Is Inherited Wealth Evil?

By Prof. Enrique Soriano

In 2011, movie star Jackie Chan announced that he had decided to give away half of his money to charity when he dies. Chan added that he was not planning to leave any of the millions of dollars he made during his film career to his son, Jaycee.

“If he is capable, he can make his own money. If he is not, then he will just be wasting my money,” Channel News Asia quoted Chan as saying.

The senior generation has given their children two things they need to succeed in this world: personal wealth and privileged education. However, many business leaders lack confidence in the commitment of the next generation to the business. As wealth grows, owners start to worry about the impact that sudden wealth will have on their children. This growing concern needs to be addressed, as neglecting this “inheritor’s dilemma” can block the succession plans of family businesses for decades.

A good case in point to counter this dilemma is the one cited by Prof. Joseph P.H. Fan in his book, “Critical Generations – Out of the Succession Dilemma of Chinese Family Businesses.”

Unique Ownership Design

Prof. Fan highlighted a case related to the ownership and wealth transfer model initiated by the legendary Taiwanese businessman Wang Yung-Ching (abbreviated as Y.C. Wang). Just like any founder-owner, one of the issues that Wang wanted to avoid was the likely conflict within his big family when they inherit his wealth once he passes on. Therefore, as part of Wang’s wealth transition, he transferred the controlling ownership of Formosa Plastics Group to a charitable foundation. His primary purpose in transferring ownership to a foundation was to effectively shield his business from being compromised by the anticipated family dispute. Below are some of the rules he created:

• No family members could be beneficiaries of the assets.
• All income derived must be reinvested into the business and/or donated for charitable purposes.
• The rules of the transfer require that no family members could serve as managers unless they are vetted.

When Y.C. Wang died at 91, his wealth transfer achieved business continuity and sheltered his family business from infighting.

Another case worth mentioning is that of Yu Pang-Lin, a high-profile real estate billionaire based in Hong Kong and one of the world’s top philanthropists. Yu Pang-Lin passed away at the age of 92 in 2015, but five years prior to his passing, he announced that he would entrust his entire wealth, valued at USD$1.5 billion, to a bank, with the money to be donated to charity after his death. Yu was believed to be China’s first billionaire to donate his entire fortune to charity. He once said, “If my children are more capable than me, it’s not necessary to leave a lot of money to them. If they are incompetent, a lot of money will only be harmful to them.”

Children of affluent parents have not had time to establish their own identities separate from the wealth and status of the business. It is highly likely that they may find it challenging to develop self-confidence and forge healthy relationships. After they inherit great sums of money, the central message for successors is often contradictory. On the one hand, they may be told, “Do whatever you want with the inheritance,” while on the other hand, they are encouraged to “give back to society.” And while entrepreneurs today are admired by the public, there are negative stereotypes attached to the privileged few. No wonder most business owners try to keep their newly earned wealth under the radar, even from their own families.