Generational wealth is defined as the passing down of assets throughout the family tree, but these assets in question carry significant value within them. Copious amounts of money passed through trusts allow the wealthy elite to live a life vastly different from the average American. Children who have been a byproduct of generational wealth have access to resources that the average American does not have, like an easier job with more opportunities, good connections, and pure exposure to the successful moguls of society which aids them in building their wealth. Is it fair that children who don’t work for the large amounts of money they receive become the most successful people in society? Collecting wealth from a trust is not affected by your IQ or work ethic. All that matters is the family you are born into.

Today’s wealth inequality is rooted in historical racism, minimum wage, and government policies that aid the uber-rich. This wealth gap is a massive issue because all the power lies in the hands of the top 10%, as opposed to the majority of the population. Historically, these affluent families have seen their wealth increase from the start of the great depression with the average net worth of the wealthiest 20% rising by 13%, and the net worth of families in lower tiers decreasing by 20%. This statistic demonstrates how the case in which the majority of the population’s net worth is negatively affected, the percentage between families in lower and higher tiers continues to rise, making the next generations look vastly different from each other. This massive wealth inequality we see in America today is one of the reasons the wealth between the executive rich and the average American can look so different. The wealth gap established decades ago paves the way for generational wealth to flourish today.

The government should not be creating policies that favor generational wealth and increase the wealth gap. President Donald Trump’s Tax Cuts and Jobs Act doubled estate tax exemptions and gift tax exemptions. The estate tax is a tax on money passed down after the trustor’s death, compared to gift tax which occurs when the trustor is still living. You are able to transfer 11 million (for married couples 22 million dollars) in assets before being taxed, according to Forbes business magazine. The estate tax can range between 18 percent to 40 percent on assets higher than 12.06 million. This leaves more money for families to pass down through generations, aiding the spread of generational wealth. There should be a greater tax on estates and less wiggle room for gift tax exemption in order to cut down on the wealth that can be distributed to future generations. Arguments have been made that raising the estate tax encourages overconsumption, prevents economic growth, and destroys small businesses when this is not the case. Estate tax only contributes at most 2% to the federal budget. Due to the unequal distribution of wealth, only a small amount of estates are actually paying the tax. According to the IRS, Just .02% of US adults who have died in recent years owed estate tax. 

In order to find out the truth behind generational wealth, we must ask ourselves an important question, has multi-generational white wealth been built on black blood? When African Americans moved into industrial cities during and post World War 1, they faced higher rent than a white person would. As years passed African Americans could not get home loans and found themselves redlined, unable to receive credit. Housing equality makes up two-thirds of household wealth, so excluding minorities from establishing this wealth caused extreme wealth disparities that carry into today. This is not a fair playing field. These prosperous white families were able to establish their wealth when minorities were unable to build up their opulence due to racist policies.  

Some may believe that successful parents pass down their work ethic and drive to their observing children who know how to manage it, when in fact these children have no idea how to deal with huge amounts of money. 70% of wealthy families lose their wealth by the second generation. This is not the earner’s fault however, the blame lies in the hands of the young adults who receive it. This has to do with these heirs not understanding the true value of money. When money is not an issue to you, financial knowledge is not taught, therefore not important. The generation that earns the wealth is hardworking and understands the value of the money they earn. However, that message can be lost through generations as that sacrifice and discipline get forgotten. Families that maintain their multi-generational wealth are able to do so by conveying to their children the importance of money and the way to manage that money when the time comes.

How can children simply collect money they have not earned? Billionaire Warren Buffet commented on the amount of money he was willing to give his children, “Just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing.” Even though there are major issues that lie within inherited wealth like racism, biased government policy, and irresponsibility, I believe this could be a correct way to pass down wealth to the next generation as you still support your children but don’t alienate them from the rest of the population.