For what is a man profited, if he shall gain the whole world, and lose his own soul?
Some people are born on third base and go through life thinking they hit a triple. Barry Switzer
“Money isn’t everything,” said my mother, “but it beats whatever is in second place.” She would say this with a droll smile when the budget ran out before the end of the month. My mother had no money and depended on a small monthly check from my father to support two sons. My parents separated when I was one year old.
My father did have money. I was not destitute. I grew up with some privileges though less than those of the one-percent crowd.
Money is a blessing. Money is a curse.
Attitudes toward money are emotional, sometimes hypocritical, and often wrong. There are those who hate the rich yet aspire to be rich. Some feel guilty about an inheritance, others experience surprise, joy, and a feeling of security. Wealth can provide unimaginable freedom. It can also tether to a pole the one life you have.
“Let me tell you about the very rich. They are different from you and me. They possess and enjoy early, and it does something to them, makes them soft where we are hard, and cynical where we are trustful, in a way that, unless you were born rich, it is very difficult to understand. They think, deep in their hearts, that they are better than we are because we had to discover the compensations and refuges of life for ourselves. Even when they enter deep into our world or sink below us, they still think that they are better than we are. They are different.”
F. Scott Fitzgerald, The Rich Boy
I’m not going to write about the “very rich.” I know only a few and any comments would be anecdotal. My experience is with the modestly wealthy to the quite wealthy, not the “filthy rich.” It is the wealthy I will write about here.
The wealthy are not really so different. Yes, they have more money, more financial wealth, more opportunity, and in some ways charmed lives. They are not wealthy because they are different although differences do matter. We are all different and unique. We have different skill sets. We make different decisions. We have different goals and ideas about the good life. Some are lucky, others unlucky. We all march to different drummers (another thing my mother would say without knowing that she was quoting Thoreau). I will not talk about the advantages and opportunities of the rich and wealthy. For a thorough discussion of that subject I refer you to Born on Third Base by Chuck Collins. It’s a great book and I recommend you read it.
What I want to write about is the downside of inheritance, how inheriting wealth affects lives, and whether inheriting is a good thing. Some who inherit do well for themselves and experience great benefits. Some who do not inherit become great American success stories. Most people would say they would like to inherit a tidy sum from parents or relatives. I want to write about the downside of inheritance, what can go wrong, and why you should think about that whether you have money to leave heirs or are hoping to get some. I will tell some stories based on my experiences both personal and professional. The stories are mostly true.
Well Endowed but Ill Equipped
Let’s start with John. I never met John face to face. He is the nephew of a client of mine. The client as trustee of a trust had the responsibility to disperse the assets to the heirs. John was one of those heirs. He was twenty-five at the time and seemed like a fine young man on the phone, polite, respectful, and easygoing. We hit it off right from the start. I liked John and I think he liked me.
John inherited about $200,000 in various stocks. At his age this was enough to give him a tremendous start in life if handled properly. About a week later I had my first sense that something was wrong. John called and said he needed $5000 right away. I explained we would have to sell some stock and it would take a few days to send out the funds. I tried not to sound judgmental, but I felt obligated to warn him that his inheritance was a rare opportunity. I suggested a long-range plan where he could use some of his newfound money for current needs while preserving most of it for the future. He agreed and said this was a one-time emergency.
It wasn’t. Every few weeks he called to withdraw more money. I found myself in a difficult situation. John was an adult, though young, and I had to respect his privacy. But something was clearly wrong. I was worried it was drugs or maybe the bad influence of his friends. Without divulging any details, I convinced his aunt that she might want to check on him. She knew what I was implying. Unfortunately, she could do no better than I. In a year the money was gone, all $200,000.
I did not hear from John again. His aunt said that he no longer communicated with the family. While there was nothing I could have done, I still felt responsible. He was always pleasant on the phone, apologetic. He didn’t sound particularly sad or depressed. He was aware that his inheritance was quickly dwindling but seemed unable or unwilling to stop the withdrawals until they stopped themselves.
John was well endowed but ill equipped. Did the inheritance contribute to his downhill spiral? I don’t know. Could things have turned out differently if John had been better prepared, and who should have prepared him? These questions still haunt me.
“You haven’t a cent? Why, what have you done with your bonds?”
“Bonds?” repeated Vandover, dazed and bewildered. “I ain’t never had any bonds. What bonds? Oh, yes,” he exclaimed, suddenly remembering, “yes, I know, my bonds, of course; yes, yes—well, I—those, I had to sell those bonds—had some debts, you see, my board and my tailor’s bill. They got out some sort of paper after me. Yes, I had forgotten about my bonds. I lost every damned one of them …”
Vandover and the Brute, Frank Norris
Family Money or Waiting for Godot
“So and so’s got family money,” my mom would say with a tinge of envy as she stood next to me on the alongside the almond huller. Farm work in the summer was a part-time job. The pay was low but my mom liked to gossip with the other ladies as they picked out the rocks and almond hulls that survived the automatic separator. I didn’t mind helping and when the shift was over I loved climbing the sides of the tall bin and scooping up a handful of raw almonds to eat. I also liked the extra pocket money.
Willard was a friend I’d known before I became a financial adviser. He had a small vineyard, not large enough to earn a living, but it took up all of his time when he wasn’t drinking coffee with his buddies. Willard was not good at business and the vineyard was never really profitable but when the grapes came in he had a little money to spend and spend it he did. His wife worked to make ends meet. They didn’t earn much but they lived high because Willard’s grandmother had left an expensive lake front home to Willard and his siblings. Willard expected that he would be set financially some day when the home was sold.
Willard came into my office to ask for some advice about how to borrow against his expected inheritance.
“I want to do some things now,’ he said, “and I need the money.”
I explained how mortgages work, interest, payments, etc and suggested that what he wanted to do was a bad idea. How did he expect to make the payments? And wouldn’t he be undermining his future inheritance?
“I’ll just borrow from time to time when I need money until we sell the property. It’s worth a fortune.”
Even though we were friends, we argued about this until he walked out of my office. Sadly, we saw very little of each other after that.
I found out from a joint friend that Willard went ahead and got that loan. He spent most of what he didn’t need for his immediate living expenses to start a new business. When the business failed there was nothing to recoup after paying the creditors.
The lake front property eventually did sell but the proceeds were less than expected after paying off the accumulated loans. There wasn’t much left over for the heirs. Willard’s siblings blamed him for mortgaging the property and a series of lawsuits ensued.
“compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.
I drove by Willard’s vineyard the other day. An older man was tending to the vines. I stopped to ask if Willard was around.
“Willard? No sir. He’s gone away. Lost his family money, he did. Nasty business these family squabbles. I had to foreclose on the vineyard last year. Hated to do it but he owed me money. It wasn’t much for a rich man like him, I guess, but to a poor man like me, it was an awful lot of money. There ain’t much here but I reckon I’ll get back my money in a few years and then I’ll sell the place to the next sucker.”
The old man laughed and went back to work. As I was getting into my car, he looked up.
“Hey, you looking to buy some grape land?”
I shook my head, smiled and drove away.
For money, wrote Balzac in Old Goriot, “people fight and devour one another like spiders in a pot.”
For Love or Money
“Christmas comes but once a year,” said my mother when she got an unexpected check from my father. She put the check in her rainy day account at the bank. I don’t think she ever took money out of that account for anything, certainly not the car I asked for when I found out about the extra money.
“You can drive my car for now. I hardly use it.” I knew what “for now” meant. It meant until I could buy my own car. I got a summer job working in the sugar beets, barley, and alfalfa fields. I’ll be honest, when I finally saved up enough for a car, I didn’t buy one. My dad bought me a car for a graduation present. Yes, I was happy about that and I drove that car around with a big smile.
My mom was conservative by necessity. She passed that on to me. She did without most of her life so that I didn’t have to. It was only much later when I met Sharon that I learned what a sacrifice that was.
Sharon was a successful woman with a purpose in life. She was the heir to two trusts, one from her grandmother and one from her aunt. Unlike John, unlike Willard, she had been sensible about her inheritance. Or, at least it seemed so to me.
When Sharon came to me, she had lots of responsibilities. There was real estate to manage, stocks to watch, and she had to keep up with the tax laws to make sure the government didn’t end up with everything her grandmother and aunt worked so hard to preserve. She still hoped to have children some day and wanted to be sure they had all the advantages she had.
That was a few years ago.
I enjoyed working with Sharon. She was organized. She was intelligent, diligent, and decisive. She not only preserved her inheritance, she doubled it, tripled it, and quadrupled it. She started three businesses, two of which she sold for a tidy sum and one that she still owns. In spite of all that, I always felt something was missing in her life. I found out what it was in one great explosion.
“I would never ask anyone to do something I wouldn’t do myself,” she said as she walked in for her annual meeting. I noticed the mark on her finger where her wedding ring used to be. She saw me looking.
“I guess that’s why Bob left me. He just didn’t have the same energy that I had. I should have seen it coming. I should have told you, I know. It changes the financial situation.”
“I’m so sorry, Sharon.”
“Me too. I guess there won’t be any children in my life after all. You can cross that off the list on your yellow pad.” There may have been a tear in her eye but she was too proud to let it fall.
“You’re still young. There’s time, Sharon. Don’t give up on what you really want.”
“Young? I don’t kid myself about that. Not young enough for children. Not now. And I’m not getting married again anyway. The only reason anyone would marry me would be for my money. I’m no fool.”
“You know that’s not true. There are plenty of men who would love you for who you are.”
“Cold bitch! That’s what Bob said when he left. And you know, I don’t blame him. I’m nothing more than a money machine. Pay, pay. I let myself be used. My God, what’s the point of it all in the end?”
The only time I’ve had someone cry at my desk is when a spouse died. I wasn’t prepared for Sharon’s tears.
“You know,” sobbed Sharon, “business is a drug just like cocaine. Once you start, you can’t stop. It consumes everything.”
“It’s not too late to change. Let’s put our heads together and come up with a plan, a plan that includes what you really want.”
“What I really want? I turned my back on that a long time ago after I got all that money. What I really wanted was a family. What I really wanted was to be an artist. What I really wanted was a simple life. The money was such a burden. It ruined me. Look at me now, a rich, cold bitch. Alone and miserable.”
Wow. I wasn’t ready for that. We went on with the meeting but she lacked all enthusiasm. She was trapped. She knew it but she was not willing to get out of it. It would take more change than she was prepared for. She was right. Business was now her drug of choice and she was addicted.
“So you want to get rich?” He lowered his voice. “Take a good look at me. Do you think it’s worth it?” David Golder, Irene Nemirovsky
The Family Business
My mother put down the newspaper. “My God, those Littlemen boys have done it again. It’s bad enough they divorced their wives and shacked up with those loose women. But now, Jesus Mary and Joseph, they’ve lost all their money to some scammers in something called ‘levered blowouts’ or some such thing.”
“What are you talking about mom?”
“Levered blowouts. Ever heard of them? Hank Littlemen would turn over in his grave. No wonder he blew his brains out, the fool.”
Remembering this conversation brought to mind the story of the Stampford family. Kris Stampford owned more timberland than any other single resident north of San Francisco. But something went terribly wrong and he did blow out his brains like so many apparently successful people before him. I wonder if it’s a characteristic unique to the rich? Maybe they are the only ones that can afford guns. Anyway, he had a large family, six sons and five daughters each of which inherited a bundle. I had a few of them as clients, two of the girls.
The girls did well enough but the sons! Oh the sons! Ego, testosterone and a little money is a dangerous package. Be forewarned. One after the other, each Stampford son divorced his wife after pocketing dad’s hard-earned money. That caused an immediate dilution of the inheritance. Then, yes, it’s true, they all invested with a Madoff-like character who was a real charmer and offered them 10 percent safe and tax free. Safe and tax free—the holy grail of the nouveau riche. Of course it was too good to be true, and when they discovered the error of their ways it was too late. There is no getting blood from a turnip.
If they had just kept the family business, but it wasn’t to be. This should be a lesson for every alpha male, take it with you or spend every last dime. Better yet, stop before it’s too late and enjoy yourself—a lesson from Sharon.
“She sees that Harry and the family, for all their taste and sophistication, never speak to their souls. They have taste, but cannot make art. They have style, but they don’t have love. They have wealth, but wealth has isolated them. They make polite, inherited conversation, but deep down they are disdainful and contemptuous. They have exquisite manners, but these are designed to hide their lack of interest.”
Other People’s Money, Justin Cartwright
My mother was a good Catholic. She had two favorite phrases. When she was down and out and feeling low she’d always say “God loves the poor because he made so many of them.” When she was happy in the moment, relaxing in the shade on a cool summer day with an iced tea or maybe one of those short Coors 7-ouncers if she was feeling adventurous she’d say: “I wonder what the poor people are doing” as if she wasn’t one of them.
Dad never let us down although he wasn’t around. Even though they were split, he paid for my older brother to go to college, he helped with special expenses when they came up, and he sent me to college (tuition was a fraction of the cost it is today).
He died when I was twenty-three and I got some money. Suddenly I was in the same situation as John, Willard, Sharon, and the Stampfords. An inheritance at any time is a blessing and a curse, especially when you’re young. My life was complicated in those days. That’s another story. I made my share of mistakes. No one is immune to the downside of inheritance. But there is also an upside, no doubt about that. And, an inheritance is more of a rarity than you might think. Here are a few facts to ponder.
· 68% of young people expect an inheritance, yet only 40% of their parents will leave one
· 24% of Boomers expect that “contributions from children” will play an important role in funding their retirement
· The estate tax is only paid by households with wealth over $10.8 million
· The share of income flowing to the top 1 percent of US households is now 22 percent, up from 9 percent in 1978. The wealthiest 1 percent saw their share of US wealth increase to 42 percent in 2012. Most of this change accrued in the top one-tenth of 1 percent (0.1 percent), whose wealth share rose from 7 percent in 1978 to 22 percent in 2012. Since 2009, most of the growth in wealth has flowed to the top one-tenth of the top 1 percent. In other words, the big winners are the top one-in-one-thousand households
· The combined net worth of the Forbes 400, an estimated $2.34 trillion in 2015, is now equal to the bottom 62 percent of the population
· The richest 100 now have as much wealth as the entire African American population, over 42 million people. The richest 186 individuals have as much wealth as the entire Latino population, over 55 million individuals
· With 10 percent of the population holding more than 70 percent of the national share of wealth, “the conditions are ideal for an ‘inheritance society’ to prosper—where by ‘inheritance society’ I mean a society characterized by both a very high concentration of wealth and a significant persistence of large fortunes from generation to generation (Capital in the Twenty-First Century, Thomas Piketty)
There is nothing bad about financial wealth. In fact, some financial wealth is useful and helpful particularly later in life. As a financial adviser I would be remiss if I said otherwise. But, as my mother said “money isn’t everything” and if she were alive today I’d tell her to just stop there and not bother to rate wealth against health, happiness, family, knowledge, artistic endeavor, and all the rest.
“Wealth never attracted me. I like honor. I like adventure. I like romance, but I believe I am indifferent to wealth.” In the crisis of midlife, Dana’s perspective altered: “In my youth I thought it a fine thing to despise money, but forgot that I needed and ought to have the opportunities which cannot honestly be had without money, and I learned too late (as most learning by experience comes) that pecuniary anxieties disable a man in middle life more than ill health, or sorrows, or overwork.”
Slavish Shore: The Odyssey of Richard Henry Dana, Jr., Jeffrey L. Amestoy