Family Plot


Photo courtesy of Peter

Photo courtesy of Peter

For some time money managers have been rubbing their plump pink hands together at idea of a one-trillion-dollar tsunami. As baby boomers begin to shuffle off their mortal coils, their lucky spawn are expected to inherit a cash bonanza, the result of years of compounding equity bull markets, real estate bubbles, and low interest rates.

But not all the world’s millionaires and billionaires are inclined to dole out a lifetime’s worth of food stamps to their offspring. This week, pop star Sting, (net worth approximately £180M), has publicly announced that his six kids shouldn’t expect much of a boon when the old man finally merges with the astral plane.

Admitting to spending it as fast as it comes in, with over 100 people on his payroll, Sting says he won’t burden his kids with “albatrosses round their necks.”

(“Please Daddy, burden us!”)

Sting joins a growing list of mega-rich, like Warren Buffett, Ted Turner, Bill Gates, and George Lucas who plan to disperse the bulk of their estates during or soon after their deaths leaving their kids with modest sums of cash and, possibly, outsize resentments.

We make a lot of assumptions about affluent families. For starters we believe that all family members have access to the wealth. This is rarely the case.

For example, in the Buffett household, rather than giving a spousal cash allowance, Buffett would take his wife to a fancy department store and tell her she could buy anything she wanted. The catch: A one-hour time limit. Susie (“Big Sooz”) would run around like a maniac grabbing whatever she could. (This infantilizing nonsense eventually stopped when Suzie’s personal holdings of Berkshire Hathaway stock made her wealthy in her own right. To discourage her from selling the company shares to raise cash to cover her expenses, he finally opened up his own wallet.)

Another false assumption is that all family members understand how to manage money. Again, Buffett loved educating college students, shareholders, employees and just about anyone about the rules of successful investing. Anyone, that is, except his own family. Hence his kids made scores of rookie mistakes like cashing out their Berkshire Hathaway shares to buy cars and trips that left them in straitened circumstances later on. Hey-ho.

Despite its obvious appeal to the beneficiary and her close friends, passing on great gobs of wealth is generally a bad idea. Since money is an amplifier of sorts, if you’re already a bit dotty, money can let you off-the-hook since you have no ordinary incentive, like paying the rent and eating food, that forces you to get sorted. (Exhibits A, B, C, D… Barbara Hutton, Brandt Bros., Stephen Tennant, Huguette Clark.)

For society, inherited wealth calcifies economic inequality and ultimately results in a law of diminishing returns as “food-stamp heirs” gobble the lion’s share of wealth, instead of economic rewards tilting toward the best-and-brightest, as they would in a meritocracy.

Still, if I were Sting’s daughter, I’d feel a bit stung to read about my disinheritance in The Daily Mail. With his sky-high burn rates, if she wants to cash in, her best bet might be to become a member of his staff.

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