The first blog of this series names several variables that determine how, or whether, inheritors manage to find their way in the world of work—whether paid or unpaid, or a combination of the two. Among these variables one of the most important is the source of the wealth and its history in a family. How long has the money been in the family? One generation? Two? Three? Possibly, though rarely, more?
This is commonly referred to as “old money.” Or is the wealthmaker one of the heir’s parents? This is called “new money.”
Let’s take a look first at old money. Old money is laden with a whole set of values and beliefs—moral, social, philanthropic, and so on. “Shirtsleeves to shirtsleeves in three generations” is an expression that refers to the fear that the heirs will gradually (or rapidly) squander their wealth. To prevent this happening a whole array of legal documents, particularly trusts, is created to limit the heirs’ ability to spend away their wealth.
These beliefs and values have had a strong impact on the parents of the heirs because they too are heirs. Most commonly, it is critically important for them to teach their children to transport the wealth to following generations. An example from the book The Legacy of Inherited Wealth: (The Inheritance Project) is useful. A man in his forties, both of whose parents came from “old money,” describes the anxiety he inherited along with the wealth he was given.
“Oftentimes my father talked to us about the responsibilities that came with having money. He talked about how money had played a big role in both families. He talked about the money as though it was something really special. . . . On the way home in the car from Sunday dinner at the country club, he would say, in a way that was rather indirect but also pointed, ‘There are a lot of directions we can take in life. It’s really a shame that Uncle so-and-so or Aunt so-and-so wasted their life by drinking.’ Or he would talk about how So-and-so never really worked, or how he developed an obsession for something or other—and how he lost all his money. . . . So the importance of money was instilled in my mind at a very young age. . . . I remember how my father always used to talk about shirtsleeves to shirtsleeves in three generations. So as a teenager, I kept wondering: am I the one who’s going to lead the family into the middle class?”
This inheritor felt a strong sense of responsibility—but more than just responsibility: of burden—and a fear that he would fail to meet his father’s expectations.
How the belief that it is of the greatest importance to keep the money in the family—and make it grow—usually in the family business, or if the business itself has been sold, by managing the assets of the family’s holding company (usually called a “family office”) is a complex and difficult task, one that all too easily becomes an onerous burden for heirs.
Part three of this series will offer two strikingly different examples: one of an heir from a fourth-generation family, and the second the heirs of a new-money family.