My vacation-break reading this year included a biography of Andrew Carnegie, who had some interesting views on estate planning, as opined in his 1889 published article simply titled “Wealth”
“The problem of our age is the proper administration of wealth, so that ties of brotherhood may still bind together the rich and poor in harmonious relationship.“
He went on to say that a person of wealth has three choices: wealth can be left to the family after death, bequeathed for “public purposes” after death or administered during one’s lifetime for the same purposes.
On the conventional estate bequeathing to family heirs, he said:
“Why should great fortunes be left to children? If this is done from affection, is it not misguided affection? Observation teaches that, generally speaking, it is not well for the children that they should be so burdened. Neither is it well for the state. Beyond providing sources of income, and very moderate indeed, men may well hesitate, for it is no longer questionable that great sums bequeathed oftener work more for the injury than for the good of the recipients. Wise men will soon conclude that, for the best interests of the members of their families and of the state, such bequests are an improper use of their means.”
Carnegie was not a fan of “control from the grave”. He said that “a powerful man dead is no longer powerful. The fortune he has bequeathed is out of his control and subject to the will of others.” And so he chose “Plan C” – massive distribution to the public good while he was alive – “… the surplus wealth of the few will become… the property of the many… and this wealth, passing through the hands of the few, can be made a much more potent force for the elevation of our race than if it had been distributed in small sums to the people themselves.” In so saying, Carnegie was a fan of inheritance taxes and not a fan of direct charity, per se.
His views, while personal, were not new. The ancient Greeks believed that the wealthy in fact were bestowed their wealth only as “custodians” on behalf of all society. When large public projects needed to be created and funded, it was expected that the wealthy would “answer the call” accordingly.
We are now three generations into the most broad-based wealth accumulation in the history of the planet. With each successive generation, the level of “comfort entitlement” rises. Today’s young generation is often living at home until age 30 while their great grandparents’ generation found themselves in the trenches in WWl at that age. The world’s rate of wealth accumulation likely will only accelerate as the current “Chindia” phenomenon will create massive new middle and wealthy classes in those countries in the next generation.
Western society has an urgent call to reinvent itself in the coming new world order if it seeks to maintain its place in the wealth chain. Failing this, the incoming generation may be in for a surprise vis-a-vis the living standards they have grown accustomed to.
Which has something to do with how the “out-going” generation chooses to cast their estate plans for their successors. The US estimate is that $41 trillion dollars will pass from the out-going generation. Need it go to the direct natural heirs, in spite of Carnegie and the ancient Greeks, as an “insurance plan” in case the West fails to reinvent itself? Or does the out-going generation impact civilization by adjusting the “contrast between the palace of the millionaire and the cottage of the labourer”? It could be as simple as adding one extra residual beneficiary called “the public good”.