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The impact of inheritance

A “great wealth transfer” may be on the horizon. Will a gift from grandma save the middle class?

Francesco Ciccolella and Roman Buchberger for Vox
Meredith Haggerty is the senior editor for the Culture section at Vox. Before coming to Vox, she was a senior editor at Racked.

Technically, Megan is a farming heiress.

Her mom grew up on a wheat farm, and for years, the government had been paying her family $15,000 a year to not farm. It was an attempt to keep land from being overused, and that money was basically the extent of Megan’s relationship with agriculture: the source of a yearly gift, the money she and her mom would wait for before, say, buying furniture or making home repairs. Now Megan, who asked to be referred to by a pseudonym to speak freely about her finances, receives that money directly.

In 2019, at the age of 64, Megan’s mother died. It was expected and unexpected. Her mom had been a cancer survivor for 20 years. But chemotherapy had damaged her heart, and two years ago, she went into cardiac arrest.

On the phone, Megan, 38, runs me through the process of settling her mother’s estate. It was a ton of bureaucracy: so many phone calls, so much paperwork. After paying her mom’s bills and taxes, selling off her house and possessions, and handling lawyers’ fees — setting aside for just a second the small piece of land that makes her an agricultural scion — it came to just under $50,000.

Something else Megan says she inherited from her mom, who worked for years in medical billing, was “not really a great sense of money management.”

So Megan used that money to pay off her own formidable credit card bills. She’d been in “a decent amount of debt” since 2008, and for the first time, she says, she was out from under Visa and even able to add to her savings. Today, she’s at something like breaking even; she’s found a balance between her outstanding graduate school debt, her expenses, her income, and the money she receives from the USDA to let her family land lie fallow.

Megan is grateful, and amazed that her mother was able to leave anything after a life of financial struggle. Ultimately, though, we’re talking about $50,000 in 2020s America, set against a person whom she loved deeply.

“I’d obviously much rather have my mom,” she says.

Inheritance is a tricky thing to talk about, a subject that wraps up money, family, and death in one impossible package. For those who receive it, or stand to, it’s wealth that comes at a terrible moment; a boon and bureaucratic puzzle; and a reminder of someone you lost. For those who won’t be seeing any family money — which is to say, most people, but more on that later — it can feel deeply unfair. Millions of people lose loved ones and suffer greatly and only find their lives, and paying off their own debts, that much more difficult.

But inheritance is a conversation we need to have, because a great wealth transfer is upon us, coming soonish. A large amount of cash is expected to move from the pockets of boomers to everyone younger, though guesses at just how much and when vary: Forbes reports $30 trillion over “many years,” PNC says $59 trillion by 2061, CNBC mentions $68 trillion and 25 years, and the New York Times confirms the variety of these assessments but puts it at around $15 trillion over the next decade.

Wealth transfers, as an economic force, are more than just the money a person receives when someone dies — they also include tuition payments from a loved one, or loans for a house, or large monetary gifts from one living person to another. But a big, generational transfer is on the horizon, and while part of it is precipitated by possible changes to the generous inheritance laws the Trump administration put in place, as the baby boomers tick up in age, part of it is just the cycle of life.

Who’s getting this money, how are they getting it, and what’s it going to do? In “Not All Millennials,” published in the Drift, Kiara Barrows noted that “the distribution of this inheritance will fall along the lines of existing inequalities, deepening the fractures in any millennial program of economic solidarity.” And that’s certainly true — the nation’s top 1 percent have received more than 35 percent of the inherited wealth, according to Edward Wolff, a professor at New York University and the author of Inherited Wealth in America: Future Boom or Bust?

But Wolff also says, surprisingly, that inherited wealth isn’t a huge driver of inequality in America — it actually has had an equalizing effect. And there’s no indication that the next decades will be any different.

The reason is deceptively simple: While much (much!) more money flows among the rich, for middle- and low-income people who receive gifts or inheritance, they represent a larger percentage of wealth. So large, in fact, that for some people, a gift from mom or dad is the thing that will keep them middle class.

But recipients-wise, we’re not talking about a lot of people. Twenty-two percent of American households receive a wealth transfer, Wolff says in a phone interview — a significant figure but certainly not a majority.

When Wolff, who studies inequality, dives deeper into whom those inheritances go to and how, the picture looks a little different than you might expect. He says that for some middle- or low-income people, inherited assets can represent up to one-third of a person’s wealth. And Black families who do receive transfers, he says, actually rely more on those inheritances than white families do.

The majority of people who inherit aren’t getting millions, either; less than one-fifth of inheritances are more than $500,000. The most common inheritance is between $10,000 and $50,000.

None of this can quite explain the sum total of inherited wealth’s effect.

While it’s incontrovertible that anyone who receives an inheritance is plainly fortunate in at least one large respect — this isn’t a story about why you should feel bad for people who inherit — my conversations with those who have or expect to receive a sum from their families after death indicate that a transfer of wealth can be a lot of things: freeing and stifling, a relief and a burden, a windfall and a pitfall. It depends on one’s circumstances, which is really just to say that it depends on a person’s family, and their money.

For Megan, it meant months steeped in legalese, and freedom from (some of) her debt. For Dhruv, who expects to receive a large inheritance, the promise of future wealth has been a source of both privilege and internal conflict. Mindi, a returning student, found that her inheritance screwed up her financial aid and brought up complicated feelings about her relationship with her dad. Emily came into a sum she expected to spend on a parent’s medical care, and found her life changed. Jackie inherited her mother’s house 15 years ago but fears losing it to proposed changes to the tax code. (Megan and Dhruv asked to be referred to by pseudonyms to protect their financial privacy; the others who spoke with Vox asked that their last names be withheld.)

The wealth transfer, in increments of $20,000 or $30,000, has the potential to make a select few stable for the first time, to shore up some people on the shrinking island of the middle class. But these stories create a picture even more complex than a group of uncomfortably lucky mourners; they illustrate a country with byzantine and punishing legal and financial systems, mediocre financial education, and a culture of having and not having that doesn’t benefit very many people at all.

In 2018, Emily came into an amount of money she doesn’t hesitate to call “life-changing.”

When I reach her via video call to talk about inherited wealth, she has her meticulous personal budgets at the ready. She feels strongly about financial management, explaining that she gives all of her money a job — say, this $40 works for “hobbies” and that $100 goes to “pet care.” It’s a system that takes time and foresight and spreadsheets, but she’s passionate about financial education and the work it takes to be prepared for anything life throws at you.

Emily, 38, had been prepared for the eventuality of paying for the long-term care facility that her mother lived in once her mother’s money ran out. The facility cost $4,600 a month, which would have meant $2,300 each for Emily and her brother. It’s a price tag she calls “bananas,” but after her mother was diagnosed with early-onset Alzheimer’s, the siblings wanted care they could rely on.

When Emily was growing up, her family was poor. Her dad was not so good with money or employment, and her mom worked at an oil company, in the kind of job you get when you’re a woman with no college degree in the 1970s. The company did give her a pension, though, and after Emily’s mom got divorced and retired, she started to invest her money. With her kids’ help, she turned it into an impressive little nest egg, earmarked for her long-term care. It was enough to cover about three years at the facility. “We fully expected her to outlive the money,” Emily says.

Instead, in 2018, at 66, her mother fell and died six weeks later, leaving Emily and her brother $350,000 in assets. Emily and her husband had been living paycheck to carefully planned paycheck, and now, just like that, she has a financial safety net.

If her mother had lived to, say, 78, the average life span for an American woman, Emily would not have seen an inheritance. Instead, she’d likely be facing a sizable debt. Even for a planner, the change in fortune is hard to account for.

“It also feels incredibly guilty all the time,” she tells me.

Francesco Ciccolella for Vox

The first time I speak to Jackie, 54, she tells me about the seemingly tangled situation she is in with her mother’s home, which she inherited along with her siblings in 2006. The second time, I have good news to give her. At least, I hope I do.

Jackie has lived in the house in Los Angeles for years and needs to move on now, but two newish tax proposals seem to have her in a bind. One would make it expensive to rent out the home; the other might make it expensive to sell, unless she does so very fast. Jackie’s mother purchased the home back in the ’90s for $150,000, and it’s likely worth over $800,000 today. It should be a fortune, but after all these years, the house and the money have suddenly started to feel like a time bomb.

The bedrock of Jackie’s fears is a new California law that changes how inherited rental properties are assessed for tax. The concern that motivated this change was the subject of an LA Times piece that used Jeff and Beau Bridges to show how the elite had benefited from tax loopholes. Separately but simultaneously, President Joe Biden has a proposal that would change capital gains taxes.

Maybe you’re adept at tax law and already see the punchline here, but as Jackie explained her concerns to me over the phone, all I could do was take notes.

Then I brought Jackie’s story to a very kind tax professional, who agreed to speak with me on background, to see if we had a handle on her stressful position.

As it happens, we did not.

These laws don’t apply to Jackie for a very simple reason: Taxes are not applied retroactively.

I explained more, in greater detail than I will bother you with, but his answer was the same.

As the very kind tax professional told me, this is what happens when people are working with incomplete knowledge. Complete knowledge, it turns out, is incredibly important when you’re dealing with the tax code.

Meanwhile, incomplete knowledge is kind of the human condition. Tax professionals cost money, which can be prohibitive for many people, especially those who’ve received a windfall but worry they’re about to be staring down some enormous bills.

When I was in high school, my dad and I used to fight about the estate tax, among other things. (I’d latched onto the topic at debate club, and one of our shared interests is arguing; my mom hates it.)

Like all arguments between fathers and daughters, this was actually a fight about everything: our worldviews, our expectations of each other, our ideas about what the future should look like.

I was (and remain) philosophically in favor of the tax, which might mean that I wouldn’t inherit every penny that he wanted to give me but also that perhaps the wealth gap wouldn’t yawn open further. (Spoiler: It did.) I saw my dad’s opposition as shortsighted and selfish; worse, selfish on my behalf. These loud conversations would usually end with him saying, “No one’s going to tell me what I can leave you!”

I’m an only child, and for as long as I can remember, my parents have been trying to impart to me that everything they have would someday be mine.

My dad’s favorite joke is that he’s spending money that’s somehow mine. The idea of a coming bequest is always present, whispered over my grandmother’s crystal glasses or intoned as we survey their recently renovated house from afar: “All of this is for you; this will be yours someday.”

According to a US News & World Report breakdown, my parents are upper middle class by earnings. They’re well-off and have always been upwardly mobile, out-earning my grandparents by a good margin. They’re tremendously hard-work-oriented and at one point owned multiple businesses together — including a popcorn store and a Hallmark store — while holding other jobs.

According to the same breakdown (and cross-checked with Pew’s Class Calculator), I’m middle class. Which is to say that I’m downwardly mobile, despite a good job and a great and paid-off education. I’m massively (massively) fortunate, but the idea that I’ll ever, say, buy a home without my parents’ assistance seems impossible.

Fighting about the estate tax, one of my go-to talking points was, “We don’t even have that much money!” In 2003, a very big year for my dad and me yelling about this, the exemption was $1 million, meaning everything under that was free and clear, and the top rate over that was 49 percent.

I absolutely could not conceive that my parents might have a million dollars. I couldn’t, at the time, imagine what I would do with that much money (I didn’t have a great sense of value, and Zillow hadn’t been invented yet). My dad would talk about our house, which he built himself in the early ’80s, and I would zone out and then say, “Whatever, I’m not going to live in” the small, quaint town my parents had chosen for the excellent school system. Secretly, the thought of selling the home I grew up in broke my heart, and the idea of doing it because my parents were, in this scenario, dead made me feel sick.

They sold the house themselves last year. It went for $1,055,000. If my parents had died, instead of retiring and heading to Florida, and the tax still applied at that exemption level, I would have owed thousands. This likely would have forced my hand in exactly the way my dad feared.

It’s a moot point, though, because in 2021, the estate tax exemption isn’t a million bucks. It’s $11.7 million, and double that for couples, with anything over that amount taxed at as much as 40 percent. The exemption rose over the years that Trump was in office, starting at $5.49 million in 2017. I can confidently say my family is in the clear.

Still, even broadly very generous to those receiving a gift or inheritance, the estate tax is no more popular with voters now than it was with my dad two decades ago. According to a new poll of registered voters conducted for Vox by Data for Progress, only 40 percent of the 1,234 respondents support an estate tax.

Wolff chalks it up to a fairly human reaction: “People feel that they’re gonna win the lottery,” he says.

On some level, they’re aware that “they depend to a large extent on these bequests,” he says, “And they don’t want to see it gobbled up by taxes.” They don’t want to give up the safety net.

The effect money has on life is a complex calculation.

Dhruv, 30, has not yet received an inheritance, but he knows it’s coming. His parents — his mom and stepdad, who raised him — are still alive, and he’s received financial gifts from them in various forms over the years, but the inheritance sort of looms.

He doesn’t know the specifics of their estate, but he says he has been told where and how to access it when the time comes. He estimates that it’s around $7 million, based on what he knows and from looking at their large, lovely house in Southern California, where he currently lives. He says the family doesn’t go more than a month without some reference to wealth being passed down, although often in slightly obscure ways, like when his mother mentions that this or that piece of jewelry would be nice for a granddaughter to have. (Neither Dhruv nor his brother has children yet.)

Dhruv’s family wasn’t always well off, not at all. When Dhruv was a baby, and his mom was still married to his biological father, they struggled. And when he was around 5 and she married his stepdad, a mechanic, they also struggled. It was a few years later that the couple launched a business that became a huge success.

His mom is “tough, because she had to be for a while,” and “intense” with money, Dhruv says. She’s worked to secure this inheritance for him and his brother, including handling the paperwork to ensure that they will receive property in India, where she grew up.

Her story isn’t all that unusual. The people most interested in allocating money for their kids, say some of the financial professionals I spoke with, are often those who come from a less affluent background.

Shala Walker, a certified financial planner with Stavis & Cohen in Houston, Texas, says in her experience, it’s higher-net-worth individuals who are less likely to want to leave assets to their kids. “I don’t know if it’s a realization of the opportunities that their kids have had, or even … the fact that they don’t necessarily need it.”

Sometimes, Dhruv says, his mom “tries to make all the financial decisions.” He has developed a very different personality; he describes himself as the “opposite of a micromanager.”

The money has affected him in other ways. When Dhruv was in college, he heard an economics professor say that job scarcity is a feature of most economies, and the fact that there isn’t enough work to go around is “unavoidable.” Currently unemployed but trained as a psychiatric researcher, he thinks of that when he looks at the job market. He wonders whether it’s okay for him to have a certain job when that job could go to someone who needs it more.

He’s worked a variety of jobs — at McDonald’s as a teen, as a teacher in Asia, in psychiatric hospitals and with nonprofits — but for his teenage and adult life, he’s always known that if he needed to, he could get a bailout. It’s allowed him to take risks, like moving to Asia with no employment, and to be secure in situations that would be devastating to other people. Out of work, he was still comfortable, living at home, with plenty in savings, eligible for unemployment.

“I always know I have a safety net of sorts — a lot of people do, but, like, I definitely have one,” he says.

Money can mean security, no question. It can also represent something more like control.

Mindi grew up with a very wealthy father and not a lot of money. Her parents were divorced, and while she was raised in an apartment with two of her siblings and her mom, her dad had a big house, drove nice cars, and carried a lot of cash. “I don’t mean $100 or $200,” she says. “I mean, like, he had $5,000 in his pocket at all times.”

He used that money as a carrot, dangling 50 percent of the cost of whatever she wanted, insisting she or her mother pay the rest. He refused to help her pay for design school when she was young. But he promised, often, that she would be taken care of when he died.

So when he did, in 2018, when Mindi was 46, she was surprised at the size of her inheritance. It came to around $112,000 each for her and her four siblings. From her father’s big talk, from his big job with Hughes Aircraft (Hughes as in Howard), from his big wad of cash, Mindi had expected something very different.

The settling of the will, she says, was difficult and prolonged, with recriminations between siblings and half-siblings, their stepmother, stepsiblings, estate lawyers, seemingly everyone around. The actual total value of the estate remains unclear to her, and she says that many of the relationships will never recover.

But when the money came in, she purchased a Chanel bag, and then a vacation with her fiancé and kids. She bought a car with cash, and paid off every bill she had, except for student loans. At the time, she was a returning student, finally studying design. Then she was hit with a curveball: Her windfall “completely screwed up” her financial aid. And then Covid-19 happened, putting her fiancé out of work. Mindi says the money “evaporated.” In the end, she couldn’t even pay the taxes on it.

Before he died, Mindi’s father was in the habit of changing his will, or at least telling his kids that he had, after a fight with this or that child. Mindi was out, or her sister was. He’d put cars in their names and take them off again. She never knew quite where she stood.

Today, Mindi says she’s grateful for what she received, happy to be remembered. She wishes, though, that her dad would have spent more time with her when he was alive; that their relationship had been better. She hopes her kids never fight about money.

If you’re going to talk substantively about the impact of inherited wealth, you can’t focus only on the impact on one-fifth of people. The fact of inheritance reverberates among the other 80 percent, often in big ways.

Among that group is Ivie, a multimedia journalist based in New York, who says that all she ever wanted was to be comfortable.

Last month, Cherrell Brown, a community organizer and educator who tweets under the handle @awkward_duck, tweeted, “S/o to the folks with no security net. Who won’t inherit any wealth or property from any family. Those who are their parent(s) only retirement plan. The grind, the pressure, the stakes are different.”

The hundreds of replies illuminate what it means to live without financial underpinnings. Mostly young people of color, they had taken in a family member’s kids, were caring for their own parents, or were otherwise navigating a world where others don’t share their economic stresses.

Ivie is one of the many people who responded to Brown’s post, writing that the lack of generational wealth is what keeps her motivated. Ivie tells me later that she’s never really had a choice about how hard she works, because she knew she didn’t have a safety net.

Ivie’s family emigrated from Nigeria, and she grew up in the Bronx. She went to NYU, known for its wealthy student body and high cost. While other students (like me) took internships, Ivie worked a series of jobs, running around the city collecting textbooks, telemarketing, working at Forever 21. Her classmates could call home for money if they needed; she didn’t have that option.

“Even when you are thriving,” she says, you’re still “a million steps behind” someone who has any kind of generational wealth or even structure. Even with no foreseeable inheritance, inheritance looms over her life.

She doesn’t want the big money; she just wants to be comfortable. The greatest thing money can provide seems to be steadiness, and freedom from fear.

“I think the biggest inheritance that I have received has been being born in America,” she says. “If I’m being honest, that’s an advantage. And I just had to take that and run with it.”

Like these other inheritances, it’s a tangled one.

It’s an indictment of the US that one of the best ways for a middle-class American to hold onto that status is to have someone who loves them a lot die.

I called my dad recently to ask how much money he made before he retired two years ago, seized with a realization that, like Dhruv and just about everyone else in this story, I’d never had a clear understanding of my own safety net. It was a weird call: I stammered, he explained his finances readily. They still felt like none of my business.

Before I could hang up, he stopped me, “It’s really about family, though,” he says, meaning this story.

He’s right, although maybe not exactly in the way that he means. He’s thinking of family as a symbol of self-sacrifice, a promise from parent to child. But it’s family, and so it’s complicated; we affect each other in great and lamentable ways.

There are parents who leave their children something not out of a deep want, but out of obligation, or tradition, or ideas about legacy, or lack of a better option. There are low-income parents who would love to be able to give their children something but can’t, and there are wealthy parents who could give their children a lot but choose not to — out of a desire to see them succeed on their own, or out of a deep lack of generosity, or out of 47,000 other reasons I can’t even conceive of. Whatever the reason, it is deeply personal.

If the fundamental problem, though, is that some people have security and others don’t, there might be some hope. It is possible to build a bigger safety net without spooking people that you’re going to tear a hole in theirs. It’s possible to create a system that doesn’t depend on coming from a stable, fortunate, generous family.

Wolff is in favor of policies that might combat inequality. He sees solutions in boosting incomes, which will in turn boost the savings rate, a major concern; and aiding unions, which will push for keeping wages high. He also likes Biden’s child tax credit, which offers a $3,000 yearly allowance to parents, and the plan to raise the minimum wage, which he says will likely have an “escalator effect” (like trickle-down economics, but the opposite, and real). He’s enthusiastic about baby bonds, which would guarantee everyone $1,000 in a tax-free savings account. And there’s always the various proposals to levy a wealth tax; he’s even written one of his own.

Ultimately, inheritance — money of any kind, really — is most vital in its role as a solid foundation. Everyone deserves that. We’d be better off if America wanted it for Americans as much as some Americans want it for their own kids.

For now, we’re stuck with this piecemeal system, one that works only for some people, and only sometimes. Intermingled as it is with complication and grief, there are small moments of grace.

During Megan’s mom’s life, she and Megan were both plagued by debt. Now, alone, Megan has a solid foundation. “I think she knew that when she died, my life, with whatever I inherited, would be a little bit better off,” Megan tells me.

It is, and it isn’t. Death is inevitable, though; security is a rare and precious gift.

Meredith Haggerty is a senior editor at The Goods by Vox. She edits reported stories and occasionally rails against capitalism. Previously, she edited books and hosted a podcast.

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