How to Destroy Your Wealth… and Your Family 

It’s a well-accepted (and reasonably-well documented) fact that most family fortunes are dissipated within three generations.

The first generation creates the wealth and then hands it to the second generation. The second generation accepts it happily. Then they fight about it, make whatever adjustments they can, which usually fractionalizes the fortune, and pass the remaining pieces on to the third generation, which pisses it all away.

The most popular way to leave your wealth to your children – dividing it equally among them at your death – is often seen as a solution to this problem. But as anyone who’s read about the history of the Vanderbilts can tell you, that approach destroys wealth faster than keeping it together, which is what the Rockefellers did. There are several good reasons for this. The most important one: Regardless of how “fairly” you apportion your assets among your heirs, some of them will not see your distribution as fair. (There’s a great book you should read on this topic: Splitting Heirs by Ron Blue.)

It is disappointing to think that the wealth you’ve worked all your life to accumulate will be destroyed after you die. But what is much worse is the fact that leaving your fortune to your loved ones can push them apart. Even make enemies of them.

I have friends that don’t speak to their siblings as a result of inheritance issues. I know families that are no longer families because of disagreements about how to apportion and/or manage estates.

What I Believe: This problem is not limited to families. It occurs whenever any form of wealth is given away freely and without conditions. Free love is a bad idea. Free money is worse. That is true for every kind of “giving” situation – from dividing a hundred-million-dollar estate to social welfare to private charity to giving money to beggars on the street.

It feels good to give away things – most especially, money. The giver is instantly rewarded by feelings of righteousness and seeing someone else’s need quickly and easily met.

But charity is a double-sided coin. There is the good you do in giving someone something of value. And the bad you do in creating in the recipient feelings of entitlement and dependency.

The good is usually temporary, but the bad endures. Sometimes for a lifetime. It debilitates the recipient and ultimately damages his/her relationship with the giver.

I am not saying that charity is bad. I’m saying it is dangerous. It can be done well, but only if the donor is willing to give away more than just money. To “do less harm than good” (the motto of my family foundation), the donor must take responsibility for the possible negative effects of the charity. The work does not stop with the giving. On the contrary, it begins with the giving. The rest of the obligation is to see to it that the recipient isn’t harmed by it.

The objection to this line of thinking is that it is paternalistic. And it is. I believe that the only moral way to be charitable is to take on the responsibility that all good parents assume with their children. They want to help them succeed in life and be happy – but in return for their help, they know that they must also demand respect, gratitude, and disciplined behavior.

That’s what I believe. It’s a big subject. Big enough for a book. In fact,  I’m in the middle of writing it (working title: The Challenge of Charity). If you have comments on my thoughts on charity, or books or articles on the subject to recommend, I’d appreciate hearing from you.