The theme this week on the One Minute Retirement Tip podcast is: Why Do Family Fortunes Disappear?

Today, I’m talking about the natural dilution of wealth. This was actually something I didn’t think about much, assuming that wealth was lost in future generations, mostly due to what I discussed yesterday - bad investment decisions, overspending, taxes, and generally money values that are inconsistent with keeping and growing wealth. 

But it’s important to understand how the natural dilution of wealth and how wealth is passed down equally in the United States plays a big role in the loss of family fortunes. 

Let’s look at a really simple example. Let’s say you’re married and you amass a wealth of $12 million dollars by the time you pass. Interestingly enough, the average multi-millionaire household is likely to have 3 or more children. I’m going to assume in this example that you have 3 children, and they each have 3 children. I am also assuming there is no growth on the wealth and no taxes. 

By the time your wealth is split among your 3 children, the $12 million estate is down to $4 million. Assuming no growth and no taxes, once that money is passed to all 9 of your grandkids, the $4 million is diluted further to $1.3 million each. 

Contrast this to the way wealth is passed down in Europe or through family trusts and foundations, where fortunes endure for hundreds of years. There is usually a single steward or trustee to the family fortune, and future generations aren’t handed a check for millions to do what they please with their new windfall. 

If you’ve watched Downton Abbey you can see how this works. Family wealth, businesses, and properties are entrusted to a single heir. The rest of the family members usually benefit, but they aren’t given the keys to the store. Heirs are more likely to shoulder the responsibility better in keeping the family legacy intact, and so it’s not surprising that you see 5, 6, or 12 generations or more of family wealth enduring under this type of structure. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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