My posts to date have dealt primarily with developing a basic knowledge of personal finance through the curve metaphor. In this post I’m going to discuss several background issues for those whose flow is well above the curve and is expected to stay there with a high degree of confidence. In other words they have or will likely always have more than they need to be financially independent and maintain their lifestyles. I call this status legacy. There are several highly relevant and interrelated nexus issues regarding legacy that I want to discuss. They are the common beliefs about wealth and well-being, the law (estate and tax) and philanthropy.

Many who are in a position to pass on wealth have real issues about how to do so. Beyond the legal mechanisms of how to which are daunting in and of themselves they’re legitimately concerned about the impact it will have on their children’s lives when they are gone and can no longer exert influence. Will it enhance or detract, does it destroy initiative or seed innovation. Actually, this concern is an age-old psychological phenomena, the counterweight if you will to the fear of running out of money. Eugen Bohler, a Swiss economist and Jungian said in his Conscience and Economic Life “The overwhelming role assigned to the economy in our civilization seems largely to…….derive from biological spheres as hunger, insecurity and fear of destitution…….most people still appear to be mainly concerned with the struggle for self-preservation……in the same category of phenomena…….are negative attitudes toward luxury, as well as distrust of the durability of wealth and happiness……they express man’s instinctive fear of degeneration which experience links with wealth and good living.”

It’s interesting to juxtapose the psychological with the political. In that regard it’s instructive to briefly consider the evolution of the law of entail (estate/inheritance) in the United States. We read in Jefferson’s Memoirs as follows: “At the time of the first settlement of the English in Virginia, when land was to be had for little or nothing, some provident persons having obtained large grants of it, and being desirous of maintaining the splendor of their families, entailed their property upon their descendants. The transmission of these estates from generation to generation, to men who bore the same name, had the effect of raising up a distinct class of families, who, possessing by law the privilege of perpetuating their wealth, formed by these means a sort of patrician order, distinguished by the grandeur and luxury of their establishments. From this order it was that the King usually chose his councillors of state.”

This English inheritance system described by Jefferson was soon to be abolished for the most part in the United States. In Kent’s Commentaries on New York State law we read: “In the United States the principal provisions of English law respecting inheritance have been universally rejected…..If a man dies intestate, his property goes to his heirs in a direct line. If he has but one heir or heiress, he or she succeeds to the whole. If there are several heirs of the same degree, they divide the inheritance equally among them, without distinction of sex.”

No lesser light than Alex De Tocqueville in “Democracy in America” sums it all up for us. “Not only does the law of partible inheritance render it difficult for families to preserve their ancestral domains entire, but it deprives them of the inclination to attempt it and compels them in some measure to co-operate with the law in their own extinction………In the United States it has nearly completed its work of destruction, and there we can best study its results. The English laws concerning the transmission of property were abolished in almost all the states at the time of the Revolution. The law of entail was so modified as not materially to interrupt the free circulation of property. The first generation having passed away, estates began to be parceled out; and the change became more and more rapid with the progress of time. And now, after a lapse of a little more than sixty years, the aspect of society is totally altered; the families of the great landed proprietors are almost all commingled with the general mass. In the state of New York, which formerly contained many of these, there are but two who still keep their heads above the stream; and they must shortly disappear. The sons of these opulent citizens have become merchants, lawyers, or physicians. Most of them have lapsed into obscurity. The last trace of hereditary ranks and distinctions is destroyed; the law of partition has reduced all to one level.”

De Tocqueville strongly believed that the inheritance law was the most powerful tool available to a legislator to democratize a society. Today that role for the most part has been supplanted by tax law. Specifically, for the context of this post to transfer taxes at the Federal and State level which go by the names estate, gift and generation skipping taxes.

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