4

THE INHERITANCE ADVANTAGE

“SCARY,” BLAKE MILLS MUSED ALOUD, PONDERING THE amount of money he had inherited and how much it had transformed his family’s prospects. Blake acknowledged that inheritance was the reason he and his wife owned a home in an upscale beachside community. It had enabled him to absorb a pay cut, allowed his wife to choose to move from paid work to watching over their sons, and pushed their boys into high-quality schools.

Money passed from generation to generation can be measured in dollars easily enough, but its enormous impact in transforming lives is harder to quantify. Inherited assets give those who receive them a huge head start in life and provide incalculable, unearned advantages; inheritance belies the idea that people enjoy generally equal opportunities and rise or fall on merit alone. Scariest of all, America’s history of racial exclusion and vast inequities in wealth accumulation collide most dramatically in inheritance.

Inheritances and other gifts—small and large—are unquestionably important for their recipients, allowing them to build wealth, affording protection from emergencies, and providing economic security. Some inherited monies are saved or invested right away, immediately expanding family wealth. Usually, however, the wealth gains happen over a longer period. Time and again, our interviews revealed families using inherited money to pay for their children’s education or as a down payment on a home, investments that pay off over time. For instance, sixty-seven of the ninety-four home-owning families we spoke with between 2010 and 2012 had received family financial assistance in making the down payments on their homes. Gifts can also help families absorb unexpected shocks, like car-repair or medical bills, and pay expenses after the loss of a job or a reduction in hours. These cash transfers don’t produce a rising balance in a savings account or otherwise increase a family’s wealth in the short term; yet the availability of such protective resources can forestall hardship, with long-term implications for family stability and wealth. Inherited wealth can completely alter a family’s trajectory, as the story of the Clark family shows.

THE CLARKS LIVED IN ONE OF ST. LOUIS’S MOST COVETED suburbs. Carline Clark worked part-time as an accountant, and her husband had left social work a few years before to work for a not-for-profit. Their spacious house was valued at over $750,000 when we spoke with them in 2010, and their children attended excellent, exclusive schools. Something seemed out of place. With a combined income of $70,000, the family should not have been able to afford such an expensive home in an upper-income community or such costly private school tuition.

In fact they couldn’t afford these things based on their income alone. Rather, a large inheritance had catapulted the Clarks’ wealth to well over $1 million, and they expected to receive plenty more from their parents in the future. Although they thought of themselves as part of the middle class, their wealth in fact situated them close to the richest 5 percent of Americans. And like many wealthy families, they were not self-made. Inheritance was the source of their success and status. Their $70,000 family income was larger than most, placing them solidly in the middle class and providing resources most working-class or impoverished families struggle to attain. But their inherited wealth gave them multiple, concrete opportunities and advantages they would not otherwise have. The Clarks’ wealth allowed them to live in a home and community beyond the means of their income; it enabled one of their children to overcome learning difficulties; it paid for private schooling and college tuition; and it allowed them not to worry about retirement. They served as a living example of wealth’s power to transform lives and sustain advantages, to provide near-immunity against failure, and to supply multiple second chances.

In 2010 we asked Carline, “Do you feel a sense of economic security?” Her tone became terse and defensive. “Yes,” she replied, because “my parents have money.” Twelve years earlier she was more self-assured in her response to the same question. Back then, she readily admitted that, even though she and her husband did not have huge incomes, she felt that her family was very comfortably situated, with money available anytime they needed it. Perhaps her change in tone revealed a new sensitivity to the way the Great Recession was stripping away from those around her the rewards of years of hard work. Perhaps rhetoric critical of the “one percent” of richest Americans was beginning to make her more self-conscious regarding the advantages she enjoyed. Whatever the reason, in 2010 Carline appeared to recognize that life was different for her family than for others. Indeed, Carline understood well and articulated clearly the advantages that came with deep reservoirs of wealth. She said, for example, there was no question that she and her husband would not have had money to send their two children to an exclusive private school without the wealth they had inherited. Indeed, they could not have even considered it.

Inheritance had shaped the Clarks’ lives for many years. Within the first year of their marriage, the Clarks bought their first home, a historic farmhouse, with money from Carline’s parents and an inheritance from her grandmother. Their down payment totaled half of the purchase price—far higher than the national benchmark down payment for home purchases of between 5 and 15 percent. More than a quarter of home buyers (27 percent) put down 3 percent or less.¹ When we talked in 1998, Carline loved her own house but spoke disdainfully of her neighborhood—not all of the homes in this middle-class area were as nice as hers. She described her neighbors as young professionals on the way up, just starting out with smaller homes. Further separating them from their neighbors, the Clarks said they had no intention of “using the school district.” Instead, Carline’s parents would pay for private schools that three generations of the family had attended.

In 1998, Carline had already identified another neighborhood that she preferred. As she put it, she had her “eye on this area really close to our house but worlds away.” Shortly after we spoke, the family moved, paying for the new house outright with $500,000 in cash given by her parents. In 2010, they estimated that the house’s value had appreciated to $750,000. The Clarks had the means to cross neighborhood borders and move up in the world. Their passport was family wealth amassed in an era when it was almost impossible for African Americans to own homes, property, or businesses—to build wealth and pass its advantages along to subsequent generations. Carline’s forebears had owned paper mills and a large tool-manufacturing company. They had also been trustees of a private subdivision of twenty-three houses built in the 1920s. Occupying slightly more than thirty-five acres in suburban St. Louis, it is still distinguished by its mature trees and large lots and the Old St. Louis splendor of its houses. Law and custom excluded African Americans and others; the St. Louis Real Estate Exchange’s Uniform Restriction Agreement had declared, “It is to the mutual benefit and advantage of all of the parties… to preserve the character of said neighborhood… for persons of the Caucasian Race and to maintain the value of their respective properties… to restrict the use.” Buyers had to agree not to “sell, convey, lease or rent to a negro or negroes.”² Unlike Carline’s white grandparents, African American families were denied the opportunity to build wealth through home equity in the subdivision. The legacies of residential segregation lived on in the wealth the Clarks now enjoyed.

In 2010, in addition to their home, that wealth included $100,000 in combined savings accounts in the names of the Clarks’ two children. The accounts had been built through annual $13,000 gifts from Carline’s mother, exactly the legal limit of tax-free gifts that can be given annually to individuals. (By 2014, that limit had increased to $14,000.) Carline’s parents always tried to gift their children and grandchildren the maximum amount allowed by law, in part to reduce the size of their estate and their chances of having to pay taxes on it in the future. Furthermore, Carline said, “they don’t need it, and we do.” Although inheritance is often thought of as money passed to adult children in a single moment, upon the death of one or both parents, the family financial assistance that economists call “in vivo transfers” can make an enormous impact on the lives of recipients again and again. As Carline told us, her parents “recognize births, graduations, birthdays; or, if we need a new piece of furniture or appliance, they’ll pay for that.”

These gifts allowed the Clarks’ children to flourish. Back in 1998, Carline was sure her son, Nicholas, had a learning disability, even though it was not medically diagnosed. His grandparents paid for his elite private school, a string of tutors and learning coaches, and after-school enrichment programs. When we spoke in 2010, we learned that Nicholas ultimately attended a small liberal arts college in Arkansas, and in addition to the $50,000 yearly tuition, his grandparents picked up room and board. The Clarks’ sixteen-year-old daughter, Anne, was earning straight A’s at her elite private school.

I asked Carline to imagine what her life might be like without her family’s generous financial support. She pondered aloud the belt-tightening, loans, and mortgages it would take to afford the home in which she lived and the private schools her children attended. She would have had to go out and find a well-paying job, at the very least. It would put “real strain” on the family, she said, and ultimately she admitted that they “just couldn’t swing it.” Carline talked about how she would have seen herself differently as a mother had she worked full-time, how her husband would have needed to find different work, and how all this would have prompted great soul-searching. After considering a life without $1 million–plus inheritance, she declared, “It’s unimaginable.”

I also asked Carline what she thought the family’s financial security would be like in ten years. She was not sure they would be in the same house but declared, “I think we’ll be on sound financial ground, because that’s just how we make decisions.” Her response suggested that being on “sound financial ground” was a mark of good character and wise decision making. But as our interviews revealed, the choices available and the wisest course of action very often depend on a family’s circumstances. What might be prudent for a wealthy family like the Clarks may be totally unimaginable for other families; similarly, what is rational for typical families who don’t enjoy the advantage of inheritance may appear personally irresponsible to outsiders. Economic stress often confronts families with very difficult and wrenching choices.

Steve and Christa Barzak, for instance, were living separately in 2010—not because they no longer loved one another or could not get along but as a strategy for getting through financial misfortune. We first interviewed the couple in 1998 in the condo they owned in Heather Village in Los Angeles. Both were highly educated professionals, each a few credits short of advanced degrees. Working in telecommunications and creative media, Steve and Christa became mainstays of the black middle class that emerged once legal obstacles to education and employment were removed. Together they earned $122,000, although they remained saddled with $37,000 in student loans.³ In 2007, however, just after refinancing the condo to pay for renovations that would make it a comfortable home for the long term, Steve was laid off. The couple had already put $20,000 into the condo’s kitchen, but they needed to sell the property quickly because they could not afford to pay the mortgage while Steve was unemployed. Unable to get their asking price, they settled for a short sale, taking in less than the amount owed on the debt.

The Barzaks were able to borrow some money from family and friends so that their older daughter could stay in the private school she was attending. But they couldn’t afford to keep the younger child in private school as well. Steve collected unemployment insurance, which helped to an extent. For the first year after the couple sold the condo, they rented a house and lived together, but when things got even harder economically, when Steve continued to have trouble finding work and the stress they had thought temporary proved enduring, they were forced to make more difficult decisions. The couple decided to live apart, because if Christa was living by herself, she could qualify for food stamps, cutting expenses while ensuring a more stable diet for the girls. Christa and the girls moved in with her brother, who did not ask for rent in their time of need. Some might condemn the couple for gaming the system by splitting up to gain food stamp eligibility or criticize them for denying their children a traditional two-parent household. But for the Barzaks, it was a sound financial decision that ensured the girls’ well-being. Their story recalls that of Kendrick Johnson, the father who took a new job in a new city to support his family, even as his children moved with his wife to her mother’s home in Florida. Although other personal considerations may well have been at play in the Johnsons’ separation, Kendrick too made a decision in the best interests of his family. Lacking the advantages of inheritance, the Barzaks and the Johnsons made the choices their circumstances demanded.

Inherited wealth has bought the Clark family freedom from belt-tightening, loans, and mortgages, and it has granted them the freedom to work jobs they enjoy regardless of pay and to parent on their own terms. The point is not to begrudge their lifestyle or stir up class resentment. But it is important to see clearly and concretely the kinds of opportunities, privileges, and cumulative advantages that wealth confers, as well as the mind-set that makes such privilege seem natural. Opportunities are, in fact, integrally connected to resources, which is not to say that health, head starts for children, and a good life are exclusive domains of the wealthy. One cannot deny, however, how much the ecosystem of wealth and privilege improves the probability of attaining better life chances. Clearly, it has had a transformative impact on the Clark family.

THE QUESTION OF PRECISELY HOW MUCH FAMILY WEALTH IS due to inheritance has long vexed economists, who have produced a huge range of estimates varying from as much as 80 percent to as little as 20 percent. A major difficulty in resolving the debate is the problematic distinction between inherited wealth and subsequent wealth accumulated from that base. To take one notorious example, Donald Trump claims to be a self-made billionaire many times over. Yet would his wealth be so huge today if he had not inherited $200 million from his real estate tycoon father? Similar questions apply to the families we talked to. How do we think about a family’s overall wealth when so much of it resides in equity in a home, for which a parental gift served as the down payment? Most economists would score the down payment as inheritance and describe any increase in the home’s value as earnings from investment. Whether that’s the right approach is an open question. One recent study of the role of bequests in wealth accumulation finds that inheritance accounts for 31 percent of net wealth.⁴ Among the families we interviewed with ample financial wealth, however, parental gifts and inheritance played an even more significant and decisive role.

In the end, precisely dividing out bequests from accumulated wealth is nearly impossible; nor is it a useful endeavor. More important is acknowledging the crucial role inheritance plays in opening opportunities, providing some families with a healthy head start and ongoing financial support. Just as critical, if not more so, is acknowledging how lack of parental wealth tethers most families to the vagaries of their paychecks. Earlier, we discussed asking Carline Clark to imagine what her family’s arc might have looked like absent bountiful parental financial assistance. We might also ponder what might have happened if a family like Cindy Breslin’s possessed the inherited resources the Clarks did—how Cindy’s learning disability might have played out differently, how Keneysha’s playing doctor might have led to her practicing medicine today. Although we will never know, there can be no doubting that inherited wealth makes a world of difference.

Just as clear are the large differences in inheritance by race and ethnicity. An examination of inheritance among blacks and whites suggests the powerful legacies of racial injustice in America. Inheritance is a linchpin of toxic inequality, for it is a phenomenon in which America’s history of racism collides with the indisputable reality of inequality today. Historically, African Americans were systematically denied possibilities to build wealth, even as government policy delivered copious and bountiful wealth-building opportunities to some whites. Today, police brutality, mass incarceration, residential and occupational segregation, housing and employment discrimination, and voter suppression reveal the continuity of deep structures of racial injustice.

Racial injustice is both cause and consequence of African Americans’ economic status. Past racial injustice was integral to preventing blacks from gaining economic security and wealth and is manifest to this day. For example, we can trace blacks’ position in the contemporary employment landscape from slavery, through Jim Crow and their exclusion from the 1935 Social Security Act, to the high degree of ongoing occupational segregation that today maps onto lower pay, fewer benefits, and little wealth. African Americans confront these ongoing injustices with few protective wealth resources that might mitigate the severest consequences. Looking closely at inheritance helps to reveal how it will be impossible to overcome widening economic inequality without also dealing with the legacy of racial inequality and the widening racial wealth gap, or to overcome racial inequality without reversing the trend toward economic inequality.

Vast inequities in wealth mean that some households have greater access to financial assistance through an extended family’s web of wealth. These families receive such assistance more frequently and in larger amounts. Over time, receiving large gifts and inheritances allows them to build substantially more wealth of their own. This reality emerges from a twenty-seven-year national, longitudinal study of income dynamics and from surveys covering shorter periods, as well as from our own family interviews in 1998 and 1999 and from 2010 to 2012.

The first thing to note is that large inheritance, in any form, is relatively infrequent. Only a minority of the population—white or black—is fortunate enough to amass wealth from parents. The Panel Survey on Income Dynamics (PSID), which followed the same households over more than a quarter century between 1984 and 2013, revealed how receiving financial transfers of $10,000 or more from extended family is relatively uncommon: only 35 percent of the working-age families followed by the survey had received such a transfer by 2011.⁵ Most families, close to two-thirds of those tracked, received no large financial transfers from family members at any point over twenty-seven years.

Just over one-third of households nationally received family financial transfers over a generation, and there were stark racial disparities among the beneficiaries. The web of wealth that low-income and African American households can access is often severely curtailed because fewer relatives have built up significant financial resources of their own to draw on. White households were four and a half times more likely to receive inheritance or in vivo transfers (money passed between living parties) than African American households in the PSID study. Between 1984 and 2011, close to half of white households (46 percent) received some type of financial transfer, compared to only 10 percent of African American households. Single-year snapshots reveal similar disparities. An Urban Institute study showed that over a one-year period, both black and Hispanic families were five times less likely to receive large gifts and inheritances than white families. Another study showed that black families received substantially less in in vivo gifts and were substantially less likely to ever inherit than white families, and they inherited less money when they did inherit.⁶

This inheritance divide is a major driver of the growth in the racial wealth gap, because inherited wealth accumulates and compounds over time. Among the nearly half of white households receiving financial transfers, the median amount was $83,692. By contrast, among the one in ten African American households receiving a financial transfer, the median amount was $52,240.⁷ Not only were African American households four times less likely to receive a financial transfer, but when they did, the median amount was $30,000 less than for white beneficiaries. Both disparities mean that African Americans have far less to invest in assets that might appreciate in value or in opportunities that might increase their future prosperity. It is the difference between grasping opportunities and having opportunities just beyond grasp.

If all the money inherited between generations among whites were somehow divvied up equally, each white family would amass $54,000. Meanwhile, every black and Hispanic family would inherit $9,130 and $5,160, respectively. We already know that not all families inherit; yet this sort of comparison shows that the ecology of privilege overwhelmingly grants the decisive advantage to whites.⁸

Numbers are fine, but does inheritance matter? Both the white and the black households that received extended family financial resources during the twenty-seven years of the PSID study were able to build significantly more wealth than those not inheriting. At the median, white inheritors amassed $282,000 more wealth during this period, compared to $72,000 among white noninheritors. African American beneficiaries also reported higher family wealth gains than African American households not receiving transfers: $20,000 versus $12,000 for noninheritors.⁹ White households, however, saw greater wealth expansion for each dollar of family financial assistance received—most likely because African American households received fewer and smaller financial transfers and also because families of color give money to broad family networks more frequently than whites, as detailed later in this chapter.

Studies of shorter periods also show enormous differences by race and ethnicity in large gifts and inheritances, even after controlling for family economic and demographic factors like income, marital status, number of children, and age. One of the best reports found that, over a two-year period, 5.2 percent of white families were beneficiaries of large gifts or inheritances, compared to 1.3 percent of blacks and 1.4 percent of Hispanics.¹⁰ As is wholly consistent with the longer, twenty-seven-year study, Hispanic and black families received considerably less in large gifts and inheritances than white families. Families of American-born blacks received an astounding $5,013 less in large gifts and inheritances, on average, than white families. Using a large, nationally representative sample (Survey of Income and Program Participation [SIPP]), the Urban Institute estimates that, over time, large gifts and inheritances account for 12 percent of the white-black wealth gap.

SIPP also reveals who gives and receives smaller amounts of financial support within family networks. Black families most frequently received support, followed by whites and then Hispanics. Close to one in six black families (15.9 percent) received financial support during the two-year period, compared to 10.4 percent for whites and 6.5 percent for Hispanics. Hispanic families were more likely to give support to their kin networks than whites and blacks, 14.2 percent compared to 8.8 percent for whites and 9.1 percent for blacks. Hispanics were more than five times as likely to support their parents as whites.

Despite receiving money more often, Hispanic immigrant and nonimmigrant and black families collected an average of $278 to $589 less per year in net support (receiving minus giving) than white families. This is because these minority groups received fewer dollars of support, and Hispanic families gave more in support than white families. These transfers among family networks tended to involve small amounts, measured in the tens and hundreds of dollars and generally consumed, not saved or invested. Our family interviews clearly indicated that these sorts of transfers are most often intended to cushion unforeseen and immediate economic hardships. They may also have long-term implications for family stability and asset building.¹¹

Another way to understand the power and advantage of inheritance is to focus just on college-educated families with middle-class credentials. The data clearly demonstrate education’s return on investment, especially the association of higher wealth with college and professional degrees compared to high school diplomas or less or partial college. But seen through a racial lens, recent data on the connection between education and wealth is both compelling and counterintuitive. College-educated whites increased their wealth significantly between 2007 and 2013 by $31,000, adjusted for inflation, while college-educated blacks lost nearly $20,000 in wealth during the same period.¹²

An investigation of the Institute on Assets and Social Policy (IASP) into the wealth-college association revealed one reason for this: the inheritance advantage. The team found that close to a third (32 percent) of white college-educated families received a large wealth transfer of $10,000 or more between 1989 and 2013. Fewer than one in ten (9 percent) college-educated black families received similar wealth transfers. Whites were 2.8 times more likely to receive such large gifts. Among college-educated whites receiving large transfers, half got more than $55,400, while the median figure for blacks was $36,000. The difference between the average figures for the two groups is far greater, $235,353 to $65,755.

Inheritance, of course, is not limited to large gifts or bequests. It also includes smaller financial transfers, usually made with a specific purpose in mind. For the first time, new data from PSID allow a detailed reckoning of this sort of family giving and receiving between generations. And IASP’s study found that white college-educated families were significantly more likely to benefit from heftier financial support from parents in one year, 2012, receiving twice as much money as blacks, $1,000 compared to $500. Importantly, after becoming adults at eighteen, 64 percent of white college-educated individuals got parental help to pay for school compared to 34 percent of blacks. Even more notably, white parents contributed $73,500 on average to their children’s education, compared to just over $16,000 for black college-educated parents. White parents also helped finance homes for their adult children more frequently than blacks, 12 versus 4 percent. And, again, the average amount of parental financial assistance for home ownership was stark, $66,700 compared to $6,400.¹³ While white college graduates report significant assistance from their parents, black college graduates tell a giving story as opposed to a receiving story. Among blacks, 45 percent gave to parents in need compared to 16 percent of whites. In sum, inheritance and other transfers from family members were one crucial reason that college-educated white families gained wealth between 2007 and 2013, while college-educated black families lost wealth during the same period.

We witnessed a similar phenomenon in our family interviews. The parents we talked with were most likely to receive ongoing financial support from their families to assist them in raising young children, buying first homes or moving to larger ones, and preparing for college. More than three out of every four families we interviewed had received financial transfers from extended family. Indeed, the large majority of the white and black home owners we spoke to (sixty-seven of ninety-four) received family financial assistance to purchase their homes. Although the nationally representative surveys cited above offer a statistically more reliable guide to the scope, frequency, and amount of such transfers, our interviews nevertheless highlight the importance that parental support plays at key moments and suggest how much families rely on such support overall. As Carline Clark suggested, such support offers a private safety net and a launching pad for success. Knowing this money is available increases self-confidence and risk taking, enables pursuit of promising opportunities, and provides a sense of security all the while.

Our family interviews also revealed a great deal of context and texture regarding the circumstances that prompt families to give and receive money. In white families, especially the middle-class ones, resources flowed from older parents to adult children. One couple burst out laughing in a 1998 interview when I asked them if they financially helped their parents or other relatives. They explained that the question was simply ridiculous, because family resources streamed to them, and there was no need to help out parents, brothers, sisters, or other family. In contrast, resources flowed in a markedly more reciprocal pattern among working-class and minority families based on need and depending on the urgency of circumstances. Middle-class black families like the Johnsons and Wards, meanwhile, told us about the copious support they gave to extended family members in hard times or to pay for relatives’ college. National surveys and our interviews both confirm that the movement of money within American families differs substantially depending on race and class and explains how inheritance and other financial transfers help to produce great divides in family wealth.

CARLINE CLARK’S FAMILY, HAVING INHERITED WELL OVER $1 million with more to come, is certainly not typical. Of the one in three white families fortunate enough to inherit, the median inheritance is much lower, around $84,000. But as the story of the Mills family suggests, an inheritance closer to this more typical figure can greatly impact a family’s trajectory and transform lives.

We sat down with Blake and Andrea Mills in 1998 and 2010 in an upmarket section of Redondo Beach, once part of a 48,000-acre land grant from the Spanish government to the Dominguez family in 1822. During the Mexican-American War, US Marines laid siege to the Dominguez ranchero in 1848 and were driven back to their ships in the nearby harbor.¹⁴ Today, it is one of Los Angeles’s most highly coveted beach communities, a place where shoeless preppies sip espressos and gaze at the Pacific Ocean on gorgeous California days, most likely oblivious of the history of the ground they stand on. The story of this place, of how property was titled and transferred through land grants, wars, seizures, and court battles between feuding pioneer families, then subdivided, sold to aviation industry workers during World War II, and eventually gentrified—this is the sweeping arc of history in its repeated interactions with individual families’ circumstances.

Much as King Charles III of Spain bequeathed land rights to a chosen elite, Blake’s parents anchored his family in Redondo Beach with a large gift. Blake and Andrea in all probability could not have afforded to purchase their home on their own, even with their very good family income of $97,000. Rather, inheritance placed them and their two sons in one of California’s best-resourced, most educationally rich school districts.

In the early 1990s Blake and Andrea were living in a South Bay apartment in an area they liked a lot. Blake’s father proposed that they buy a place in Redondo Beach together. Blake agreed, and father and son became co-owners of a townhouse. Eventually Blake’s father took himself off the deed, giving Blake and Andrea sole ownership. Blake says that the copurchase of the home was a way for his parents to “help us out and get started, so to speak.” In the initial purchase of the townhouse and during their co-ownership, Blake’s family gave them approximately $90,000 to $100,000 toward the house. Blake’s family got a tax break as co-owners. Blake says he could not have purchased the townhouse without what he called an “interesting arrangement” with his father. “They actually threw money, as a stipend, to us. And then for money that they gave us, we gave them back tax shelter, tax advantages as co-owners.”

Blake acknowledged that family financial help and his parents’ cosigning of the mortgage were indispensable to getting them started. I asked Blake in 1998 the impolite question of how much money they had inherited already. “It’s a horrendous number, it’s scary. I’m guessing between ninety and a hundred thousand dollars.”

By 2000 their young boys were growing, and like most growing families, they wanted more space, so they sold their townhouse, used the considerable equity that had built up for a sizeable down payment, and bought a four-bedroom townhouse right in the same neighborhood for $375,000.

Our 2010 conversation with Blake and Andrea revealed that the family’s income had been stable, with Blake’s $125,000 salary having slightly less purchasing power than his 1998 salary. Blake had taken a mandatory pay cut as the Great Recession hit the global pharmaceutical company he worked for. But the Millses were not treading water; their wealth was rising. In 1998, their net wealth was $118,000; by 2010, it had more than quintupled to $632,000, a wealth increase driven by their home equity. Excluding home equity, their net financial assets in 2010 were $330,000, up from $87,000 in 1998—a very respectable but less dramatic increase. Blake’s employer-sponsored pension investments and IRAs helped to drive the rise in their financial wealth.

The family’s children were doing well in the local public school district. The older, Andy, was about to start college at a state university, and the younger, Mark, was starting his sophomore year in high school. In 2001, as the young boys were just starting school, the Millses had decided that Andrea would quit working and become a stay-at-home mom. They wanted one parent closely involved in their sons’ education. When we talked in 2010, Andrea had gone back to work part-time, since the boys were getting older and transitioning to college.

The Mills family’s wealth seemed ample and included mutual funds Andrea’s parents had set up for the two boys’ college education in 1998. Yet Andrea was uneasy about the family’s future economic security, largely due to the cost of college. She was stunned by the tuition at the public university where Andy was enrolling; she and Blake had both graduated from state universities in California when tuition was negligible, but the state university system had raised tuition by more than 450 percent over the previous fifteen years. This huge tuition hike reflects soaring college costs nationwide, which have far outstripped pay increases and often stress family finances and burden the next generation with debt. (The average student loan debt in California’s state university system is now $18,460.) The funds her parents had established would pay for about one year of Andy’s tuition. With college costs in mind, Andrea was looking for full-time work again, but had not found it when we talked.¹⁵ Andrea’s bind, pitting future economic security against financial support for children’s higher education, has become emblematic of the squeeze on middle-class families. In the Millses’ case, inheritance mitigates the dilemma because they can pursue both, though Andrea’s sticker shock and concern are still real.

By 2015, the value of their home had risen to $868,000¹⁶—a return of nearly $500,000 leveraged from the initial $90,000 to $100,000 investment from Blake’s family. The Mills family serves as a good example of the difficulty of distinguishing inheritance from subsequent wealth accumulation. Was their $500,000 of additional home equity the result of their savvy in real estate markets or contingent upon their inheritance? Others, no doubt, might have squandered this inheritance, as a couple of families we talked to indeed did. But the large majority of American families do not have $100,000 inheritances to invest in homes or other assets or to squander. And while the amount of the Mills family’s inheritance is pretty typical for white families that do inherit, recall that the much smaller number of black families who inherit also receive considerably less. An inheritance of $100,000 would be extraordinarily rare for a black family; as noted earlier, one in ten are fortunate enough to inherit, and half receive less than $52,000. We must recognize not only how inheritance can change lives but also whose lives are more likely to be transformed by such legacies, because advantage and inequality are different sides of the same process.

The Mills children will attend a very respectable university, while the system will play out differently for less fortunate young adults. Among other tremendous advantages, inheritance helps pass along significantly higher chances of obtaining a college degree, which in turn leads to higher-paying careers and much higher lifetime earnings, lower unemployment rates and poverty levels, and better health and longer lives. Individuals from the highest-income families were eight times more likely than individuals from low-income families to obtain a bachelor’s degree by age twenty-four, according to a recent study.¹⁷ We have seen already that wealthier families have the ability to support their children’s higher education and do so. This massive rich-poor divide in bachelor’s degree attainment is now the largest it’s been since the early 1970s. Wealth and inheritance pass the advantages of upper-middle-class status from parents to children. Those not born into such wealth and privilege are more often stuck in the status of their birth—the essence of toxic inequality.

Inheritance is not just a key driver of toxic inequality; it is also the enemy of equal opportunity and meritocracy. Nevertheless, government policies in the United States have long guaranteed the ability to easily pass the unearned advantages, surplus opportunities, and singular privileges that accompany family wealth to subsequent generations. Carline Clark told us how she was “constantly physically in touch with [her parents’] money, and able to manipulate it”—in part “so that it doesn’t all go to Estate Tax.” But in fact, the estate tax offers a prime example of how policy favors a few wealthy families at the expense of opportunity for the many. In 2016 a tax filing was required whenever estate wealth for a single individual exceeded $5,450,000. For a couple, $10,900,000 was excluded. Estate wealth over that amount was then taxed at 40 percent. Since the early 2000s, the exclusion levels have increased steadily, while the tax rates have declined; in 2001, only estates under $675,000 were excluded, and wealth over that amount was then subject to a 55 percent tax rate. The richest can now pass along a lot more while paying less. And in reality the tax affects only an infinitesimal number of estates. In 2011, when $5 million was excluded, only 18 out of every 10,000 adults who passed away had estates large enough to pay any estate tax. Yet many continue to argue for abolishing the estate tax entirely, suggesting that taxing wealth destroys initiative.

Inheritance could be characterized as the nemesis of equal opportunity, meritocracy, the American ideal, and quite possibly democracy itself. It poses a severe threat to our nation’s foundational ideas of fair play, achievement, and playing by the rules. Yet many defend the privileges of the 2 out of every 1,000 families who leave untaxed millions upon millions of unearned wealth to their children. And as the next chapter will show, the ever-narrowing estate tax is just one way in which America’s tax code and other government policies disproportionately help—not hurt—those who have wealth already.