is exactly what I was thinking myself a while back.
Here is this old thread from Bogleheads in 2015.
I was surprised to learn that most people were leaning towards paying for college then taking a lumps sum at 40 years instead

https://www.bogleheads.org/forum/viewtopic.php?t=174802

Wow, I read that Bogleheads thread. I'm struck sometimes at how different my mindset is from people with "real" money! Not a good or bad comment, by the way. Just different.

I calculated my college costs for undergrad and law school to be $55,000 in retail costs and $0 after all scholarships. Despite having worked delivering pizza and washing dishes for four years on top of obtaining all the scholarships to pay for college, my Dad asked me to pay back the $10,000 he gave me over four years in living money after I graduated college! That's a far cry from having a Dad have 200k "earmarked" for his children's education.

I have made my fortune as a entrepreneur and small business owner (law firm). It's different from the idea I got on that thread of trying to get hooked into a great job using the elite universities as a stepping stone. I was always jealous of those classmates!

Anyway, all the above is not meant as aspersions about what's good or bad. I just found the thread highly interesting and thought I'd share why.

stashing_it

  • 5 O'Clock Shadow
  • *
  • Posts: 90
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #59 on: June 24, 2017, 09:00:30 AM »
There is a book about maintaining wealth over generations "Family Fortunes" by Bill Bonner.  The really big fortunes that have lasted generations have relied on a "family office".  The family office manages investments, legal matters, tax matters, etc., but more importantly manages the family via a 'family constitution'.  You have to build a culture that preserves wealth over generations. 

A family office is unfortunately not cheap.  They run about a 1 million a year in fees so are rarely used for fortunes less than 100 million.  Without one, you are (probably) looking at the old saw 'shirtsleeves to shirtsleeves in three generations'.

I'm reading this book right now, and I'm finding it to be only mediocre.    Did you like it a lot.

It's nice that a book has been written on this.  However i'm not sure the authors are really experts in this topic, since they are first generation money, and spoke several times about things I would consider extravagant wastes, such as buying chateauxs in France

tzukulika

  • 5 O'Clock Shadow
  • *
  • Posts: 23
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #60 on: July 06, 2017, 11:08:55 AM »
FIREby35

That was a good tread indeed. I have somewhat changed my opinion on how much I *should* help my kids as well. I have two, I expect and suspect one will do exceptionally well in life , and the other one *maybe*. So I'm inclining to help the less *fortunate* one, but that comes with other dilemmas ....
Hope your Dad situation with money for college will *not* influence your outlook for your kids.
All folks on this site are *scrappers* , we scrape our way to fortunes somehow. Good to hear  about your fortune !

StarBright

  • Pencil Stache
  • ****
  • Posts: 823
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #61 on: July 07, 2017, 06:53:10 AM »
. . .That was a good tread indeed. I have somewhat changed my opinion on how much I *should* help my kids as well. I have two, I expect and suspect one will do exceptionally well in life , and the other one *maybe*. So I'm inclining to help the less *fortunate* one, but that comes with other dilemmas ....

Saw this and wanted to add my two cents. I am the "fortunate" child and my younger brother is the one who just can't seem to get it together despite trying really hard (He has fairly severe OCD that impacts his daily life). My parents help him out (paid off his mortgage a couple of years ago, give him their cars when they upgrade, etc); it generally does not bother me* and it makes their lives better because they aren't worrying about him.

So if helping the less fortunate child out helps you literally sleep better and have a happier day to day life - go for it! My parents are much more fun to be around now that they aren't constantly worrying about my brother's future.

*It does sometimes irk me when I see him spending money just because he has it - but I think that is also jealousy on my part.

FIREby35

  • Bristles
  • ***
  • Posts: 407
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #62 on: July 07, 2017, 07:05:45 AM »
There was an entire thread about "favoritism" toward siblings who get more from parents but got less from god.** I have 9 siblings and I fully admit there was a time when I felt a little irked by my siblings getting so much. They always got things when they needed "bailing out" - usually not literally but sometimes actually bailed out of jail. I never got anything because I never faced an emergency where I asked for help! Ha. Well, in time I understand what happened and I'm glad I got more from god than my parents. It was/is the better lot in life.

My conclusion from the thread is that feeling jealousy but eventually releasing that jealousy by concluding you have the better life is a pattern of thought toward maturity that all in this position experience. Of course, not everyone makes it to the end of the thought pattern and arrives at acceptance and releasing the jealousy. So it's something to keep in mind as a parent.

**Forgive me for using "god" as a ham-handed term to describe all our seemingly innate talents that are wildly variable from person to person.

BTDretire

  • Handlebar Stache
  • *****
  • Posts: 1328
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #63 on: July 07, 2017, 07:14:47 AM »
Mr. Green; I've read the studies as well, but I'm not convinced that it is a law of nature. I tend to believe that now that people are aware of these facts, they can steer against them. For example, since I'm aware of the real possibility of them wasting all the money,

 I want to teach my offspring the value of money so that they don't piss it away.

 I want my children to know the value of money also, we lived frugally while raising them, but that doesn't seem to be enough. My son 23, in college but lives very frugally. My daughter likes to spend money, period! I think she realizes this and her fix is to get a higher paying job. When she finished college she got a good job, with great benefits  immediately out of college. However, after about 3 years the company merged with another and things made a turn for the worse, benefits changed, many people left, she saw where it was going. She made the decision to became a dentist. Now she's going to school for that.

MonkeyJenga

  • Walrus Stache
  • *******
  • Posts: 6258
  • Location: NYC
  • Cake or Death?
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #64 on: July 07, 2017, 07:41:58 AM »
Thus, I posit the question in the header: What is the best way to pass along assets to the next generation? I'm under no illusions that I'll ever be a billionaire or a hundred millionaire. I'm at six zeros now in my mid 40's and with luck, I might have another zero before I die, but a seventh zero is not important to me.

For me, I'm more interested in the best/most efficient use of the assets I've accumulated. An integral part of this is to teach my offspring about personal finance and instill the values necessary to manage and grow large amounts of money.

I don't plan on having children, so all of my money will be left to charity and political causes. Even if I did have children, my answer wouldn't change much. They would be raised with a million advantages, and can handle their own finances.

Giving hundreds of thousands of dollars to one person so they don't need to work, or can buy a bigger house, isn't the best or most efficient use of that money. The same amount could save countless people from malaria or unsafe drinking water, or help move the country to a more equal society. Or pay for a buttload of disco balls and glitter sticks for a giant, international dance party for, uh... for peace. Yeah. That's it.

Assuming we live to a ripe old age it would be nice to set up a similar trust that matched payments for schooling or something to that effect. Only with the way things are going who knows if that will even be relevant. A neat idea I thought of was using the estate (or a portion of it) to match charitable dollars. So if Grandchild X is passionate about saving tigers in India or building wells in Africa, she can have her donations doubled every year within certain constraints.

I love the matched charity idea!

cheapass

  • Bristles
  • ***
  • Posts: 498
  • Location: Dallas, Texas
  • On track for FIRE @ 40
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #65 on: July 07, 2017, 07:59:36 AM »
Giving hundreds of thousands of dollars to one person so they don't need to work, or can buy a bigger house, isn't the best or most efficient use of that money.

Man, as I'm in the grind of it working toward FI/RE right now at age 32, I REALLY wish my parents had a few extra hundreds of thousands of dollars to get me out of this damn cubicle faster.
Every single decision you make with money either shortens or lengthens your working career.

MonkeyJenga

  • Walrus Stache
  • *******
  • Posts: 6258
  • Location: NYC
  • Cake or Death?
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #66 on: July 07, 2017, 08:07:57 AM »
Giving hundreds of thousands of dollars to one person so they don't need to work, or can buy a bigger house, isn't the best or most efficient use of that money.

Man, as I'm in the grind of it working toward FI/RE right now at age 32, I REALLY wish my parents had a few extra hundreds of thousands of dollars to get me out of this damn cubicle faster.

Sure, but you're being selfish, not efficient. ;)

cheapass

  • Bristles
  • ***
  • Posts: 498
  • Location: Dallas, Texas
  • On track for FIRE @ 40
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #67 on: July 07, 2017, 08:16:44 AM »
Sure, but you're being selfish, not efficient. ;)

I'm being efficient with my time, stress level, and overall life satisfaction...
Every single decision you make with money either shortens or lengthens your working career.

MonkeyJenga

  • Walrus Stache
  • *******
  • Posts: 6258
  • Location: NYC
  • Cake or Death?
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #68 on: July 08, 2017, 09:40:29 AM »
Sure, but you're being selfish, not efficient. ;)

I'm being efficient with my time, stress level, and overall life satisfaction...

I'm talking about being efficient with the use of money from a reasonably objective observer's perspective. $300k could 1) allow one person to retire a little more obscenely early than otherwise or 2) save thousands of lives. To choose #1 is selfish, no matter how efficiently you personally live.

cheapass

  • Bristles
  • ***
  • Posts: 498
  • Location: Dallas, Texas
  • On track for FIRE @ 40
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #69 on: July 08, 2017, 01:28:18 PM »
Sure, but you're being selfish, not efficient. ;)

I'm being efficient with my time, stress level, and overall life satisfaction...

I'm talking about being efficient with the use of money from a reasonably objective observer's perspective. $300k could 1) allow one person to retire a little more obscenely early than otherwise or 2) save thousands of lives. To choose #1 is selfish, no matter how efficiently you personally live.

By that logic, every dollar you spend on yourself that is above poverty level is inefficient/selfish because instead of simply providing you luxury, it could be buying vaccines for kids in Cambodia.
« Last Edit: July 08, 2017, 03:39:05 PM by cheapass »
Every single decision you make with money either shortens or lengthens your working career.

Guide2003

  • Stubble
  • **
  • Posts: 139
  • Location: Southern AL
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #70 on: July 08, 2017, 02:14:38 PM »
I've thought about this a lot as well. I think the best option is, as mentioned above, to instill those values of non-wastefulness and frugality in your offspring so they're not inclined to waste the family fortune. But what about a generation or two after that, what if one of them is a total dipshit and pisses it all away? I think that is where trusts come in.

An example would be to start an endowment that spits out a certain amount each year, principal can't be touched, and up until age 30 the money can only be used for education or purchase of a primary or investment residence (cost not to exceed 150% of the median home value in the area)... some additional restrictions to prevent stupidity.
Replying to this post because it played into my comment, without having read everything below yet. Apologies if I steer away from the conversation.

I ran across this plan a few weeks ago and it impressed me with the intent and the usage of doubling periods to fund educations and retirements. http://actionecon.com/building-generational-wealth/

It doesn't contain much of a safety net if the receiving ancestor doesn't handle the money wisely, but I guess everyone's taxes along the way help soften the blow. I really can't imagine being unbelievably rich, and after reading "The Millionaire Next Door"  I'm pretty cautious about saving money for my kids (if I have any). I like to think that I'd be a philanthropist and engage my time in the causes that my money would go towards. I know I would travel a lot more than I do now, which makes me think that I want to have enough saved in my 'stach to fund that once I retire. Other than that I see huge net worths as "mo' money mo' problems."
We think sometimes that poverty is only being hungry, naked and homeless. The poverty of being unwanted, unloved and uncared for is the greatest poverty. We must start in our own homes to remedy this kind of poverty. Mother Teresa

MonkeyJenga

  • Walrus Stache
  • *******
  • Posts: 6258
  • Location: NYC
  • Cake or Death?
Re: Dynasty? Empire? What to do with unconsumed assets?
« Reply #71 on: July 09, 2017, 01:11:23 PM »
Sure, but you're being selfish, not efficient. ;)

I'm being efficient with my time, stress level, and overall life satisfaction...

I'm talking about being efficient with the use of money from a reasonably objective observer's perspective. $300k could 1) allow one person to retire a little more obscenely early than otherwise or 2) save thousands of lives. To choose #1 is selfish, no matter how efficiently you personally live.

By that logic, every dollar you spend on yourself that is above poverty level is inefficient because instead of simply providing you luxury, it could be buying vaccines for kids in Cambodia.

And it is.

Guess it's a good thing I spend about the poverty level on myself. :P

I'm not perfect, or perfectly efficient, and I don't expect anyone else to be. We're human. We're selfish. We're inefficient. But the question was posed: what's the best, most efficient use of excess assets. I was addressing that.