Blog

Our Thinking

Unique insights to drive your family and family office forward, authored by Family Capital Strategy

The Challenge and Complexity of Entitlement

Photo by Fabian Blank on Unsplash

The end of the year rush is on, and not just for the retailers.  There are at least 2 other sectors of the economy that are incredibly busy right now – trust/estate attorneys and accountants.  With the uncertainty of the election heading into the rear view, many families are accelerating their legacy planning into 2020 given the chance for potential tax hikes to come, a reduction in the lifetime tax-free giving exemption amount, and/or both. In my experience, there is one word that is always close at hand any time wealthy individuals and families consider financial gifts to future generations – entitlement. 

Entitlement is universally regarded as a clear sign that any legacy planning has had an adverse effect.  So while no one wants to see their estate pay more taxes than are statutorily required, at the same time, there is a degree of fear as such planning is often fraught with concerns that future generations may be harmed in some way.

The challenge is that entitlement is such a nebulous concept.  Instinctively, we have some sense of when it is present, and certainly its potential negative side effects.  However, we are not as able to identify it when in the early stages.  If entitlement is thought of like cancer, we have a hard time pointing to early symptoms, or even knowing what diagnostics to run to determine if it is likely to arrive. 

And even if there is some entitlement present in a future generation, is the concern binary – i.e. is it wholly bad if it is present at all?  Or is it a question of degree?  Arguably, we probably are all a little entitled about something, somewhere in our lives.

What is entitlement then?

Generally, the common definition is “the belief that one is inherently deserving of privileges or special treatment.”  The term is older though and derives from the Latin verb “intitulare” meaning to give a title or name to.  Entitlement is inextricably linked with titular ownership of something and the rights and privileges that come therein.

The construct of ownership by title is not something that we should pass over quickly.  The idea that clear ownership can be established and be both demonstrable and enforceable, undergirds the foundation of any modern system of property rights – and thereby the free market economy.  So, in some ways, we should be grateful to be part of a system in which we can be ‘intitulare,’ and that we generally do not have to resort to force to prove ownership.

There are two embedded notions to any system of property rights that may be worth highlighting because they care important implications for the negative state of entitlement.  The first is that generally property is acquired through a transaction in which good/services are exchanged for the property desired.  Owning a title to anything is inextricably linked to the output of labor.  Through one’s work, one can acquire. 

Simultaneously, when one owns the title to something, they reap both the benefits and responsibilities therein.  For example, while I may hold the title to a vacation home and get to enjoy the benefits of a coastline vacation, I am simultaneously on the hook for the cost and hassle when the water heater fails and floods the garage.

The challenge lies in which the title to which one has claim changes a person’s behavior.  The negative state of entitlement generally results when the 2 notions above are removed.  The challenge of inherited wealth is that it separates the immediate connection between title and labor.  In fact, one way to consider legacy gifting is that it is the transfer of the productive output of prior generations (as embodied in fiat currency) to future generations. 

Simultaneously, the structure by which these transfers occur (or just the nature of society), also results in the ‘title’ received being stripped of responsibility with only benefit passing to future generations.   

So, how is entitlement avoided then?

First, entitlement is harder to cure vs. prevent.  I.e. the attitudinal elements of entitlement are often the fruit of a long period of time, and redressing will be massively challenging.  Instead, as the saying goes, an ounce of prevention is worth a pound of cure.  The behaviors you wish to see are cultivated beginning at a young age.

Second, those who are providing the title, should recognize the difficulty of such a situation.  Far too often, I hear sentiments expressed after a gift is given that the recipient should be grateful for it along with a degree of forced compliance about potential adverse consequences if the assets are squandered.  Gifts with a gun to head, sadly show an absence of empathy with those whose lives are being affected.  A significant chasm is being introduced between the story of prior generations and how they related to their wealth, and to the generations to come.  Both sides should approach such a new reality with humility and caution.

Finally, the challenge is to find ways for those 2 key elements of ‘title’ to be re-introduced – the link of reward with output and the balancing of benefit and responsibilities.   To do both requires caution and balance.   I believe that labor is a fundamentally important characteristic of human development.  But the form, level, and amount of it vary dramatically for each person.  Flexibility on what productivity looks like for future generations is important.

Allowing negative outcomes to potentially befall beneficiaries is also a delicate matter.  Challenge builds depth and character – no one who achieves greatness does not suffer for their art.  When you remove obstacles, you remove the chance to learn.  The question is how to scale the level of risk that is appropriate for the age of the child. 

Entitlement is a tricky thing.  Like obscenity, we know it when we see it.  But what to do about it and how to prevent it are challenging questions.  As well, we cannot forget the role of the individual self.  Each generation does its level best to prepare future generations – but as each generation comes of age, they individuate and make the choices about who they wish to be.  Hopefully, they can reflect on the experience of prior generations to glean what is good and applicable to their own lives, while leaving behind the dross. 

Mailing List

Archives

+1 615 270 5750
info@familyCapitalStrategy.com