Fuji_Abound wrote:
Then there is the Middle Eastern model.
It’s actually rather common. In Norway that is still the law for farmers, and the law is ancient. The eldest son inherits everything on the farm (land, buildings, everything). It isn’t that many years ago it was changed so the eldest girl could also inherit. The catch is the farm has to be run as a farm, don’t know the details. If the oldest doesn’t want to run the farm, it goes to the next. It’s precisely the same principle as inheritance of Kingdoms.
1000 years ago this was the best way to assure wealth stayed within the family, which was of very important for the family name and so on. Belonging to a good and respectable family was very important, it was the only insurance you had.
IMO that system is an anachronism of the past. It serves no real purpose today, but it’s still the law. Many family businesses are run using the same principle also, but in later years the business world is much too complex for this to really work. When the original entrepreneur dies, the stocks and wealth is simply divided in arbitrary manner, and the “family name” is only good in a commercial way.
For ordinary tax payers, I guess someone wants to make this a matter of ethics. There are no ethics involved, and it never has IMO. It has always been a two way street also. You inherit all this, but for one purpose only; to increase the wealth, and take care of the name for future generations. It’s all just practicalities mixed with vanity and some sort of eternal life syndrome that has lost all meaning in a modern world. Also mixed into this is the notion that you “own” your children. On average, young people today have better lives than even kings and queens could dream of only a few generations ago, at least in the western world, all things considered. Whatever you do with your money when you die, it’s no one else’s business, not your children either (in most circumstances). Certainly no ethics involved.
LeSving – I suppose that it largely true and would be much in keeping with my own philospophy. Families have inevitaby accumulated treasurers of great beauty – in the UK for example there are some wonderful gardens, collection of art and historic properties. Of course with the demise of wealthy families of this lineage they could fall into public hands such as the National Trust or they could be broken up. Some of these estates were created and have existed only because of the wealth of the families concerned over many generations, at the expense of the rest of the population perhaps, but never the less, would not otherwise have come into existence. I doubt they are being created any longer, although, if for example you were to look at the island the Berkleys brothers own as their personal retreat in the CIs maybe there are some exceptions. Perhaps creating these great works should in future fall to the State, or, we have enough already so it is sufficient to preserve what we have.
Presumably the Norwegian farmer thing was/is to prevent farms from being broken up and becoming ever smaller and disappearing.
In the UK, and I guess most modern countries, business assets are (generally) protected from inheritance tax, for obvious reasons, but if you broke up a farm every time the old owner dies, that would finish things off really fast. Business assets are already a part of the matrimonial asset pot in divorce and that destroys many businesses.
There are no easy solutions…
I’m amused that UK and to some degree European conversations about wealth management inevitably end up centered on idle aristocrats who did nothing but spend the money on maintaining their property, versus the productive and responsible use of money in the 21st century. Regardless, preservation of wealth remains a very important thing for people who want to do anything useful, or promote their children in doing so. One of the main reasons for the decline of UK industry was that the wealth was held by people who had never done anything useful with it for generations, and who therefore didn’t understand the competitive need to roll the profits of 20th century business back into product development, utilizing skilled labor.
I’d agree that handing down farms between generations is not a terribly relevant 21st century issue. Its coming to a rapid end because family owned farms can’t compete with highly capitalized and mechanized mega farms in remote and often unpleasant locations, selling worldwide. Hopefully the vast government subsidies applied in a futile attempt to preserve the family farm tradition will also come to an end eventually. My (German) wife used to help organize ’farmer’s meetings’ in her small town. I asked her what they discuss in their meetings, she answered “drinking beer, I suppose”, because they’ve mostly sold off the land now and don’t have much business in common except for hobby farming on the fraction of the land they kept. Their main business concern now is investments of various kinds – they sold the land for a lot of money. I imagine they discuss their families and investments in farmer’s meetings too, as well as drinking beer 
because its now an appropriate and important use of their assets. I think their children may be more likely to do something more active with the money, starting businesses etc.
I agree that the poor wastrel vs diligently wealthy child discussion is very relevant.
I am lucky in that both my boys are hard-working, diligent, careful, ethical, sensible and capable, so there is no issue, but I am very close to another situation where one child lazily gave up work at forty and has lived off the charity of friends and relatives for nearly thirty years, a second has worked very hard at idiotic schemes and, despite all efforts, is on the breadline and a third who has diligently and wisely built up several companies and is now very comfortable. It is really not clear how inherited wealth should be distributed between them.
But apart from that particular case, in general there does seem to be a belief that inherited wealth is good, correct and ethical. Leaving aside the farm/estate issue (which I sort-of get, but is a tiny minority) what are the ethical reasons for this assumption that the kids get it?
Similarly, why are privately owned firms passed from father to child? We so often see business empires being run into the ground by people who have no qualifications except that they inherited. Trump is a great example, but there are many others.
I work for a company owned by a billionaire, with sons. The way he set up his inheritance (by my fairly remote observation) was to roll most of the money back into the business and then let the sons sink or swim in running progressively larger chunks of the business. Those who did better earned more responsibility, and I’m sure earn a lot more. It seems like a good way to manage inheritance, and also BTW in line with many other decisions I’ve seen by the same guy.
I think wealth is passed from generation to generation (in some form) as a result of human nature. Except by force, most people won’t oppose human nature regardless of rationale.
what are the ethical reasons for this assumption that the kids get it?
As posted above, simply that they did not ask to be brought into the world. Having kids (as opposed to not having kids) is (in modern society) a 100% lifestyle choice. If you can’t give them a good home, don’t have them
Whether one should give them so much money that they don’t have to work, is another matter, and is obviously a stupid thing to do. But – in the UK at least – it is difficult to structure the handover so that this is avoided. Even if (as I posted above) you give the dosh to somebody else, with a side letter to give it to your kids if they “behave” at say age 30, or as needed to buy a house, etc, they may be able to sue for it, on grounds of dependence (a fair bit of case law on that, some of which is pretty bizzare).
why are privately owned firms passed from father to child?
Presumably because most people think they can trust their family… also it is very tax efficient because employing your family in the business means all the income drawn goes into the family, and when you die there is no IHT if done right. In the UK there is no IHT on business assets anyway, generally, otherwise businesses would be wiped out on the owner’s death.
Peter wrote:
Presumably the Norwegian farmer thing was/is to prevent farms from being broken up and becoming ever smaller and disappearing.
That’s the main excuse used today to keep the law in place, but it’s not a valid reason. That law always come up from time to time because it is so out of place in a modern world. What happens though, is that no one in the family wants to run the farm. Then another law kicks in allowing a neighboring farmer to cultivate the land while the original family keep some portion, the main house typically, but they still legally own the land. Then after some time, if the family don’t cultivate the land themselves, it eventually becomes the property of the neighbor who does, except the main house and stuff like that. Other farms are so small to start with, that I’m not sure the law is even valid. Today you can purchase one of those farms with a patch of land really cheap and “live a happy life” being a farmer on the side, which many people do. Another thing many do is to start keeping sheep. Sheep are very low maintenance, and this allow the farmer to have a regular job. Having several “jobs” have always been a common thing though all from ancient times (hunting, fishing, farming).
Silvaire wrote:
I’m amused that UK and to some degree European conversations about wealth management inevitably end up centered on idle aristocrats who did nothing but spend the money on maintaining their property
The exact same thing is happening today, all over the industrialized or modern world. Only it is happening on a much larger scale, and most people simply close their eyes to it. A very few inherits a lot, and do nothing but to keep the money in “secure” and safe investments. Secure investments are unproductive by nature. A very few has a lot of money that is simply stowed away doing no good. It’s much better for the society as a whole that those money are spent “unwisely”. Unwisely in this respect means the money are spent after all, keeping the economy running. Today only the Chinese spend money, and often incredibly “unwisely”. Soon they own the whole world, literally speaking. All that’s left in Europe and US are “secure and safe” investments by a very few, a small unproductive “aristocracy”. Those investments will eventually wither away because nothing will change the fact that they are unproductive at the core.
Silvaire wrote:
I think wealth is passed from generation to generation (in some form) as a result of human nature. Except by force, most people won’t oppose human nature regardless of rationale.
We are all little kings and queens deep down. Enforcing and widening the territory and wealth while spreading our genes seems to be one very strong basis of human nature. Human nature is hardly a measure of what is right and wrong, but we accept some aspects of human nature because it fits in with the the notion of a stable society for most of us, or a religion. We aren’t just “nature”, we also have the ability to think, to reason.
One could also argue that it’s in the human nature to be social. We aren’t just little kings and queens, we are also fighting for the benefits of the common good. We are are more advanced pack of wolfs so to speak. The problem with this, is it is often used by little kings and queens to keep others in place. But this is essentially also human nature I guess. A pack of wolfs always has a leader.
I mean, it is unarguably in my human nature to take what you have to increase my happiness and to pass down to my descendants. Especially if you have a disproportional amount of wealth compare to me. Human nature gives me all the right in the world to do so. What stops me is that society has left such a venture with very little probability of success. Some social logical aspects of this venture probably also prevents it, I guess? Anyway, my point is that a modern society do indeed oppose human nature. Passing wealth from generation to generation is accepted because it doesn’t harm the society all that much. But that is only when relatively small amounts are passed. Today it is the most destructive force in play, it’s medieval times all over again. IMO it is in my basic human nature to even things out by any means necessary. Seriously, I don’t see anything morally or ethically wrong with it. I don’t believe in God, well Odin and Thor perhaps , but I believe in creating the best society for most people where everyone are born into this world with equal opportunities. Inheritance of disproportional amounts of wealth by a few is choking the economy and seriously preventing opportunities for others.
