One of the biggest advantages is that taxes on assets in grantor trusts are paid by the parent or grandparent, not the trust, which can appreciate tax-free. The compounding during a bull market like we’ve just had can be massive.
I started at 4 AM which is why I am among the first to respond, not the smartest about money and inheritance but nonetheless interested. My hunch is you are passing along a philanthrophic mind-set to your children and that's a gift without a price tag, in my opinion. There are many ways to give back as a response for what we have earned and what has been given to us. I helped several families and family owned companies set up a foundation and those have tax benefits as well. What we have done, a personal choice, for our children and grandchildren, is to be specific in our estate planning and wills about who gets how much and when, after either or both of us have expired. There's a trust involved and it is irrevocable, no longer an option to change. My understanding is that a grantor trust can be either revocable or irrevocable. We are also a blended family and that adds a dimension to be considered. There are numerous tools and resources and we depend on outside legal counsel to be sure all the i's are dotted and t's crossed. Thanks, David for sharing again. Much appreciated.
David, this is eye-opening. Thank you for your candor and willingness to offer insights into how wealth is passed on in families. The financial advantages are enormous from generational wealth.
Thank you, David. Excellent, thoughtful and clear reflections. My husband and I discussed this topic about a week ago, but without any of these details. I appreciate them! I will be sharing with several friends (and family) in the coming days.
Sometimes, I feel like wealthy parents want to control even how their adult children give. For example, if I said that I wanted to focus on fertility and people with genetic conditions, then my dad would probably think it’s a weird idea. 🤷♀️
Great post. My father was a child of immigrants.. a self made made made, entrepreneur. Dropped out of college to start his own business, had eight kids (I’m one of them) and we all proceeded to work at the company. He never paid us excessive salaries and it wasn’t until we were well into our forties that we started getting dividends, ownership, etc.. when we sold our company a few years back, we were all in our 50s and 60s. Point being, our children - now young adults, saw us working and budgeting even though they were aware there was a lot of assets. Now my two kids are hard working yet know they will have some level of inheritance. They still want to succeed on their own. I know families who did fly their kids in private jets and had yachts. Some of those kids are rudderless yet rich. It’s actually kind of sad. They had no motivation to succeed on their own. There is definitely a lot of thought and work that goes into inheritance, philanthropic planning and retirement. How much to give and when. I appreciate your thoughts on this and like that you and others met to discuss this. Wealth has its own set of challenges. How many unhappy wealthy people do you you know? I know many…
This article was mind blowing for an African girl who has lived through multiple currencies and hyper inflation and deep poverty and corruption. To think that it is possible to plan one’s life financially like this and have assurance of ones financial future is baffling. Zimbabwe has taught us hard lessons and we are among the wealthiest, though are very much middle class - there is no middle class in our country and the bracket we fall into ranges from 10000usd per annum to 500 000usd per annum if not more. So even the top 5% there is a huge difference. Our tax is terribly high and our death duties too.
There's all sorts of differences among countries in their tax systems. You made me curious about Zimbabwe so I will look it up! Thanks for the comment.
Mrs P I’m American married to an African and I can tell you you our views on inheritance planning and security differ markedly, although I “get it” now. Frankly the implosion of his country (am I doxing myself yet), the resultant need to support extended family, have taught me the world is very very contingent and as you said assurance of the future is very much a luxury we in the “west” take for granted.
A luxury and perhaps an illusion! Anyway, when MILs property and cash savings were destroyed and loote… one starts to feel very aware of fragility of our systems. While we hope to leave our children property (in different jurisdictions, however humble), passport privilege, and the grit to figure shit out. That’s what I hope for for them.
Building wealth from nothing is immensely satisfying. But happiness is a state of mind and true happiness does not come from external events and achievements. To build something from nothing then reap the rewards from hard work, sacrifice, and applying skillful means is immensely satisfying but it cannot be my defining moment. Today must be my defining moment otherwise there will be unhappiness. However, being poor growing up and starting my first business at 23 was rough. I sold my last company in 2019 and retired on my 52nd birthday so I could focus on my writing and philanthropy which helps keep me motivated to push myself every day. I combine that with my meditation and time for self-reflection which keeps me humble to never forget where I began and the days of choosing between food or fuel to get to work. Guess which one won every time? I do not have children, one of the sacrifices I made in my relentless pursuit of entrepreneurship, so my “legacy” is through my charitable trust and my writing here on Substack. My philanthropic work has been immensely satisfying. I work everyday to not let the day I sold my company be my defining moment. Every day is an opportunity to help others, create art, and push myself physically, mentally, emotionally and spiritually.
Hi @Chris K. Jones. Just wanted to say I like your story and Substack bio. I am odd and lean non-fiction, but wanted to applaud you for having the foresight to set yourself up for a writing career/journey post salaried work. (Writing this here because your Substack chat is for subscribers.) I aim to be like you, except for translating Swahili. Best wishes.
Hello Mmerikani, thank you for your comments and positive thoughts! I thought my messages were open to anyone, I’ll check that out! It is amazing you are pursuing your writing! No better place than the friendly faces of substack! I wish you well and look forward to seeing your writing posted on Substack!
I like your simple 3% rule, David, to give someone a quick calculation. It could help those who come into sudden sacks of dollars or for a young person trying to imagine how much to save/work toward before being able to retire from wages/salaried work. You have a thoughtful and considerate Substack...thank you for another great essay!
I don’t expect to inherit anything, and my children have even lower expectations. It’s nice that money doesn’t color any of our interactions. The wealthiest person I know is about 50, childless, and has an MBA but no career. Her mother controls everything she does by waving millions over her head. She has less control over her life than I did at 19. I didn’t consult my parents about anything; I just did it. I was independent and free. I suggested she declare independence and tell her mother to keep the money! She wouldn’t do it. Her mom gave her a house and a luxury car and pays for her bills plus hands her $6K spending money each month. She also keeps a place in Florida. It sounds fantastic but she’s the unhappiest person I’ve ever known and doesn’t think $6k is enough. (And she said that to me, knowing my husband and I pay for all our expenses on less than half of that!) She’s angry that her mother has set things up so when the mother dies, a check will go out every month until the daughter dies, and then everything will go to a university. The daughter is angry she won’t inherit outright. But we all know she’d blow through the family money in a few years. She’s a miserable person.
I never grasped the mindset of children even thinking that their parents owe them anything (except for a solid and good education), especially if their parents had to work for their wealth. Its their money! Full stop! The ungratitude is perplexing. If they inhererit something it should be viewed as a gift - and even then:" What you inherit from your parents, EARN it to own it!" as German poet Johann Wolfgang von Goethe wrote.
Thanks for the comment, Carsten. I think if children grow up with a privileged standard of living, there is an expectation of having some minimal parental safety net. Not the same standard but also not destitution It's tricky.
Michelle, that's a perfect example of a parent misusing money to control their children. That's an almost certain recipe for a bad relationship and a failure to launch/ Thanks as always for your well considered comments.
Well done. With regard to step up in basis, you cannot escape the 40% federal estate tax. So Bezos’ $150 billion would result in a $60 billion tax, plus whatever state estate tax is levied, depending on what state you live in.
My own philosophy is that after taking care of your family, the rest of your money should either be spent or given away. Also, conveying money to children should be done earlier rather than later. If you die at 90 you would be leaving money to your heirs in their 60’s, well after they could have made good use of it. The earlier they have money, the more time they have to invest and possibly see it appreciate.
I like there being an estate tax - it encourages philanthropy (planned giving) and diminishes the ability to build dynasty. What that tax rate should be? I think it is currently about right.
Good point about the estate tax. The exemption is a rounding error for someone like Bezos.
I'm with my son Andrew who interpreted your statement––"conveying money to children should be done earlier rather than later."––as a personal exhortation to me.
hmmm i thought that the step up basis did indeed apply to inherited stock, and therefore in the Bezos example there would be no tax until sold, gains taxed at the stepped up basis (the day of inheritance) and no $60B tax.
There are two separate taxes involved - estate (I.e. inheritance) and capital gains. Without the step up in basis, the estate would owe a 40+% estate tax, and then when heirs sell stock the sale would be subject to capital gains tax. Consider this, if the estate needs to sell stock in order to pay the estate tax (likely in the Bezos case), that sale would be subject to a capital gains tax. Thus, without the step up, the heirs would have to sell more than 40% in order to realize net proceeds sufficient to pay the inheritance tax.
One of the biggest advantages is that taxes on assets in grantor trusts are paid by the parent or grandparent, not the trust, which can appreciate tax-free. The compounding during a bull market like we’ve just had can be massive.
True.
Enough to do something, but not enough to do nothing.
I started at 4 AM which is why I am among the first to respond, not the smartest about money and inheritance but nonetheless interested. My hunch is you are passing along a philanthrophic mind-set to your children and that's a gift without a price tag, in my opinion. There are many ways to give back as a response for what we have earned and what has been given to us. I helped several families and family owned companies set up a foundation and those have tax benefits as well. What we have done, a personal choice, for our children and grandchildren, is to be specific in our estate planning and wills about who gets how much and when, after either or both of us have expired. There's a trust involved and it is irrevocable, no longer an option to change. My understanding is that a grantor trust can be either revocable or irrevocable. We are also a blended family and that adds a dimension to be considered. There are numerous tools and resources and we depend on outside legal counsel to be sure all the i's are dotted and t's crossed. Thanks, David for sharing again. Much appreciated.
Thanks Gary.
David, this is eye-opening. Thank you for your candor and willingness to offer insights into how wealth is passed on in families. The financial advantages are enormous from generational wealth.
Thank you, David. Excellent, thoughtful and clear reflections. My husband and I discussed this topic about a week ago, but without any of these details. I appreciate them! I will be sharing with several friends (and family) in the coming days.
Good comments. By doing what you are doing, you may avoid the Rags-To-Riches-To-Rags in 3 generations curse.
Trying!
Sometimes, I feel like wealthy parents want to control even how their adult children give. For example, if I said that I wanted to focus on fertility and people with genetic conditions, then my dad would probably think it’s a weird idea. 🤷♀️
It's really so much better to see your children fins their own ways of giving back whether with their time or their money.
Great post. My father was a child of immigrants.. a self made made made, entrepreneur. Dropped out of college to start his own business, had eight kids (I’m one of them) and we all proceeded to work at the company. He never paid us excessive salaries and it wasn’t until we were well into our forties that we started getting dividends, ownership, etc.. when we sold our company a few years back, we were all in our 50s and 60s. Point being, our children - now young adults, saw us working and budgeting even though they were aware there was a lot of assets. Now my two kids are hard working yet know they will have some level of inheritance. They still want to succeed on their own. I know families who did fly their kids in private jets and had yachts. Some of those kids are rudderless yet rich. It’s actually kind of sad. They had no motivation to succeed on their own. There is definitely a lot of thought and work that goes into inheritance, philanthropic planning and retirement. How much to give and when. I appreciate your thoughts on this and like that you and others met to discuss this. Wealth has its own set of challenges. How many unhappy wealthy people do you you know? I know many…
I agree with everything you say. Where I've seen things go off the rails most often is when the topic is not addressed at all.
This article was mind blowing for an African girl who has lived through multiple currencies and hyper inflation and deep poverty and corruption. To think that it is possible to plan one’s life financially like this and have assurance of ones financial future is baffling. Zimbabwe has taught us hard lessons and we are among the wealthiest, though are very much middle class - there is no middle class in our country and the bracket we fall into ranges from 10000usd per annum to 500 000usd per annum if not more. So even the top 5% there is a huge difference. Our tax is terribly high and our death duties too.
There's all sorts of differences among countries in their tax systems. You made me curious about Zimbabwe so I will look it up! Thanks for the comment.
We made a good economic how not to study!
Mrs P I’m American married to an African and I can tell you you our views on inheritance planning and security differ markedly, although I “get it” now. Frankly the implosion of his country (am I doxing myself yet), the resultant need to support extended family, have taught me the world is very very contingent and as you said assurance of the future is very much a luxury we in the “west” take for granted.
A luxury and perhaps an illusion! Anyway, when MILs property and cash savings were destroyed and loote… one starts to feel very aware of fragility of our systems. While we hope to leave our children property (in different jurisdictions, however humble), passport privilege, and the grit to figure shit out. That’s what I hope for for them.
Parenting is indeed humbling. Seems very smart to *not* mingle kids’ finances. The tax stats are eye opening. Bezos especially.
Building wealth from nothing is immensely satisfying. But happiness is a state of mind and true happiness does not come from external events and achievements. To build something from nothing then reap the rewards from hard work, sacrifice, and applying skillful means is immensely satisfying but it cannot be my defining moment. Today must be my defining moment otherwise there will be unhappiness. However, being poor growing up and starting my first business at 23 was rough. I sold my last company in 2019 and retired on my 52nd birthday so I could focus on my writing and philanthropy which helps keep me motivated to push myself every day. I combine that with my meditation and time for self-reflection which keeps me humble to never forget where I began and the days of choosing between food or fuel to get to work. Guess which one won every time? I do not have children, one of the sacrifices I made in my relentless pursuit of entrepreneurship, so my “legacy” is through my charitable trust and my writing here on Substack. My philanthropic work has been immensely satisfying. I work everyday to not let the day I sold my company be my defining moment. Every day is an opportunity to help others, create art, and push myself physically, mentally, emotionally and spiritually.
Hi @Chris K. Jones. Just wanted to say I like your story and Substack bio. I am odd and lean non-fiction, but wanted to applaud you for having the foresight to set yourself up for a writing career/journey post salaried work. (Writing this here because your Substack chat is for subscribers.) I aim to be like you, except for translating Swahili. Best wishes.
Hello Mmerikani, thank you for your comments and positive thoughts! I thought my messages were open to anyone, I’ll check that out! It is amazing you are pursuing your writing! No better place than the friendly faces of substack! I wish you well and look forward to seeing your writing posted on Substack!
"I work everyday to not let the day I sold my company be my defining moment." What a wonderful credo.
Thanks David! Wonderful essay! Keep up the great work in talking about topics most people shy away from. 💪🏽
I like your simple 3% rule, David, to give someone a quick calculation. It could help those who come into sudden sacks of dollars or for a young person trying to imagine how much to save/work toward before being able to retire from wages/salaried work. You have a thoughtful and considerate Substack...thank you for another great essay!
Thanks Mmerikani.
I don’t expect to inherit anything, and my children have even lower expectations. It’s nice that money doesn’t color any of our interactions. The wealthiest person I know is about 50, childless, and has an MBA but no career. Her mother controls everything she does by waving millions over her head. She has less control over her life than I did at 19. I didn’t consult my parents about anything; I just did it. I was independent and free. I suggested she declare independence and tell her mother to keep the money! She wouldn’t do it. Her mom gave her a house and a luxury car and pays for her bills plus hands her $6K spending money each month. She also keeps a place in Florida. It sounds fantastic but she’s the unhappiest person I’ve ever known and doesn’t think $6k is enough. (And she said that to me, knowing my husband and I pay for all our expenses on less than half of that!) She’s angry that her mother has set things up so when the mother dies, a check will go out every month until the daughter dies, and then everything will go to a university. The daughter is angry she won’t inherit outright. But we all know she’d blow through the family money in a few years. She’s a miserable person.
I never grasped the mindset of children even thinking that their parents owe them anything (except for a solid and good education), especially if their parents had to work for their wealth. Its their money! Full stop! The ungratitude is perplexing. If they inhererit something it should be viewed as a gift - and even then:" What you inherit from your parents, EARN it to own it!" as German poet Johann Wolfgang von Goethe wrote.
Thanks for the comment, Carsten. I think if children grow up with a privileged standard of living, there is an expectation of having some minimal parental safety net. Not the same standard but also not destitution It's tricky.
Michelle, that's a perfect example of a parent misusing money to control their children. That's an almost certain recipe for a bad relationship and a failure to launch/ Thanks as always for your well considered comments.
What are your thoughts on parents giving their kids a proportion of money to invest (adult children, not minor’s college fund)?
I think it's a good idea. Investing for the long term takes a lot of discipline.
Well done. With regard to step up in basis, you cannot escape the 40% federal estate tax. So Bezos’ $150 billion would result in a $60 billion tax, plus whatever state estate tax is levied, depending on what state you live in.
My own philosophy is that after taking care of your family, the rest of your money should either be spent or given away. Also, conveying money to children should be done earlier rather than later. If you die at 90 you would be leaving money to your heirs in their 60’s, well after they could have made good use of it. The earlier they have money, the more time they have to invest and possibly see it appreciate.
I like there being an estate tax - it encourages philanthropy (planned giving) and diminishes the ability to build dynasty. What that tax rate should be? I think it is currently about right.
Good point about the estate tax. The exemption is a rounding error for someone like Bezos.
I'm with my son Andrew who interpreted your statement––"conveying money to children should be done earlier rather than later."––as a personal exhortation to me.
Thanks Marty for the comment.
hmmm i thought that the step up basis did indeed apply to inherited stock, and therefore in the Bezos example there would be no tax until sold, gains taxed at the stepped up basis (the day of inheritance) and no $60B tax.
There are two separate taxes involved - estate (I.e. inheritance) and capital gains. Without the step up in basis, the estate would owe a 40+% estate tax, and then when heirs sell stock the sale would be subject to capital gains tax. Consider this, if the estate needs to sell stock in order to pay the estate tax (likely in the Bezos case), that sale would be subject to a capital gains tax. Thus, without the step up, the heirs would have to sell more than 40% in order to realize net proceeds sufficient to pay the inheritance tax.
You shouldn’t be eating candy
I'm retired as a candy expert!
What is your stance on (1) Chuckles and (2) Three Musketeers, each considered (a) separately and (b) in combination?
1) Chuckles always should have a place at the candy table. 2) I'm generally favorable on Three Musketeers. The combination makes both better.