Interesting NY Times article about wealth [and inheritance thereof]

Class warfare and shaming people for passing wealth onto their children has never built wealth or decreased wealth inequality in this country.

The policies that did decrease wealth inequality were labor laws being enacted to prevent the extreme unskilled worker exploitation of the Industrial Revolution era in the west.

There were people who generated wealth with little formal education and passed it on to their adult children pre-ERISA. They aren’t famous or written about in text books, but I know this is true because I knew a few of them.

The key is to spend less than you make, invest the difference in a diversified manner, and don’t draw down principal in your lifetime. It’s always been possible to do this. Not easy, not popular, but possible.

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My spouse and I did not come from means and do not expect any significant inheritance. That said, our parents benefitted from good pensions and social security payments they could rely upon.

That is not true for us and is not true for our children. We have worked very hard and been frugal in hopes of being able to actually leave them something because they won’t be able to count on their hard work resulting in the pensions and social security previous generations received.

From that perspective, any estate taxes or other laws that whittle away at what we can leave behind hurts us (as potentially the first generation to have a real “estate” even if it is not a top 1% kind of estate). And it will hurt us MORE than a family with generations of wealth. Sometimes laws intended to make things more fair have unintended consequences. The very wealthy will remain very wealthy even if they must cough up more. But those trying to move up from the working and middle classes can effectively be kept down in perpetuity by the same laws. (Kinda like how the very wealthy can often move their money around in ways that result in owing no or very low taxes, while the working upper class who don’t own businesses or assets aside from their homes and retirement accounts frequently pay the highest percentage of what they bring in.)

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@parentologist the step up in cost basis does not always happen. I won’t go into details but you can research it.

I’m not vilifying anything (and indeed I know people of very modest means who have built a solid nest egg by using tax deferred strategies). But I think you need more intensive financial education than just “fund your IRA” or “put your college savings into a 529” for it to have an impact on lower earners. Democratizing investing only works if people understand how these vehicles work.

How many parents on CC have posted- in a panic, come April- that “College A wants me to use my entire retirement account to pay for college”. And 20 posts later we learn that the “retirement account” is a plain vanilla, highly liquid brokerage account which the OP had “mentally earmarked” for retirement". Posters try to point out (but the horse has left the barn) that if you have 250K saved for retirement, it needs to ACTUALLY be in a retirement account.

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It seems pretty clear that the income distribution is highly skewed and the wealth distribution is even more skewed. So, most of the transfers will take place at the upper end of the distribution. As technology makes the distributions of income and wealth even more skewed to the top, I suspect we will need meaningful redistribution to maintain social order.

@deb922, I think the “perception that parents now need to DO for their adult children” follows from sociobiology. In olden times, the cost of raising kids was much lower relative to income and a much higher percentage of kids died before becoming adults. So, with higher costs and better health care and infrastructure, we have fewer kids but want to do everything to advantage them in life. So, much higher investment per kid.

One thing that is interesting is, as you point out, the parents generation is torquing their lives to take care of the grandchildren, even moving to be there to provide full-time or part-time care. It would surprise me if we were to do that, but who knows.

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Interesting point made in the article linked in the OP. People who have a lion’s share of their wealth in RE get taxed on that wealth every freaking year. Property taxes can bite! In contrast, truly wealthy people don’t have that much of their $$$ parked in RE… they can keep a giant portion of their wealth in stocks… no taxes until one sells them.

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I noticed that comment about RE taxes and was a little surprised by it. I understand the author’s point that RE represents a much less significant percentage of the NW of the truly HNW households, but I didn’t view property taxes as onerous. Perhaps because my children attended public school K-12 in my town, and while I paid property taxes before my children were five and after the last graduated high school in 2017, I still have paid less in property taxes than I would have paid to send them to private school.

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Not if you look at Bill Gates. Isn’t he the biggest holder of farmland in the US? Paul Allen also had a large real estate holdings. Theoretically, RE must appreciate enough after paying taxes taxes and other expenses compared to stocks to make sense. I don’t think the statement is accurate at all.

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This article shows bias towards states in the NE US. The property tax burden in the NE is significantly higher than it is in other parts of the country.

High net worth people have often have balanced holdings split between real estate, equities (private and publicly traded), bonds, and/or commodities (in order of highest to lowest percentage of total net assets), maybe a little VC’ing on the side for fun. At least, the ones who maintain it do something like this.

In the NE and high-property tax jurisdictions, people who own property may end up with a disproportionate percentage of their total net worth tied up in real estate. Some people who are most comfortable with real estate as an asset class do this on purpose even in lower property taxed areas. It’s a personal decision.

This article read like a lot of googling and emotions but little knowledge of how wealth actually is accrued and maintained through generations. I wonder if the author doesn’t know anyone who has accrued and maintained wealth?

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I wish The NY Times would hire less stupid people. You wouldn’t have articles like this. I’ve never met anyone waiting for grandpa to die so they can inherit his thousands of dollars. If I did, most of it goes to taxes anyway, and whatever is leftover might buy an Xbox. Raising kids comes with the hope that they build a better life than what we did. If kids are living off of mom and dad’s money, there’s an unhealthy dynamic going on, and they need a family therapist.

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Well, there was not estate tax or income tax in 1830 (there was property tax), which is one reason why the gap between rich and poor was becoming much wider at that time.

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The authors have a predetermined conclusion and then write the article to justify their premise.

NY TImes and numerous other news sources just want to discuss wealth inequality. In their mind, wealth inequality is because of societal failures due to the “rich” creating some kind of “we win and everyone loses scenario”. They never mention that in order to create wealth, you usually need some skills.

Sure, there are wealthy people who inherit money but they never mention the prerequisites to most people acquiring wealth, like hard work and sacrifices. Because to them nothing is based on effort and everything is based on predetermined factors that force people into either a rich or poor category.

Guess what, if you want to study art history or basket weaving, you may make less money than people who are in fields that pay well. Somehow, individual choices never seem to ever make it into these articles because that would require personal responsibility which would defeat the narrative that the game is just rigged.

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That “most of it goes to tax” statement confused me.

For 2023, the gift and federal estate tax exemption is $12.92 million ($25.84 million per married couple).

Some states will tax some of the inheritance, after a threshold (clip levels see to be all $1M or more)
https://www.actec.org/resources/state-death-tax-chart/

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This topic has also been discussed in the context of real estate legislation and practices. Because generational wealth is often created through real estate holdings, groups that were precluded from owning or from owning in areas which experienced significant appreciation were excluded from this. That wealth may not have been the kind that would make someone top 10%, but it may have been enough to fund an education, seed a launch into adulthood, pay for medical care, etc.

Most people who profited from their hard work had some kind of tail wind that made that possible. It doesn’t mean they didn’t work hard but that they also got a bit lucky…

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I will admit it here. I have money. Not hugely wealthy, but based on averages, etc. I am.

This is a combination of hard work, sacrifices AND many advantages and really good luck.

I grew up very middle class but my parents (and thus I) benefited from my grandmothers hard work and financial help. My dad was an engineer who did not have a degree (it was possible in that place and time but only for white males). My parents (unlike many of my friends parents) were both able and willing to contribute to my college education. H grew up very similarly. My parents/grandparents worked hard but I knew a lot of others whose parents worked just as hard and because of circumstances were never able to get ahead. When I was in my late teens my dad got an opportunity to start a business (an opportunity gotten by being smart and hard working, but also having the kind of connections many don’t have). The business was very successful.

H and I worked hard and lived below our means. But we were lucky. So many friends did the same and found that divorce, death, disability (to include serious physical or mental illness) derailed them financially. We did not experience those. I know a lot of people who work very hard and have modest incomes not because they are “basket weavers” but because in many cases that perform essential jobs some people here look down on but are the backbone of society.

When my parents passed I inherited a nice amount of money. I did NOTHING to earn it. not a thing. I acknowledge that. I have been lucky. I will be the first to say it.

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I wonder if NYT would consider this woman with generational land wealth as part of the inequality problem. She and many others like her are why I disagree with their ignorant bloviating/sour-grapes whining.

My parents are still living and I haven’t inherited a dime. Neither has my partner. I still hope people like her get to keep what is rightfully theirs, even if they inherited it.

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Hmm… that article sounds more like a land/border dispute(?). It does mention a purchase offer in 2018, but for only $39,000. Maybe I’m missing something.

That purchase offer is a joke and is clearly off by at least a million. :slight_smile:

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This is one of my favorite parts of the article:

Morris Pearl, 60, a former managing director at BlackRock, the largest asset management firm in the world, points to himself as an example.

“People are following the law just fine,” said Mr. Pearl, who started at Salomon Brothers in the 1980s. “I general

Mr. Pearl has two young adult sons with trust funds in the “seven figures.” He is also the chair of the Patriotic Millionaires, a nonprofit group of well-heeled Americans pushing for the wealthy to pay much more in taxes.

He is advocating pushing more taxes for wealthy while setting up 7 digit trust funds for his kids.

Im sure one of the reasons he set up irreovacle trusts is to avoid estate taxes. He can easily just pay more taxes but chooses not to.

He is choosing to retain his wealth. He could easily give up his wealth if he wanted to. But he doesnt want to.

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People set up irrevocable trusts to avoid estate taxes, yes, but most of all, to preserve privacy, so that what is happening to Ms. Wright does not happen to them and their heirs.

I wonder if Mr. Pearl knows anyone at Bailey Point Investment, LLC. A lot of people from up that way retire to coastal SC. I’m sure he’s smart enough to have noticed.