To Heir is Human, But is it Fair?

by James D. Schwartz

Inheritance is the lineal descendent of the hereditary principle whereby genes and wealth are passed on. This financial inheritance seems to be in direct contradiction to free enterprise, all men are created equal. Is inheritance consistent with the efficient allocation of resources? Is inheritance congruent with the “invisible hand” of the market place? Is inheritance a “hand up” or a “hand out?” How is inheritance consistent with meritocracy, equality of opportunity, and democracy via capitalism.

How fair and moral is it that the accident of birth should determine that one player in the market enters with nothing but his own ability while another enters with skills and capital created by inherited wealth? Many have sought to minimize the inequality in the market through inheritance taxes. This however makes the state one’s heirs against one’s will. Unfair?

Inheritance goes back to biblical days. It started with the “hereditary principle” (birthright) and evolved to monetary inheritance and the societal mind set of entitlement (“give me, buy me, take me-it’s coming to me”). Today, pedigree, all too often, takes precedence over productivity. The inheritance practice is continued by the inertia of outdated reason (reinforced by self serving parties including insurance companies and agents, bank trust officers, and estate lawyers) rather than utility or merit.

Why should the inheritance of monetary favors persevere when other hereditary principles are rightfully held to be suspect? Tom Paine wrote in Rights of Man “is there anything more absurd than an hereditary mathematician, or an hereditary wise man, and as ridiculous as an hereditary poet-laureate?” Inheritance subsidizes the wealthy and is, therefore, as destructive as welfare, which subsidizes the poor.

Effort must be effective. Effort goes to the heart of the American ideal of meritocracy. Webster’s defines meritocracy as “a system in which advancement is based on achievement or ability.” Colloquially, the better mousetrap not the inherited mousetrap should get the rewards. Genetic inheritance may give a capacity; but monetary inheritance takes no “effort” or energy. As a financial planner, the justification I’ve heard was, “I made it. I’II give to whom I want, how I want, when I want to give it to them.” However this seems to be based on the concept of absolute private property. Here the Judeo-Christian concept of stewardship of wealth been replaced by permanent private property-even beyond the grave. Freedom of choice is the ultimate argument to justify inheritance. Family cache has replaced being the Lord’s conduit.

Rationalization of freedom of choice aside, the real double bind is meritocracy versus our love for our children. We want our loved ones to make their own way yet we don’t want them to be hurt. Yet, in protecting them, we often smother them, causing them to be fearful, or indolent. How do we resolve this dilemma? Can we protect our loved ones anyway? Would you rather provide for your child’s fish supper or teach him/her how to fish? Money can be devalued tomorrow such that this currency is useless. But skills, in general, and the adaptability skill in particular, can be utilized to secure whatever today’s currency may be. One wealthy client stated to me, “I don’t care if I leave a penny to my kids if I have given them a good education. Their inheritance, given while we are living, is my time to share with them experiences to help them be able to make their own way.” If time is money, this client is giving his “heirs” money now, the ability to fish for their own dinner now, rather than rationalizing, “I’m too busy because I’m trying to provide for you now and later.”

Research indicates that wealth is dissipated by most ensuing generations. “Heir today; gone tomorrow.” Apologists argue that this dissipation of wealth is redistribution. Thus, inherited wealth is “recycled” in the economy. Yet, others would argue that the silver spoon has created an “aristocracy of mediocrity the new no-ability” to the detriment of heirs. Heirs often face the derision of peers “he made his money the old fashioned way – he inherited it. Inheritance; Headstart for the Wealthy.” Sadly, one heir commented to the author “inheritance means you can always be an amateur.”

James D. Schwartz is a Financial Planner at C.E.O Enough, Inc.

In the course of lectures to various Jewish groups and organizations, I have found that a major rationalization for ever increasing standards of living and economic activity is the need to provide for one ‘s children and grandchildren. Both the economic activity and the spiraling standard of living are all too often the cause of economic immorality when ethical methods are found to be insufficient. Our fathers in the desert collected more manna than they needed just in case it would not be enough or G-d would not provide for tomorrow. For them, there was never enough, and we often follow.
-Dr. Meir Tamari, founder of the Center for Business Ethics