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Why the Rich Give Away Their Money

 

You work hard to scrape together enough money to feed your kids, retire and maybe have something to pass along to the next generation, yet some of the very wealthiest men and women in the world give away most of their fortunes instead of passing it to their heirs. Why?

 

1. To satisfy a sense of responsibility to the world that made it possible for them to accumulate the wealth

 

Warren Buffett, one of the worlds richest men pledged to gradually give around 80% of his own personal fortune to the Bill and Melinda Gates foundation in 2006. When asked why he gave it to the foundation instead of his 3 children, Mr. Buffett’s reply was “I am not an enthusiast for dynastic wealth, particularly when the alternative is six billion people having much poorer 'hands' in life than we have." In Warren’s words “They'll (his children) be wealthy, there's no question about that, but the idea of dynastic fortune turns me off" The idea that you hand over huge positions in society simply because someone came from the right womb … I just think it's almost un-American."

From an interview with Fortune editor Carol Lumis in June 2006 Buffett said:

“Certainly neither Susie nor I ever thought we should pass huge amounts of money along to our children. Our kids are great. But I would argue that when your kids have all the advantages anyway, in terms of how they grow up and the opportunities they have for education, including what they learn at home - I would say it's neither right nor rational to be flooding them with money.

In effect, they've had a gigantic head start in a society that aspires to be a meritocracy. Dynastic mega-wealth would further tilt the playing field that we ought to be trying instead to level.”

Andrew Carnegie is quoted as saying “Surplus wealth is a sacred trust which its possessor is bound to administer in his lifetime for the good of the community. “

 

2. To keep from ruining their descendants

 

Children and other descendents of the person earning the wealth often suffer a disconnect from the rest of us. They can’t determine if what they get (respect, power, money) is really earned or if it is a byproduct of their inheritance. It causes some of them to move away, change their name in an effort to ‘make it on their own’. Even Jackie Kennedy, prior to her marriage to the future President, attempted to make it on her own in the newspaper business. Although she reportedly did well, co-workers nudged her when she claimed to be living on her own by reminding her of her parental security blanket.

This problem is apparently enough of a burden that some inheritors, such as Thayer Cheatham Willis, spend their lives overcoming it and helping their peers overcome it. In her book “Navigating the Dark Side of Wealth - A Life guide for Inheritors”, Willis presents multiple examples of inheritors of significant amounts of wealth (think hundreds of millions of dollars) who sought help due to challenges with self worth, ability to sustain relationships and even inability to understand their finances.

Living up to the image of the giant who makes mega bucks, and then inheriting those mega bucks is more than a lot of people can deal with in a healthy way.

Many ultra wealthy families mention the ability of offspring to support themselves as crucial, inspiring the child, good for the psyche, the one most incredible success story they can have. Giving them too much money inhibits their ability to support themselves (why work when I have all this money?).

Also, wealthy families want to limit negative behavior changes - spoiled, egotistical, entitled personalities can result from an abundance of unearned wealth. Especially if the money comes into the child’s life before they have an opportunity to make their own way in the world.

If you do plan to give to kids, make it when they are older. Ross Perot says : "Anyone who gives kids a lot of money at 21 doesn't have much sense.”

 

3. The kids have enough (or do they?)

 

Warren Buffet in a Fortune interview with Carol Lumis stated “… what I've always said is that my family won't receive huge amounts of my net worth. That doesn't mean they'll get nothing. My children have already received some money from me and Susie and will receive more. I still believe in the philosophy - FORTUNE quoted me saying this 20 years ago - that a very rich person should leave his kids enough to do anything but not enough to do nothing (the FORTUNE article was  "Should you leave it all to the children?"),

 

4. To keep Uncle Sam from claiming most of it

 

Tax avoidance, particularly of the estate or ‘death’ tax has been a favorite financial planning activity for many generations. It makes more sense to many wealthy people to give the money away (their descendants wouldn’t get it anyway) while they are alive. That way, they can oversee its use, get satisfaction from seeing it benefit others and generally feel good about it.

As author Olin Miller once said “ Inheritance taxes are so high that the happiest mourner at a rich man's funeral is usually Uncle Sam.”

 

5. To avoid guilt and gain entrance to the religious afterlife of their choice

 

Some believe that a favorable after life is not possible for the rich.

 

6. To avoid conflict in descendent's

 

You have all seen it on the news. Someone super rich dies and the inheritors start coming out of the woodwork, squabbling and fighting and clawing with other family members to get the money.

Of course, not all families would do this, but inheritances can cause issues down the line as well. Take the example of a successful business started and owned by the matriarch of the family. Perhaps the oldest son has run the company for the past 10 years under Mom’s tutelage but would really like to strike out on his own. Two others in the family line want the opportunity to run the business - creating conflict where there was none.

Finding ways of avoiding conflict and misunderstanding in passing wealth from generation to generation is a source of endless discussion and money making opportunity among the financial planners, lawyers and counselors of the wealthy.

 

~

 

In spite of the above most people do try to keep the wealth in their families. Many are unsuccessful in maintaining and growing that wealth over the generations. In America, the term “Shirtsleeves to shirtsleeves in 3 generations” reflects the cycle. The first generation builds the wealth, the second generation uses and maintains the wealth but by the third generation, the wealth is gone.

 

Sources include:

  • “Buffett calls wealth giveaway 'logical' “ By Amanda Cantrell, CNNMoney.com June 26 2006 http://money.cnn.com/2006/06/26/news/newsmakers/gates_buffett/index.htm

  • “A conversation with Warren Buffett” by Carol J. Loomis June 25 2006 http://money.cnn.com/2006/06/25/magazines/fortune/charity2.fortune/index.htm

  • Raising Rich Kids by Gerald Le Van copyright 2003 published by Xlibris Corporation

  • Family Wealth – Keeping It in the Family by James E. Hughes Jr. copyright copyright 2004 published by Bloomberg press

  • Preparing Heirs by Roy Williams & Vic Preisser copyright 2003 published by Robert D. Reed Publishers

  • Navigating the Dark Side of Wealth A Life Guide for Inheritors by Thayer Cheatham Willis copyright 2003 published by New Concord Press

 
 

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