On April 3, 2019, Simone Foxman writes on Bloomberg:
When Tom Benson died last year at the age of 90, he left behind a sprawling empire that included two professional New Orleans sports teams and a group of car dealerships. Unfortunately for him, he spent some of the last years of his life squabbling with heirs over who would get what.
The legal battle was marked by claims Benson wasn’t mentally competent when he made sweeping changes to his estate plans. His daughter and two grandchildren alleged he was acting at the direction of his third wife, Gayle Benson, 72, whom he married in 2004. Tom Benson rejected the claims, and a Louisiana court agreed. When all was settled, his wife ended up with the New Orleans Saints and the New Orleans Pelicans and his daughter and two grandchildren got most of his other holdings. But it took a lot of time, a lot of lawyers—and presumably a lot of money.
This kind of drawn-out fight for control is a risk faced by a growing number of longer-living American billionaires. At least 15 of them died last year, leaving behind assets collectively worth about $60 billion, including all the complex trappings that come with immense wealth: wide-ranging business interests, properties, sports teams, yachts, planes—you name it.
The number of U.S. billionaires has grown swiftly of late. There were an estimated 747 of them in North America in 2017, up from 490 in 2010, according to a study. At the same time, long-term economic data suggest the 10-figure crowd and those just behind them control ever-larger pieces of the economic pie. The wealthiest 1 percent control 37.2 percent of the country’s personal wealth, while the bottom 50 percent control nothing.
And the rich are living longer than ever, adding years of asset accumulation at a time when income inequality has become a political flashpoint. While cuts to estate and gift taxes are partly to blame for the concentration of wealth, another cause is a growing advisory industry aimed at making sure all that money goes exactly where the super rich want it to go.
The fight over his estate began playing out in 2014, after the billionaire, then 87, shifted future control of some assets from his daughter Renee and her children to his wife, Gayle Benson. The grandchildren, Rita and Ryan LeBlanc, had been involved in running parts of the family businesses. The dispute culminated in a mental competency hearing, where a New Orleans judge held that, despite “memory lapses,” Benson was able to manage his own affairs.
Another prominent case involved a multibillionaire still among the living. Disputes over the competency of 95-year-old Sumner Redstone led to four years of litigation over his assets and business holdings. In January, Redstone settled a long-running legal fight with a former lover and confidante. The deal resolved all pending lawsuits between him and Manuela Herzer, who after a falling-out had sought to be reinstated as Redstone’s health-care agent. This triggered a cascade of litigation around his family’s control of the media empire, Redstone’s pay and his daughter Shari’s influence over his $3 billion fortune.
These days, the fortune of modern-day billionaires is “so large that it’s anticipated to last for not just children or grandchildren or even great-grandchildren, but great-great-grandchildren who these patriarchs will never know,” said Elizabeth Glasgow, a partner at Venable LLP who specializes in succession and wealth planning. And with that expectation comes the increased threat of litigation.
So it’s not surprising that 45 percent of wealth management firms now offer estate and succession planning as primary services, up from 37 percent just a year ago, according to Cerulli Associates. The data provider estimated that demand for these capabilities will continue to snowball: Over the next 25 years, $68 trillion of wealth will be transferred in the U.S. alone.
Most major banks now advertise “family office” and planning services for clients with more than $25 million in investable assets. Some offer perks for the super-privileged: Wells Fargo & Co.’s family office group has a historianto document family legacies, while Citigroup Inc. and Deutsche Bank AG boast summits that teach heirs how to invest in Silicon Valley.
Longevity can be critical to the growth and long-term success of such family business interests, said Jonathan Flack, who leads PricewaterhouseCoopers’s U.S. Family Business unit. In earlier eras, longer lifespans were driven by declining child mortality. In the past 50 years, the driver has been older people living longer. Men in the top one-fifth of America by income born in 1960 can on average expect to reach almost 89, seven years more than their equally wealthy brethren born in 1930. (Life expectancy for men in the bottom wealth quintile remained roughly stable at 76.)
John Davis, founder of Cambridge Family Enterprise Group, said advising clients on how to successfully hand off power increasingly requires finding them a life beyond their business interests, given how long the rich are living. Davis, who teaches at the Massachusetts Institute of Technology’s Sloan School of Management, said he started paying more attention to the challenges raised by longevity about 15 years ago, when he realized several clients had three generations of adults involved in the family business. “The oldest generation was still around,” he said, “and not just still around, but still active and still wanting a role.” That could be a recipe for disaster.
“Stepping into the shadows is something that older people don’t want to do. It’s kind of scary,” said Davis, who has made a career of advising ultra-rich families on how to transfer wealth. Data reflect this hesitancy: Just 18 percent of family businesses in the U.S. said they have a robust succession plan, according to a 2019 survey from PwC.
Flack tells clients that early planning can allow for a more efficient transfer: for example, asset owners who assign shares of a company to a trust earlier, at a lesser valuation, can avoid some taxes if the business appreciates. But Glasgow warns that such concerns must be balanced with the possibility that children or trustees might “jump the gun” to have them declared mentally incapacitated.
“The state of diminished capacity isn’t going to be a bright line,” she explained, given the vagaries of such diseases as dementia or Alzheimer’s.
In the past, an aging tycoon may have relied on a trustee or family friend to make the call. Nowadays, the rich are planning for the possibility of a slow decline, making use of vehicles to transfer wealth or fund philanthropy while keeping control longer. And for protection, Glasgow said, the rich are introducing clauses as part of estate planning that require heirs to produce two, or even three, doctors who agree they are unfit to administer their own affairs. One client stipulated that only a court could determine whether he was mentally incapacitated, she said.
Gary Reber Comments:
Lesson: Why are they billionaires? Answer: They own wealth-creating, income-producing productive capital assets.
What about the 99 percent vast majority of Americans? Answer: They own no wealth-creating, income-producing capital assets. Why? Answer: Because the system is designed to enable a few to accumulate capital asset ownership.
How can the 99 percent become productive through owning productive capital assets/ Answer: The solution, which I call the “Own The Future Deal,” requires reform of our monetary system with the activation of Section 13(a) of the Federal Reserve Act and enactment of new legislation and policies to provide EQUAL opportunity for EVERY child, woman and man to become a productive capital owners through access to insured, interest-free capital credit, repayable solely from the earnings of the investments in the building of a future, environmentally protective and responsible economy that can support general affluence for EVERY citizen. The legislative policies would provide to EVERY citizen an equal, annual amount of this capital credit in accordance with the needs to finance viable and responsible growth. Enactment of this legislation would enable EVERY citizen to be productive and benefit from the growth of the economy without taking from those who already are owners (at least until death using a transfer tax to encourage the super-rich to spread out their monopoly-sized estates). EVERY citizen would be able to accumulate, as owners, viable, wealth-creating, income-producing capital assets and over time secure an affluent state of retirement. Such a deal would show its economic benefits immediately in job creation and universal ownership benefits within a generation following its activation, and continue to build the economic foundation of affluence as days, months, and years of the future transpire.
There is also the matter of inheritance taxes. At death, individuals should be discouraged from passing on their wealthy estates to their heirs. As a substitute for inheritance and gift taxes, impose a transfer tax on the recipients whose holdings exceed $1 million in value, thus encouraging the super-rich to spread out their monopoly-sized estates to all members of their family, friends, servants and workers who helped create their fortunes, teachers, health workers, police, other public servants, military veterans, artists, the poor and the disabled.
The following contains everything one needs to understand the foundation of the “Own The Future Deal,” though this wording is not specifically used:
Support the Agenda of The JUST Third WAY Movement (also known as “Economic Personalism”) at http://foreconomicjustice.org/?p=5797, http://www.cesj.org/resources/articles-index/the-just-third-way-basic-principles-of-economic-and-social-justice-by-norman-g-kurland/ and http://www.cesj.org/resources/articles-index/the-just-third-way-a-new-vision-for-providing-hope-justice-and-economic-empowerment/.
Support Monetary Justice at http://capitalhomestead.org/page/monetary-justice.
Support the enactment of the proposed Capital Homestead Act (aka Economic Democracy Act and Economic Empowerment Act) at http://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/ and http://www.cesj.org/learn/capital-homesteading/ch-vehicles/. And The Capital Homestead Act brochure, pdf print version at http://www.cesj.org/wp-content/uploads/2014/11/C-CHAflyer_1018101.pdf and Capital Homestead Accounts (CHAs) at http://www.cesj.org/learn/capital-homesteading/ch-vehicles/capital-homestead-accounts-chas/
For an overview, see “Economic Democracy And Binary Economics: Solutions For A Troubled Nation and Economy” at http://www.foreconomicjustice.org/?p=11.
