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Sunday, October 20, 2019

“Someone’s sitting in the shade today because someone planted a tree a long time ago.”

– Warren Buffett

Here’s an ironic observation: While our life expectancies have increased, our perspectives on time have shortened, particularly in regard to prosperity, wealth accumulation and inheritance.

Two hundred years ago, pioneer families homesteading on the American prairie understood wealth creation and financial security came with a long time horizon. Clearing the land, erecting a home, and developing a farm were long, arduous undertakings. Prosperity was uncertain, and in many instances, success was not going to be seen by the first generation but by successive generations who could build on the foundations of their ancestors.

The Industrial Revolution dramatically changed this multi-generational view of wealth accumulation. For fortunate entrepreneurs, technology and mass production condensed the wealth-building process. Captains of industry like Andrew Carnegie, Cornelius Vanderbilt and Henry Ford not only amassed astounding fortunes, they did it fast enough to transition from work to luxury to philanthropy in one lifetime. Their rags-to-riches examples are a template for financial success today—only in the Information Age, the pace of wealth accumulation can be even faster.

But while stories of individual financial success prove that opportunity for massive wealth is available to almost anyone, these out-sized examples obscure another economic reality: Inherited wealth can still make a big difference.

Consider the following excerpt from an article by Adrian Reyneri on millionairecorner.com:

“About one-third of high net worth investors attribute their wealth in part to inheritance, according to a Millionaire Corner survey. High net worth individuals have $5 million to $25 million, not including primary residence. Inheritance appears to play a smaller role in the fortunes of less affluent investors. Just under 30% of millionaires—those with investable assets of $1 million to $5 million—attribute their wealth to inheritance. The share falls to 26% for mass affluent investors—those with $100,000 to $1 million, not including primary residence.”

These statistics don’t in any way diminish the fact that it is possible to accumulate significant wealth in a single lifetime even if you are starting from zero. But if close to 30% who are wealthy say inheritance was a significant factor in building wealth (see graph), perhaps a greater emphasis on multi-generational financial strategies is in order.

However, some information indicates there’s a disconnect for Baby Boomers when it comes to inheritance compared to other generations, both older and younger. Here is a “Weekend Investor” summary in the Wall Street Journal:

Just 55% of baby boomers said it was important to leave money to their children, according to a U.S. Trust survey of investors with at least $3 million in investable assets. By contrast, some three-quarters of people between the ages of 18 and 47 and those 67 and older said leaving money to their children was a priority.

Some baby boomers said their ambivalence toward inheritance was based on the belief that “Each generation should create its own wealth.” And another long-held objection is that receiving unearned wealth will blunt initiative or encourage spendthrift behavior in the recipients. These may be legitimate concerns, but hardly reasons to categorically dismiss the value of inheritance.

Under normal circumstances, parents will have plenty of time to train and evaluate the ability of their children to handle increased wealth in a responsible manner; by the time the parents pass, these children should have established careers and children of their own. (Even in ancient times, Solomon pronounced that “A good man leaves an inheritance to his children’s children,” understanding that many legacies benefit grandchildren more than children.)

Properly prepared, beneficiaries can receive great blessings from an inheritance. As Maximus, the hero of the Oscar-winning 2000 movie Gladiator tells his soldiers before battle, “What we do in life echoes in eternity.” If you want some of your financial efforts to echo in eternity, planning today is a necessity.

Elozor Preil is Managing Director at Wealth Advisory Group and Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). He can be reached at epreil_wagroupllc.com. See www.wagroupllc.com/epreil for full disclosures and disclaimers. Guardian, its subsidiaries, agents or employees do not give tax or legal advice. You should consult your tax or legal advisor regarding your individual situation.

By Elozor M. Preil