At the end of 2023, the world's richest woman became a centillionaire. But she didn't achieve her goals by building her shopping empire online or selling fancy EVs. She did it the good old-fashioned way: through inheritance.
Françoise Betancourt Meyers, the heir to the French beauty brand L'Oréal, has noticed the value of her company's stock soaring amid a rush to spend on cosmetics and high-end fashion in recent years. She's not the only one receiving billions of dollars from her parents. A recent report from investment bank UBS highlights a milestone. In 2023, the wealth of inherited billionaires exceeded the wealth of new billionaires for the first time in the nine years we have been publishing this data.
Billionaires have been created at a dizzying pace over the past few decades, with Forbes magazine counting 140 in 1987 and 2,640 in 2023. And we are now back at the point in the cycle where vast amounts of wealth are passed on to the people. Next generation. “This is how dynasties of wealth are formed,” said Chuck Collins, director of the program on inequality and the common good at the Institute for Policy Studies, a left-leaning think tank. The only thing new in 2024 is that the money pile is bigger than ever before.
Not only are there more billionaires today, but their average wealth is also increasing thanks to historic stock market returns. In addition, heirs receive the transfer of assets early in life, rather than waiting for the death or death of a family member. All this confirms the truth that having money is still the best way to get more money. Perhaps despite the widespread myth that hard-earned entrepreneurs rise to the top of the socio-economic ladder, nowhere is that more true than in the United States, home to the most billionaires. right. If you are born poor, you are likely to remain poor. If you were born super rich, you'll probably become even richer.
What do billionaires do with their wealth?
Many heirs are involved in the family business in some way and often move in and out of the family business. L'Oréal's heir Bettencourt Myers, 70, is on the company's board, but he has chosen to live a quiet life as a writer who likes to play the piano. The wealth of the Walton family, America's richest heirs, totals approximately $250 billion. Rob, the founder's eldest son, served as chairman of Walmart's board of directors for many years. In 2022, he spearheaded his family's effort to buy the Denver Broncos. His youngest son, Jim, is the former CEO of the family bank and is currently chairman of the board. Her only daughter Alice collects art (she even founded her own museum), and she plans to soon open a health institute and medical school. Their family foundation has largely prioritized charter school expansion.
No matter what the heirs do with their hand-me-downs, they are likely to remain very wealthy, if not even richer. There are a surprising number of proverbs about the “third-generation curse” in which grandchildren eat away at a family's fortunes, but when B inherits B's assets, the real challenge seems to be cutting down on that huge expense. The same applies to newly minted millionaires. Look at Mackenzie Scott. Her wealth comes from her marriage to Amazon founder Jeff Bezos. Since 2019, when her net worth was around $38 billion, she has donated more than $16 billion to charity. As of January 2024, she was worth over $41 billion.
This is generally evidence that shareholders have made significant gains in the stock market in recent decades. If you invested $10,000 in the S&P 500 (a stock index that tracks the 500 largest companies in the market) in 1980, it would have reached $760,000 in 2018. With the proliferation of double-digit and even triple-digit millionaires, wealth management has become important. specialized industry. We have seen an explosion in so-called family offices, where employees work full-time to maintain and grow the assets of a single family. According to a 2021 Institute for Policy Studies report on America's richest dynasties, 27 of the top 50 wealthy families on Forbes magazine's 2020 Billion Dollar Dynasty List are on the magazine's 1983 Richest Americans 400 list. His name was already on the list. It has increased more than 10 times since then.
Don't hold your breath at the onslaught of billionaire heirs suddenly giving up their inheritances for the betterment of society. One insight from the UBS report is that heirs tend to be less philanthropic than first-generation billionaires. Collins says the theory as to why is that “the first generation has some confidence in their ability to create wealth,” while the second generation doesn't. “We know that second and third generations are more concerned with protecting wealth than creating it,” he continues. “They're investing a lot of money in protecting their wealth. They're investing a lot of money in lobbying.” It means fighting regulations that close loopholes that have allowed millionaires to minimize their debt to the government. This is a sign that “wealth taxation has become more arbitrary,” Collins said.
The super rich are giving money to their children early out of fear.
There are many reasons why ultra-wealthy parents will part with some of their net worth sooner or later, including cash, stocks, great real estate, the family business, and art collections. Most involve fear of how one's wealth will be lost.
First, there are persistent concerns that inheritance tax and trust laws may be strengthened. Wealth transfers remain fairly favorable (in 2024, the first $13.6 million transferred will be completely exempt from federal estate taxes). But in theory that could change. Wealthy people are well aware of the growing political hunger to address deep wealth inequality in the United States. For example, introducing a wealth tax that applies not only to income (which they tend to depend on), but also to assets (which they often own). Much less).
Another kind of fear may be involved in the rush to transfer wealth. Michael Kosnitzky, co-chair of the Private Client & Family Office practice group at law firm Pillsbury Winthrop Shaw Pittman, said some ultra-wealthy individuals are “afraid of what the next generation will do with it. Some people say that there are. “There has always been a difference in how older and younger generations view wealth. But today, I believe there is a huge difference in the way the next generation thinks about wealth and money. And the older generation I believe the generation needs to get ahead of it now.”
Some trusts simply prevent your heirs from spending money impulsively. Some feel that “the next generation doesn't have the work ethic,” Koznitsky said. However, transferring property early is another way for parents to actively control how the property is used. Because the parents are still alive and can see it used. A predecessor and his successor often disagree about how best to use their wealth. How to run a family business, what political causes to donate to, and in some cases, whether it is ethical to keep such a large fortune. Or you should give in.
How billionaires narrow our opportunities
Obtaining inherited property remains rare in the United States. As of 2022, only about one-fifth of American households have received an inheritance, according to Federal Reserve data. A few years ago, the most common inheritance amount was between $10,000 and $50,000, said Edward Wolff, a professor at New York University.
The Real-Time Gap Tracker shows that the bottom 50 percent of American adults (approximately 125 million people) collectively own approximately $1.1 trillion as of January 2023. This is equivalent to the amount that eight of America's richest girlfriends own combined, based on their currently listed net worth. At Forbes. This is despite the fact that the wealth of the bottom 50 percent has doubled in recent years.
It's not like the billionaires' vast wealth is trickling down. It is only passed down to a few people from generation to generation. And this closed loop affects other parts of society as well. Economic research shows that high wealth inequality coincides with low intergenerational mobility, which is due to the existence of many truly wealthy people and those who do better economically than their parents. This observation is called the “Great Gatsby Curve,'' meaning that ordinary people struggling with Research by City University of New York economist Miles Korac shows that when there is a wealth gap, “family background is likely to play a stronger role” in determining success as an adult, and “self-esteem The role of one's own diligence is proportionally weaker.”
Even though America is hailed as a land of opportunity and self-reliance, the fact that hundreds of billionaires have emerged here since the 80's means that today your hard work and struggles actually don't matter that much. It may mean.
Economist Salvatore Morelli, director of the GC Wealth Project, said the United States once had a relatively low incidence of inheritance compared to other developed countries, but has begun to move toward “European-level” inheritance rates. It is said that there is. The gap between the haves and have-nots shapes “the opportunities and possibilities for people to start life,” he told Box. An example of unequal opportunity is education. You may have the grades to get into an Ivy League school, but someone's parents are billionaires who hired the most expensive college consultants or donated large sums of money to your school. If you have more money to spend than you can afford, it could mean your successor takes your place. With the explosion of ultra-wealthy families in the United States, the bar for even a slim chance of financial success continues to rise.
It seems that there will be a point in time when the inequality will become so unstable and polarized that it will no longer be tolerated – what Collins calls the “oligarchic tipping point''.
But research by sociologist Jonathan Meis suggests that, rather than becoming disillusioned with the idea of fairness, rising inequality may actually lead people to believe more strongly that society is fair. It is said that there is. The theory says that inequality is so great that it requires equally great justification. It's like believing that the explosion in America's billionaire population proves more than ever how hard they work, how they innovate, and how much more genius they are. The American Dream and the idea that so many of America's “knock-knock” rich people have gone from rags to riches may paradoxically make Americans more accepting of inequality. Don't let the reality get in the way that a lot of those billions of dollars came from mom and dad.