I wonder why we don’t see more family fortunes in the U.S. in kin groups that have lived here for generations. Estate taxes tend to inhibit the transmission of wealth down the line, but enough families have figured out how to game the system that they have held on to wealth for a century or more, notably including families which supply a disproportionate number of American politicians; they provide proof of concept of the durable family fortune. Otherwise most Americans seem to live in a futile cycle where their lifetime wealth trajectory starts from zero at birth and returns to zero by death.
Steve Sailer noted on his blog a few months back that in the UK, people with Anglo-Norman surnames in our time have held on to more wealth on average than Brits with surnames suggesting manual-laborer origins. For example, Aubrey de Grey has an Anglo-Norman surname, and he reportedly inherited several million British pounds when his mother died a few years ago. I gather that this doesn’t generally happen to ordinary Brits. Apparently the warriors who came over from France with William the Conqueror in 1066, and participated in the division of the spoils, started a way of handling wealth which enabled their descendants to hold on to inherited assets down through the centuries. If the Anglo-Normans could do it, and if some American families have figured out how to do it more recently, then what keeps this practice from becoming widespread in American society?
Another possibility is that Americans are more individualistic. Maintaining a family fortune means subordinating yourself enough that it isn’t spent down.
Supporting the individualistic argument. The family values trend in my prosperous region of Canada is leaning toward successful businessmen and entrepreneurs valuing empowering their children but not supporting their children past adolescence.
The accepted end goal IS to die as close to net zero as possible, I’ve not seen strong obligations to leave a large inheritance behind. The only strong obligation is the empowerment of their upper-middle class children so they can follow the same zero to wealth to zero cycle.
Where sons stay in the same industry as fathers, instead of striking out on their own, they work for the fathers firm until they have the credit and savings to start taking loans and buying shares of the fathers firm. Successful succession planning is when the children can buy 100% of the firm by the time the parents are ready for retirement.
(All based on personal observations of a single province and a group of peers n~20)
The accepted end goal IS to die as close to net zero as possible
Is there an exception for real estate? I’m thinking both “regular” houses (reverse mortgages are uncommon) and, in particular, things like summer houses and farmland which tend to stay in the family.
I agree that the desire to leave behind a large bank account is… not widespread, but land and houses look sticky to me.
Farmland is far closer to a business asset and ends up treated the same as any other economic asset. Of course in farming there is a higher ratio of dynasty minded families (function of this province’s immigration history and strong east-european cultural backgrounds).
I see what you mean about personal homes and personal land. There may be a mental division between economic assets, which shall not be given only sold, personal assets which are gifted away. This is a gap in my knowledge, It appears I need to spend more time with close to retirement, independently wealthy individuals.
The part of my brain that generates sardonic responses says “Oxbridge and nepotism”. At risk of generating explanations for patterns that don’t really exist, class, education and assortative mating seem to make for wealthy dynasties.
I think there’s a couple of fairly simple reasons contributing to Americans not having a culture of inheritance: first, that we live a long time by historical standards; and second, that we have a norm of children moving out after maturity. The first means that estates are generally released after children are well into their careers, and sometimes after they’re themselves retired. The second means that all but the very wealthiest have to establish their own careers rather than living off the family dime.
This wouldn’t directly affect actual inheritance, but it does take a lot of the urgency out of establishing a legacy. That lack of urgency might in turn contribute to reductions in real inheritance, given that you can sink a more or less arbitrary amount of money (by middle-class standards) into things like travel and expensive hobbies.
In American society in particular, I would assume a large reason that wealth is not passed from generation to generation currently is the enormous costs associated with end-of-life medical care. You’ve got to be in the top few percent of Americans to be able to have anything left after medical costs (or die early/unexpectedly which also tends to work against estate planning efforts.)
enormous costs associated with end-of-life medical care
This only became a thing in the last 50 years or so and would not have been a major expense a century ago. Even now the costs are about $50k to $100k per person, which is in line with what a healthy upper middle-class person spends every year. The wealthy spend a lot more than that, so the palliative care costs are unlikely to make a dent in their fortunes.
Good point about the medical costs being a relatively recent development. However, I still think they are a huge hurdle to overcome if wealth staying in a family is to become widespread. Using the number you supplied of $50k/year, the median American at retirement age could afford about 3 years of care. (Not an expert on this, just used numbers from a google search link. This only applies for the middle class though, but essentially it means that you can’t earn a little bit more than average and pass it on to your kids to build up dynastic wealth, since for the middle classes at least, at end-of-life you pretty much hit a reset button.
essentially it means that you can’t earn a little bit more than average and pass it on to your kids to build up dynastic wealth
I don’t think it ever works like this—saving a bit and accumulating it generation after generation. The variability in your income/wealth/general social conditions is just too high. “Dynastic wealth” is usually formed by one generation striking it absurdly rich and the following generations being good stewards of it.
You seem to be grasping here. The OP talked about passing down old family fortunes, not problems building new ones. Whether EOL care expenses are a significant hurdle to the new wealth accumulation is an interesting but unrelated question. My suspicion is that if it is, then there ought to be an insurance one can buy to limit exposure.
It is widespread. In other words, your thesis is not supported by facts. There is just nothing to explain here, except how the illusion of self-made fortunes is perpetuated in the teeth of the facts.
The US has appallingly low social mobility, and a ever rising share of very rich americans got that way by inheritance. This isn’t obvious because flaunting the fact that you got born with a silver spoon for every day of the week in your mouth runs against the american mythos—Members of the British old money crowd are proud of the fact that they personally did nothing to create their wealth and flaunt it. A proper ’murican in the exact same situation is slightly embarrassed by it and might at least show up for board meetings in the family business so that they can maintain some pretense that they work for a living.
I wonder why we don’t see more family fortunes in the U.S. in kin groups that have lived here for generations. Estate taxes tend to inhibit the transmission of wealth down the line, but enough families have figured out how to game the system that they have held on to wealth for a century or more, notably including families which supply a disproportionate number of American politicians; they provide proof of concept of the durable family fortune. Otherwise most Americans seem to live in a futile cycle where their lifetime wealth trajectory starts from zero at birth and returns to zero by death.
Steve Sailer noted on his blog a few months back that in the UK, people with Anglo-Norman surnames in our time have held on to more wealth on average than Brits with surnames suggesting manual-laborer origins. For example, Aubrey de Grey has an Anglo-Norman surname, and he reportedly inherited several million British pounds when his mother died a few years ago. I gather that this doesn’t generally happen to ordinary Brits. Apparently the warriors who came over from France with William the Conqueror in 1066, and participated in the division of the spoils, started a way of handling wealth which enabled their descendants to hold on to inherited assets down through the centuries. If the Anglo-Normans could do it, and if some American families have figured out how to do it more recently, then what keeps this practice from becoming widespread in American society?
Another possibility is that Americans are more individualistic. Maintaining a family fortune means subordinating yourself enough that it isn’t spent down.
“Lacking self-control” is probably what you mean :-)
Example: the Vanderbilts.
Supporting the individualistic argument. The family values trend in my prosperous region of Canada is leaning toward successful businessmen and entrepreneurs valuing empowering their children but not supporting their children past adolescence.
The accepted end goal IS to die as close to net zero as possible, I’ve not seen strong obligations to leave a large inheritance behind. The only strong obligation is the empowerment of their upper-middle class children so they can follow the same zero to wealth to zero cycle.
Where sons stay in the same industry as fathers, instead of striking out on their own, they work for the fathers firm until they have the credit and savings to start taking loans and buying shares of the fathers firm. Successful succession planning is when the children can buy 100% of the firm by the time the parents are ready for retirement.
(All based on personal observations of a single province and a group of peers n~20)
Is there an exception for real estate? I’m thinking both “regular” houses (reverse mortgages are uncommon) and, in particular, things like summer houses and farmland which tend to stay in the family.
I agree that the desire to leave behind a large bank account is… not widespread, but land and houses look sticky to me.
Farmland is far closer to a business asset and ends up treated the same as any other economic asset. Of course in farming there is a higher ratio of dynasty minded families (function of this province’s immigration history and strong east-european cultural backgrounds).
I see what you mean about personal homes and personal land. There may be a mental division between economic assets, which shall not be given only sold, personal assets which are gifted away. This is a gap in my knowledge, It appears I need to spend more time with close to retirement, independently wealthy individuals.
What I’d like to know is how the Brits are doing it.
The part of my brain that generates sardonic responses says “Oxbridge and nepotism”. At risk of generating explanations for patterns that don’t really exist, class, education and assortative mating seem to make for wealthy dynasties.
I think there’s a couple of fairly simple reasons contributing to Americans not having a culture of inheritance: first, that we live a long time by historical standards; and second, that we have a norm of children moving out after maturity. The first means that estates are generally released after children are well into their careers, and sometimes after they’re themselves retired. The second means that all but the very wealthiest have to establish their own careers rather than living off the family dime.
This wouldn’t directly affect actual inheritance, but it does take a lot of the urgency out of establishing a legacy. That lack of urgency might in turn contribute to reductions in real inheritance, given that you can sink a more or less arbitrary amount of money (by middle-class standards) into things like travel and expensive hobbies.
In American society in particular, I would assume a large reason that wealth is not passed from generation to generation currently is the enormous costs associated with end-of-life medical care. You’ve got to be in the top few percent of Americans to be able to have anything left after medical costs (or die early/unexpectedly which also tends to work against estate planning efforts.)
This only became a thing in the last 50 years or so and would not have been a major expense a century ago. Even now the costs are about $50k to $100k per person, which is in line with what a healthy upper middle-class person spends every year. The wealthy spend a lot more than that, so the palliative care costs are unlikely to make a dent in their fortunes.
Good point about the medical costs being a relatively recent development. However, I still think they are a huge hurdle to overcome if wealth staying in a family is to become widespread. Using the number you supplied of $50k/year, the median American at retirement age could afford about 3 years of care. (Not an expert on this, just used numbers from a google search link. This only applies for the middle class though, but essentially it means that you can’t earn a little bit more than average and pass it on to your kids to build up dynastic wealth, since for the middle classes at least, at end-of-life you pretty much hit a reset button.
I don’t think it ever works like this—saving a bit and accumulating it generation after generation. The variability in your income/wealth/general social conditions is just too high. “Dynastic wealth” is usually formed by one generation striking it absurdly rich and the following generations being good stewards of it.
You seem to be grasping here. The OP talked about passing down old family fortunes, not problems building new ones. Whether EOL care expenses are a significant hurdle to the new wealth accumulation is an interesting but unrelated question. My suspicion is that if it is, then there ought to be an insurance one can buy to limit exposure.
I don’t think those costs are relevant for families with fortunes.
It is widespread. In other words, your thesis is not supported by facts. There is just nothing to explain here, except how the illusion of self-made fortunes is perpetuated in the teeth of the facts. The US has appallingly low social mobility, and a ever rising share of very rich americans got that way by inheritance. This isn’t obvious because flaunting the fact that you got born with a silver spoon for every day of the week in your mouth runs against the american mythos—Members of the British old money crowd are proud of the fact that they personally did nothing to create their wealth and flaunt it. A proper ’murican in the exact same situation is slightly embarrassed by it and might at least show up for board meetings in the family business so that they can maintain some pretense that they work for a living.
Citation needed.
This is a useful half-page overview of issues with attaching meaning to economic mobility data.
This argues that the mobility in the US has been stable or rising for decades.
This talks about comparing the US with other countries.