Spoiled Rich Kids: Why Billionaire Heirs Overtaking Self-Made Ones for the First Time Could Be Bad

Trust-fund-baby-billionaires have edged ahead self-made entrepreneurs and the implications exceed beyond disappointment
Updated July 18, 2024
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Traditionally, the billionaire's image has been synonymous with entrepreneurial prowess and groundbreaking innovation. However, a recent Swiss Bank UBS study has shed light on a shifting trend — the next generation of billionaires is increasingly inheriting their wealth rather than earning it. And that might be a bad thing for everyone else.

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This shift raises concerns about the character of the new breed of billionaires and could have significant implications for taxes and philanthropy. As more trust fund billionaires emerge, there is a growing fear that they might be less inclined to contribute to society through taxes and philanthropic endeavors.

Trust fund kids overtake self-made billionaires

The UBS report reveals a noteworthy change in the composition of billionaires, indicating that those who joined the billionaire club last year through inheritance surpassed the wealth of those who earned it through entrepreneurship. Of the 137 individuals who became billionaires in 2022, 53 inherited a staggering $150.8 billion, while the remaining 84 self-made billionaires amassed $140.7 billion. This marks the first time in the report's history that more money came through inheritance than traditional entrepreneurship.

Why it’s a bad thing

Contrary to the current generation of billionaire figures like Bill Gates and Warren Buffett, who built substantial wealth and devoted a large percentage to charitable causes, the new wave of inherited billionaires appears less inclined toward philanthropy. UBS's survey of self-made billionaires indicates that over two-thirds consider philanthropic goals and societal impact as their main legacy objectives. 

In contrast, less than a third of those who inherited wealth share the same concern. The focus for the inheritance generation leans more toward growing their wealth through companies and securing their family's financial future.

The UBS findings highlight a broader phenomenon — the great wealth transfer happening across society. Wealthy baby boomers are estimated to pass on a colossal $72 trillion to millennials, a trend the billionaire class further intensifies. With a median age of 67, billionaires are increasingly contemplating the fate of their fortunes posthumously. The report suggests that the next generation of billionaires might prioritize business growth and passing wealth to their children over philanthropy.

Tax implications

In addition to philanthropy concerns, the rise of trust fund billionaires poses significant tax implications. Entrepreneurial billionaires typically face different taxes throughout their wealth accumulation, including income and capital gains taxes. 

However, their offspring are likely to enjoy a different tax landscape, with potential avoidance of inheritance tax. A study by Oxfam revealed that half of the world's billionaires live in countries without inheritance tax on money passed down to children, resulting in an estimated $5 trillion of tax-free wealth transfer to the next generation.

Concerns over succession

The shift toward inherited wealth has left existing billionaires uneasy about who will inherit their empires. Major companies led by billionaires are crafting detailed succession plans that include family members to eliminate some money stress from their family and their companies. The survey indicates that three-fifths of first-generation billionaires are primarily concerned with instilling values, education, and experience in their offspring to ensure a smooth transition.

Global calls for change

As wealth inequality widens, authorities are exploring solutions to close the gap and address potential loopholes during the inheritance phase. The EU Tax Observatory, in an October report, recommended a global tax for the world's 2,700 billionaires, estimating an annual revenue of $250 billion. While the prospect of a global inheritance tax remains uncertain, the need for a fair and equitable approach to wealth distribution is gaining traction.

Tomorrow's billionaire

The evolving landscape of billionaires, dominated by inherited wealth, prompts reevaluating the values and priorities shaping the wealthiest individuals. The concerns over reduced philanthropy and potential tax avoidance raise critical questions about the societal role of the billionaire class. 

As we witness the rise of trust fund billionaires, the impact on taxes, philanthropy, and the broader socio-economic landscape becomes an area of intense scrutiny. The world perhaps had a better appreciation for the self-made rich man. Still, as the overall wealth gap and inequality persist, the general population seems less inclined to allow trust fund heirs to take advantage of the tax system in the same way as their predecessors.

Bottom line

The surge in trust fund billionaires signifies a departure from the traditional narrative of self-made success. The implications stretch beyond individual fortunes, with potential repercussions for taxes, philanthropy, and the distribution of wealth in society. As the torch passes from generation to generation, the responsibility to address these challenges falls on policymakers and billionaires. The future of wealth accumulation and its impact on societal well-being hinges on a delicate balance between inherited wealth and a commitment to giving back to the communities that fostered such immense affluence.

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Author Details

Georgina Tzanetos Georgina Tzanetos is a former financial advisor who has been active in financial media for the past six years. She holds a master's in political economy from NYU, where she studied distressed labor markets.