Author Topic: CNBC Article: How to stay rich for three generations  (Read 8105 times)

RFAAOATB

  • Pencil Stache
  • ****
  • Posts: 654
CNBC Article: How to stay rich for three generations
« on: July 30, 2014, 05:31:40 PM »
http://www.cnbc.com/id/101837456

What happens to your assets after you no longer need them?  How do you keep your heirs from squandering your estate?  How do you ensure your legacy makes the world a better place?


Quote
1. Place your trust in trusts. Trusts are not only a great way to shield assets from estate taxes and capital gains taxes, they are also a great defense against family spendthrifts and playboys.

I will have to do this soon as I want to set my life insurance and other assets to be invested in a trust that distributes no more than one percent of its value.  With a $1,000,000 trust if you take a 4% withdrawal rate as a constant amount to be comfortable in a 7% growth scenario, a 1% rate will surpass that in 46 years.  I have not calculated inflation into this.  I want the trust to exist forever and have one heir as the beneficiary, who will have the responsibility to ensure the money is used well.

Where does the old money go?  I suspect it is divided among many heirs.  Who is the patriarch of the Kennedy family now?  They went from President/Senator/Attorney General to Representative.  Is MA rep Joseph P Kennedy III ready to take that role? 

Quote
3. Teach your children well. Wealth management firms have all jumped on the bandwagon of family education and next-generation programs—and with good reason. Bad investing decisions and poor basic budgeting can lead many families from "new money" to "no money."

Fittizzi said education programs shouldn't just focus on investing, though that's important. They should also focus on budgeting, spending and the responsibilities that come with holding multigenerational wealth.

I want to add riders to the trust to ensure that they are of good character and exemplify public service, such as being ROTC graduates, lawyers, politicians, or doctors.

Other things people do are split their assets among all their children/grandchildren, but the leads to dilution of the estate.

Some give their wealth to charity.   It might make sense if you have no heirs, but if I have children I would hate to hurt the legacy of my name by not making one of them have the greatest chance of greatness.

MrsPete

  • Magnum Stache
  • ******
  • Posts: 3505
Re: CNBC Article: How to stay rich for three generations
« Reply #1 on: July 31, 2014, 08:07:47 PM »
The "shirtsleeves to shirtsleeves" thing (I've heard it called "clogs to clogs") isn't true in my family.  Our family knowledge stretches back about 200 years, and we've been middle-class farmers for that entire time.  In recent history, my grandfather was orphaned but went to college and did very well for himself . . . my parents did poorly, largely because of alcohol . . . but I've rebounded and (accounting for generational differences) on par with my grandparents.  My children are still in college, but they seem to be poised to be equal to us in terms of financial success. 

I could relate to this exert from the article:  Today's rich don't necessarily want to create dynasties, he said. But they want their money to allow the second and third generation to have the freedom to do whatever job they want—whether it's low-paying nonprofit work or the arts—and not have to worry about paying the bills.

"They want to give their children and grandchildren the freedom to do good and not have to worry about the rent payment coming due," he said.


I feel a great obligation to educate my children so they have a good leg-up on the world.  This education will allow them just what the article says -- the freedom to do whatever they want.  However, once that's done, I don't think it's necessary to continue to try to control their financial choices.  By that point I'll either have taught them well, or it'll be out of my control.  Whatever I have left when I die, they'll get it -- no strings attached. 

hernandz

  • 5 O'Clock Shadow
  • *
  • Posts: 95
  • Location: Hudson Valley, NY
Re: CNBC Article: How to stay rich for three generations
« Reply #2 on: August 05, 2014, 12:06:19 PM »
I want to add riders to the trust to ensure that they are of good character and exemplify public service, such as being ROTC graduates, lawyers, politicians, or doctors.

With the caveat that IANAL (I am not a lawyer), I believe that riders involving character/moral issues work only in romcoms and novels these days. 

kite

  • Pencil Stache
  • ****
  • Posts: 900
Re: CNBC Article: How to stay rich for three generations
« Reply #3 on: September 01, 2014, 03:52:53 AM »
I want to add riders to the trust to ensure that they are of good character and exemplify public service, such as being ROTC graduates, lawyers, politicians, or doctors.

With the caveat that IANAL (I am not a lawyer), I believe that riders involving character/moral issues work only in romcoms and novels these days.

One family I know well have all been beholden to a millionaire Uncle whose estate they've been hoping to get.  He was able to Veto their choices of careers and boyfriends, for example,  and they went along with it because of the promise of that money.  Now the guy is quite old and ill, and the nursing home bill is around $15, 000 per month.   The trust is dwindling rapidly to pay his bills.  There is probably going to be a bit left when he finally dies, but these friends of mine are now middle aged and in my opinion they paid a very dear price for what little there is.  I couldn't put a price on not being able to live the life of my own choosing through my 20s, 30s and 40s. I'd much rather have made my own millions (or been dirt poor) than to have an uncle get to have that power over me.  The 'clause' he used to speak of might not have existed or even been legal,  but people go along with things because unearned money makes them fools. 

former player

  • Walrus Stache
  • *******
  • Posts: 8822
  • Location: Avalon
Re: CNBC Article: How to stay rich for three generations
« Reply #4 on: September 01, 2014, 05:13:23 AM »
Surely some of it is just the normal dynamics of inheritance - someone makes enough to get on a rich list, that is split between 2 children in the next generation and 4 after that: no surprise the grandchildren aren't on the rich list.  But if it started with a billion, the grandchildren and their children can be doing very nicely thank you while keeping quiet about it.

No story here, move along please.

Nords

  • Magnum Stache
  • ******
  • Posts: 3421
  • Age: 63
  • Location: Oahu
    • Military Retirement & Financial Independence blog
Re: CNBC Article: How to stay rich for three generations
« Reply #5 on: September 01, 2014, 12:06:54 PM »
What happens to your assets after you no longer need them?  How do you keep your heirs from squandering your estate?  How do you ensure your legacy makes the world a better place?
I'll play devil's advocate here.

Why would you care about your estate's unneeded assets and your heirs' behavior?  You're dead.

Maybe it'd be better to give your unneeded assets away while you're still living.  You don't have to be Mother Theresa, but Carnegie and Rockefeller managed to dispose of most of their assets while they were alive, and managed to enjoy watching their labors bear fruit.  Buffett and Bill & Melinda Gates seem to be pretty happy too.

I will have to do this soon as I want to set my life insurance and other assets to be invested in a trust that distributes no more than one percent of its value.  With a $1,000,000 trust if you take a 4% withdrawal rate as a constant amount to be comfortable in a 7% growth scenario, a 1% rate will surpass that in 46 years.  I have not calculated inflation into this.  I want the trust to exist forever and have one heir as the beneficiary, who will have the responsibility to ensure the money is used well.
I'm not a lawyer, but if you're trying to set up this trust in the U.S. then you're going to have to comply with the tax code.  I'm pretty sure that the IRS wants you to spend at least 5% of the trust per year, and I think it also has to expire at some point.  Assuming that you can find an heir willing to live under your draconian attempts to pull strings from the grave.

I want to add riders to the trust to ensure that they are of good character and exemplify public service, such as being ROTC graduates, lawyers, politicians, or doctors.
Well, I was with you up until this point.  What the heck do ROTC graduates, lawyers, politicians, or doctors have to do with good character?  ROTC graduates get a piece of paper declaring them a gentleman by an Act of Congress, but I'm not sure how that translates to demonstrated good character.

You're also placing so many conditions on this gig that even Mother Theresa or Warren Buffett would have second thoughts.  Of course they're not ROTC graduates, lawyers, politicians, or doctors so they wouldn't be eligible anyway.  Maybe MT could squeak through on the "public service" loophole.

Some give their wealth to charity.   It might make sense if you have no heirs, but if I have children I would hate to hurt the legacy of my name by not making one of them have the greatest chance of greatness.
Again, I think you're restricting yourself by basing this on a birth lottery. 

Maybe you give your heirs a small amount of money when you're gone, like Buffett plans to do for his kids (not that they need it).  Or maybe you should gift your heirs now so that they can learn how to handle larger sums of money while you're alive to help teach them.  You could make your legacy by not only giving your heirs the tools but by also helping them develop the skills to use them.

But why limit your legacy to your heirs?  Maybe it'd be even better to open the eligibility to those who have the motivation to make the most of your opportunity, and who could then pay it forward to someone else.  Instead of building an elaborate trust (whose main purpose in life would devolve to self-preservation, not helping its beneficiaries) you could invest in the people around you today and help them improve the world around them. 

That's a legacy to be proud of.

By the way, the theme of that CNBC article seems to be:
Quote
But they want their money to allow the second and third generation to have the freedom to do whatever job they want—whether it's low-paying nonprofit work or the arts—and not have to worry about paying the bills.
"They want to give their children and grandchildren the freedom to do good and not have to worry about the rent payment coming due," he said.
Maybe the best way for people to obtain their freedom from worry is to earn it, not to have it handed over with a bunch of strings attached. 

Ah, but if there are strings attached then maybe it's not freedom after all-- just a subsidy from a control-freak ancestor.
« Last Edit: September 01, 2014, 12:08:44 PM by Nords »

RFAAOATB

  • Pencil Stache
  • ****
  • Posts: 654
Re: CNBC Article: How to stay rich for three generations
« Reply #6 on: September 01, 2014, 12:41:35 PM »
Why would you care about your estate's unneeded assets and your heirs' behavior?  You're dead.
But my legacy!  I want to be "has his own Wikipedia entry" famous.  This question is as difficult to understand as Why does an architect build?  What is the purpose of life?  How do we best use the days we are given?

Well, I was with you up until this point.  What the heck do ROTC graduates, lawyers, politicians, or doctors have to do with good character?  ROTC graduates get a piece of paper declaring them a gentleman by an Act of Congress, but I'm not sure how that translates to demonstrated good character.

You're also placing so many conditions on this gig that even Mother Theresa or Warren Buffett would have second thoughts.  Of course they're not ROTC graduates, lawyers, politicians, or doctors so they wouldn't be eligible anyway.  Maybe MT could squeak through on the "public service" loophole.
JFK Jr became a lawyer to get access to his trust even though he wanted to run his magazine.  Either way, the goal is to encourage something worthwhile and fulfilling in life as a fallback in case your dreams don't work out.  As for ROTC graduates, like most people I want my descendents to do better than me.  Unfortunately as a young man I did not have the drive that I needed and went into the Army as an enlisted commoner instead of an ROTC or OCS graduate.  If any of my descendents go into the armed services, they should do it the right way.

Again, I think you're restricting yourself by basing this on a birth lottery. 
Sometimes the best advice you can give a kid is to be born from rich parents.  I want to be those rich parents.

Maybe you give your heirs a small amount of money when you're gone, like Buffett plans to do for his kids (not that they need it).  Or maybe you should gift your heirs now so that they can learn how to handle larger sums of money while you're alive to help teach them.  You could make your legacy by not only giving your heirs the tools but by also helping them develop the skills to use them.
A good idea.  My post middle aged goal is a big house filled with up to two children and grandchildren where we enjoy life and make the world a better place.  One of us is also a state representative or better.  Some combination between the Kennedys and The Godfather.


Albert

  • Handlebar Stache
  • *****
  • Posts: 1244
  • Location: Switzerland
Re: CNBC Article: How to stay rich for three generations
« Reply #7 on: September 02, 2014, 10:23:40 PM »
Not that it's particularly relevant here, but I'd like to remind that for example Rockefeller family is still exceedingly rich now close to a century after Standard Oil. I'm sure they are not the only such family in US or elsewhere.

gimp

  • Handlebar Stache
  • *****
  • Posts: 2344
Re: CNBC Article: How to stay rich for three generations
« Reply #8 on: September 03, 2014, 02:00:05 PM »
Ah... as I always tell people in situations where they're accepting money from family. Money comes with strings attached. Hell, nothing comes for free without strings attached. I would never accept money from parents or family for this reason. I don't want someone to restrict my choices by hanging a carrot in front of my face. I can get my own carrots, thank you very much.

If you really want to create a dynasty, base it on the value of education and the rest follows. Education begets education, and it's the ticket to success in the world - there's luck and chance and hard work, and education isn't necessary, but it opens a lot of doors and if there's a bit of wisdom sprinkled about, it also points you at the open doors and kicks your ass a little.

The government is very good at recognizing how troublesome a long-running trust can be - if you put a million away and stipulated that it couldn't be touched for hundreds of years, it could (when accessible) potentially have serious effects - especially if this was done often. In many ways, it's good for society in general that we as humans tend to go shirtsleeves to shirtsleeves in a few generations; dynasties are dangerous. Influence, like money, compounds.

What that means is that legal trickery won't do the job for you. You won't be able to create trusts spanning generations, and you won't be able to stipulate what kind of person / people are ever able to pull from that trust, beyond naming them explicitly. You're far better off 1) educating your children and 2) making sure they hold similar ideals, so that they can educate their children and create a perpetuating cycle. That will leave you with mostly trustworthy people who can pass on money, if you really want, between generations - wisdom and education will allow them to receive a trust, empty it over time and redirect it to more investments (to keep it compounding), and repeat the process by leaving it to their own trustworthy children.

But see point 1: strings. Money makes things complicated. Lots of strife, backstabbing, bitterly hurt feelings, people cutting ties entirely, and so on...

Nords

  • Magnum Stache
  • ******
  • Posts: 3421
  • Age: 63
  • Location: Oahu
    • Military Retirement & Financial Independence blog
Re: CNBC Article: How to stay rich for three generations
« Reply #9 on: September 03, 2014, 02:12:35 PM »
Not that it's particularly relevant here, but I'd like to remind that for example Rockefeller family is still exceedingly rich now close to a century after Standard Oil. I'm sure they are not the only such family in US or elsewhere.
For more helpful hints on dynastic wealth (as well as a dumpster of schadenfreude), Forbes has compiled a list of America's richest families-- along with a pile of sidebar articles on how they've soared higher or flamed out.

http://www.forbes.com/families/

TrulyStashin

  • Handlebar Stache
  • *****
  • Posts: 1024
  • Location: Mid-Sized Southern City
Re: CNBC Article: How to stay rich for three generations
« Reply #10 on: September 09, 2014, 01:08:32 PM »
Your descendants will have their own paths to walk in life.   Doing things (e.g. military) the "right way" might not be the right way for your great-great granddaughter.  Enlisted service might be a better fit for her.

My kids are 25, 23, and 17.  They've made choices that I thought were the wrong ones that turned out to be absolutely the right ones for them, at that time and place.  It was a powerful introduction to the limits of my own rightness.  I'm doing pretty well if I know what's right for me, today, given the facts of my own life and the landscape of my conscience.

You cannot live another person's life for them, and you shouldn't try.  Let this idea go and give your money without all the strings attached or donate your money to causes you believe in.

[Edited for grammar].
« Last Edit: September 09, 2014, 01:12:37 PM by TrulyStashin »

mm1970

  • Senior Mustachian
  • ********
  • Posts: 10880
Re: CNBC Article: How to stay rich for three generations
« Reply #11 on: September 14, 2014, 05:58:30 PM »
I want to add riders to the trust to ensure that they are of good character and exemplify public service, such as being ROTC graduates, lawyers, politicians, or doctors.

With the caveat that IANAL (I am not a lawyer), I believe that riders involving character/moral issues work only in romcoms and novels these days.

One family I know well have all been beholden to a millionaire Uncle whose estate they've been hoping to get.  He was able to Veto their choices of careers and boyfriends, for example,  and they went along with it because of the promise of that money.  Now the guy is quite old and ill, and the nursing home bill is around $15, 000 per month.   The trust is dwindling rapidly to pay his bills.  There is probably going to be a bit left when he finally dies, but these friends of mine are now middle aged and in my opinion they paid a very dear price for what little there is.  I couldn't put a price on not being able to live the life of my own choosing through my 20s, 30s and 40s. I'd much rather have made my own millions (or been dirt poor) than to have an uncle get to have that power over me.  The 'clause' he used to speak of might not have existed or even been legal,  but people go along with things because unearned money makes them fools.
Yep.  My grandpa was a millionaire.  As in, about $1million.  His estate was set to be divided among his kids, though one of them got it while he was alive (part of the business).

In the end, there was $500k to be split between two boys, and $120k to be split among 4 girls (um,  yeah).  But the caveat was that his 2nd wife (to whom he was married for 16 years before he died) could live off the interest (and if necessary, principal), and it doesn't get passed on until after SHE dies.

Well, he was barely in the ground when one of my uncles called my mom to ask when he was going to get his money.  My uncle was probably 50?  Really, you waiting your life for your dad to die to get money?

That was 1998.  So...16 years ago.  My step-grandma?  She's 97 now.  Still kicking.  My uncle has cancer.  She's already outlived my mom and my aunt.

nawhite

  • Handlebar Stache
  • *****
  • Posts: 1081
  • Location: Golden, CO
    • The Reckless Choice
Re: CNBC Article: How to stay rich for three generations
« Reply #12 on: September 19, 2014, 11:44:01 AM »
So lets say that I have $1,000,000 leftover when I die (from being hit by a bus). I want my children and grandkids to be ok financially but not pick up bad habits from having a whole lot of money dumped on them or waiting for them (as we have determined in this thread, that can influence the lives they live and the way they value things). What are my options?

My current vision for my future trust is that it will match dollar for dollar any contributions to a "tax-advantaged savings account." So if an heir maxes an IRA, a 401k and an HSA, the trust would give them $26,300 per year (or the equivalent numbers when they are doing it).

I like this idea because it acts like a forced savings plan, encourages people to get jobs decent jobs that have 401k's or equivalent, doesn't give them a cash payout after a milestone that they just have to wait for, and doesn't fund deadbeats. Seems like a win-win to me. Thoughts?

TrulyStashin

  • Handlebar Stache
  • *****
  • Posts: 1024
  • Location: Mid-Sized Southern City
Re: CNBC Article: How to stay rich for three generations
« Reply #13 on: September 19, 2014, 02:27:39 PM »
So lets say that I have $1,000,000 leftover when I die (from being hit by a bus). I want my children and grandkids to be ok financially but not pick up bad habits from having a whole lot of money dumped on them or waiting for them (as we have determined in this thread, that can influence the lives they live and the way they value things). What are my options?

My current vision for my future trust is that it will match dollar for dollar any contributions to a "tax-advantaged savings account." So if an heir maxes an IRA, a 401k and an HSA, the trust would give them $26,300 per year (or the equivalent numbers when they are doing it).

I like this idea because it acts like a forced savings plan, encourages people to get jobs decent jobs that have 401k's or equivalent, doesn't give them a cash payout after a milestone that they just have to wait for, and doesn't fund deadbeats. Seems like a win-win to me. Thoughts?

I like this idea.  You might also opt to pay the cost of education (define "education" in the trust).  You might also add a clause specifying that if, in any given year, payouts under these terms are not adequate to meet legal requirements, then the balance of any legally-mandated payout must go to _____ charity.   

deborah

  • Senior Mustachian
  • ********
  • Posts: 15960
  • Age: 14
  • Location: Australia or another awesome area
Re: CNBC Article: How to stay rich for three generations
« Reply #14 on: September 19, 2014, 03:19:02 PM »
My parents both come from families where their grandparents left money inequitably. In both families brothers and sisters never talked to each other again. If you leave money inequitably I think that you are setting up your family to fall apart. I have also known people who became upright citizens after the most uninspiring starts - heck, we all know people in this forum who have done that! People arrive at success through an immense number of paths.

Besides which, leaving money in trust to only be accessed by people who do certain things is absolutely anti-mustashian! MMM is about freedom through badassity - not doing things the way everyone else does, maybe not even thinking of your life in financial terms.

former player

  • Walrus Stache
  • *******
  • Posts: 8822
  • Location: Avalon
Re: CNBC Article: How to stay rich for three generations
« Reply #15 on: September 20, 2014, 01:02:21 AM »
My parents both come from families where their grandparents left money inequitably. In both families brothers and sisters never talked to each other again. If you leave money inequitably I think that you are setting up your family to fall apart. I have also known people who became upright citizens after the most uninspiring starts - heck, we all know people in this forum who have done that! People arrive at success through an immense number of paths.

Besides which, leaving money in trust to only be accessed by people who do certain things is absolutely anti-mustashian! MMM is about freedom through badassity - not doing things the way everyone else does, maybe not even thinking of your life in financial terms.

A friend of mine who was a lawyer dealing with wills told me that the reason siblings fall out over their parent's wills is that (consciously or not) they see the will as the parent's final expression of love.

So yes, best to leave your "love" equally and unconditionally.  You have the satisfaction of having done the last best thing for your family without being around to see them muck it up.