Capital Investment Advisors

Is Inherited Wealth Powerful Or Destructive? Insights From Estate Planning Expert, David York

David York churns out nuggets of wisdom so effortlessly that it’s easy to see why the TED Talk folks invited him onto their hallowed stage to define a new paradigm for thinking about inheritance. 

An attorney, Certified Public Accountant, and managing partner with the Salt Lake City law firm of York Howell & Guymon, David is an expert in the areas of estate planning, tax, business planning, and nonprofit entities. He is the co-author of two books: “Entrusted: Building a Legacy That Lasts” and “Riveted: 44 Values that Change the World,” which was the #1 Business Ethics book on Amazon. In 2017, YHG was recognized as an Inc. 5000 Company.

I recently sat down to ask him an unanswerable question that I desperately wanted answered: Is inherited wealth powerful or destructive?

It’s a topic I struggle with often. I think about my kids. I think about all the families I’ve advised. Some inherited money, and it worked out incredibly well. Others inherited money, and it ruined them. I do this for a living, and even I can’t seem to crack the code. Time to bring in the big guns. Time to put David York to the test.

The answer, as you might imagine, isn’t simple. 

Despite seeing so many failed situations, David and his team decided to focus on the positive. “My partner and I sat down and said ‘What are the common characteristics of families that actually do successfully transfer wealth?’” In much the same way that I studied the habits of the happiest retirees in my latest book “What the Happiest Retirees Know: 10 Habits for a Healthy, Secure, and Joyful Life,” David wanted to know what his success stories had in common. He identified 7 unique disciplines.

  1. Entrusted families know who they are and what they believe.
  2. Entrusted families prepare the family for the wealth and not just the wealth for the family.
  3. Entrusted families maximize the positive benefits of wealth and minimize the negative effects.
  4. Entrusted families focus on flint and kindling and not on the fire.
  5. Entrusted families are generous.
  6. Entrusted families preserve and protect wealth.
  7. Entrusted families design and implement dynamic governance.

David says that the families who successfully transferred their wealth, first and foremost, “knew who they were, what they valued, and what they believed.” They had clarity of their “why” and that drove everything else that they did.

So often in estate planning, people focus on the mechanics. David says that’s the wrong approach. “We should be asking the questions of why and who? Why are we doing what we’re doing, who do we want to impact, and how do we want to do that?”

He says that one of the problems with inherited wealth is that while it offers financial freedom, it can strip people of their purpose. He mentions the famous quote billionaire Warren Buffet gave to “Fortune” magazine in 1986, saying he would leave his children “enough money so that they would feel they could do anything, but not so much that they could do nothing.” David says that too many people, once financially secure, put down the compass that has guided them. “They just go rudderless and that’s part of what creates the problem.” 

He finds that the people who do it right don’t just prepare their wealth for their children, but they also prepare their children for wealth. It’s not just about transferring assets in the most tax-efficient way, it’s also about passing down the wisdom and attitude it takes to possess them. 

This can lead to the vicious three generation accumulation dissipation phenomenon that he’s seen so often. “That first generation is the wealth creator who built and sustained that wealth. The second generation saw how it was created and oftentimes can sustain it but by the time you get to that 3rd generation, they’re so removed from the wealth creation that it ends up being squandered and you’re back to starting over.”

As an example, he explained that at the time of his death, Cornelius Vanderbilt was one of the wealthiest people in the world but a short 100 years later, not a single one of his descendants was a millionaire!

“If I’ve learned one thing it’s this, we value things based on what they cost us. And what’s interesting is when you look at a wealth creator, how did they earn their wealth? Hard work. Risk. Stress. Sleepless nights. Worry. All of those things. As a result, they highly value their wealth because it costs them so much.” The paradox, he went on to say, is that inherited wealth helps the offspring avoid these same traits. Parents toil and suffer to accumulate enough money to help their children avoid that struggle. What they don’t realize is that they are undercutting the very values that are needed. 

David believes that what’s more important and meaningful to people than wealth is their legacy. In this regard, he found 5 truths:

  1. Legacy is about so much more than money. Substitute the word legacy with the word impact. One of the most impactful people in David’s life was his 8th-grade math teacher. 
  2. Legacies aren’t neutral. We tend to think of legacies in a positive sense, but they can be positive or negative.
  3. Legacies are not optional. You can’t opt-out of leaving one because your life inherently affects others. 
  4. People are more legacy-minded today than they have been for thousands of years. This shifts the focus from inheritance to impact. 
  5. Legacies can change. We are more than the sum of what we’ve done in the past. And there are countless examples of people who change their legacy.

David refers to the traditional estate planning model as the 4D Model: Dump, Divide, Defer, and Dissipate. “We dump the money down to the next generation, we divide it up equally, we try to defer any taxes, and we dissipate the wealth. It’s a shotgun approach to wealth transfer, and that’s part of why it doesn’t last.” 

Instead, he recommends the 4P Model: Purpose, Participation, Preparation, and Perspective.  Help your kids understand their purpose, guide them toward age-appropriate family participation to avoid entitlement, prepare them to find their way toward self-reliance, and expose them to different walks of life to give them enough perspective to value their good fortune. 

So, what does all this mean? Is inherited wealth good or bad? I demanded that David tell me! He was too coy to take the bait. “The answer is yes. It depends.” 

He must have sensed my disappointment. I wanted to nail this down. “Solomon, 3,000 years ago, he said, this: ‘Give me neither riches nor poverty, but only my daily bread,’ right? He saw the problem of too little wealth and he saw the problem of too much wealth. The way I describe it is if you don’t have access to any resources, it’s hard to get in the game. If you have too many resources you don’t even need to play.”

I had to admit. He and King Solomon had a point. I want my kids and my clients to have what they need, but they’ve got to stay in the game. It’s no fun to sit on the bench, there’s too much life to be lived.

This information is provided to you as a resource for informational purposes only and is not to be viewed as investment advice or recommendations. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment advisor before making any investment/tax/estate/financial planning considerations or decisions. The views and opinions expressed are for educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions.

Previous ArticleNext Article