spotlight || under 40
Lifestyles of the Rich and Famous Or how to not raise a trustafarian. |
BY ALYSSA FORD
hen it comes to rich kids on the loose, there’s really no shortage of can-you-believe-it examples. Last January, the heiress to the Formula 1 fortune made news for racking up a nearly $48,000 tab at a London nightclub. Last summer, the former president of Facebook, Sean Parker, was fined millions by the California Coastal Commission for environmental damage. (He had a team of builders construct fake ruins and dredge a pond in a protected grove of ancient redwoods for his wedding.) Then there’s the original celebutante, Paris Hilton, who, when not serving jail time for drunk driving, is generally filling her role as the unofficial spokeswoman for stiffer estate taxes. It’s tough to raise a genuine, levelheaded kid, full of gratitude and humility and a sense of purpose. It can be even more difficult to raise a kid when there’s a trust fund afoot. “Parents have described it to me like looking up at Mount Everest and having no oxygen and no Sherpa,” says Nathan Dungan, a private wealth consultant in Minneapolis and founder of Share, Save, Spend. It’s not just about the ruination of a person. For many wealthy families, it’s also about the tarnishing of a brand, a family name — or in some cases, such as Hilton Hotels, both. Not to mention that it takes just a single generation to obliterate a family fortune. The Peel family of Britain holds the classic cautionary tale. Their story goes like this: By the turn of the 19th century, the Peels had amassed an incredible real-estate portfolio, some 10,000 acres in total. The family mansion, Drayton Manor, housed a stunning collection of furniture and art, including works by Rubens. Sir Robert Peel (the first) was a large-scale textile manufacturer. His son, Sir Robert (the second), was twice the prime minister of Great Britain and is still regarded as one of nation’s most gifted statesmen. Unfortunately, Sir Robert (the third) had a weakness for gambling and the champagne lifestyle. At one point, Robert, third Baronet, built himself a lavish horse and dog racetrack and made extensive renovations to Drayton Manor, adding, among other things, a massive aviary filled with exotic birds. But the high times didn’t
192 Artful Living
| Winter 2014
last. By 1871, all the paintings were sold off. By 1912, huge parcels of land were sold at bargain-basement prices. By 1926, the mansion was stripped of its marble columns as well as the lead flashing and water pipes. By the middle of the 1930s, the very shell of Drayton Manor was demolished and sold for rubble. Warren Buffett famously has said that the right amount to leave your heirs is “enough so they can do anything, but not enough so they can do nothing.” But that’s very tricky. What amount of money fulfills dreams? What amount curdles a person into a spoiled brat? It’s a quandary affecting hundreds of families in Minnesota, according to the West Central Initiative Foundation in Fergus Falls. A 2011 study from the nonprofit, authored by economist Andrea Lubov, showed that some $48 billion will shift from one generation to another between 2011 and 2030 in this state alone. So how does one raise a humble rich kid? It’s not easy, but it is possible.
Tip No. 1: Be very honest about the pitfalls. When Linda turned 18, she was summoned to the opulent client dining room of her father’s business. There, a small cluster of lawyers and company officials had assembled to explain her inheritance, including various stock options. The lawyers told her she needed to make up a will right away. “It was a quirk in New York law,” she says. “I didn’t technically inherit the money until 21, but if I died between 18 and 21, I needed to have a will. It was a strange feeling, as if the money was more important than my life.” Linda remembered that experience when raising her three sons in Minneapolis and developed a policy of openness, talking freely about the dangers, complexities and unusual responsibilities that come with money. “There weren’t any big formal talks, but I always tried to jump on opportunities as they came up,” she says. “For example, my middle son