Baby boomers, Australia’s richest generation, are expected to hand over $3.5 trillion to younger generations over the coming decades, largely via inheritance.
This great wealth transfer is going to make an enormous impact in the coming years by reordering the wealth distribution in society.
But this new age of inherited wealth prompts many broader moral questions, even when discussing modest sums of money.
Patrick Stokes is an associate professor of philosophy at Deakin University who delves into the ethical issues around giving and receiving inherited wealth.
He argues that the concept of inheritance is a classic case of a clash between two sets of ethical considerations: one that balances distributive concerns that are best for society against what is best for personal autonomy or individual rights.
“[On the one hand] it’s my money. I earned it, I can spend it how I want — so I can give it to my kids, right? I can give it to whoever I want. But the problem is that if a lot of those transactions happen… you end up with big inequalities [in society],” Dr Stokes tells ABC Radio National’s Life Matters.
“You end up with situations where wealth clusters or you have huge disparities of wealth, and you also have the issue of inherited wealth perpetuating itself rather than everyone starting from a level playing field.
The question, for Dr Stokes, is how to balance the competing ethical imperatives between people’s right to decide how they use their money, and what might be the best outcome for society.
“It’s not like there’s some nice, clear algorithm that’s going to give us a straightforward answer to those questions. It’s a matter of ongoing negotiation and compromise. In other words, it’s a matter of politics.”
So what are the ethics involved in giving or receiving an inheritance?
An unfair system?
Australia is one of the few major economies that doesn’t have a tax on inherited wealth, after death duties were abolished in 1979 under the Malcolm Fraser Coalition government.
Dr Stokes says one of the greatest dangers of inherited wealth is that it “reproduces the same wealth structures from one generation to another”.
In 2021, a Productivity Commission report found that in the past 20 years, wealthier households have received larger inheritances, on average, than poorer households, and that these inheritances have contributed to an increase in absolute wealth inequality.
But the report also pointed out that growth in asset prices, particularly property values, was having a much bigger impact on wealth inequality in Australia than inheritance.
In a report released last month, Anglicare Australia argued a tax on inheritance would “provide a fairer system of wealth distribution, preventing undue concentrations of wealth within a limited segment of society”.
A fix to the tax system could prevent a “deepening economic divide between asset-rich households and those who must rely solely on wages”.
“This is the funny thing about inheritance,” Dr Stokes says.
“We can always say, ‘Well, I earned this money so I can spend it how I want.’ But then you’re giving it to people who, by definition, didn’t earn it — because you’re not really earning somebody’s money just by outliving them.”
Inheriting ethical responsibilities
Dr Stokes argues that there are ethical responsibilities for both the recipient and the donor of an inheritance to make sure the wealth is used for good.
“There’s a problem that’s sometimes referred to as the ‘dead hand of the past’: how do you ensure that the ideas that people had in the past don’t end up completely constricting what people can do in the present?” he says.
“[For example] sometimes bequests can become really tricky for the recipient.”
He points to US examples where private colleges have received generous bequests in the distant past to fund an ongoing annual scholarship, but the bequest conditions specify that the recipient has to be a white man.
“So what do you do then? You want to use the money for good, but it’s got these caveats on it that mean that you can’t use it in an ethically legitimate sort of way,” Dr Stokes says.
This example shows that there are responsibilities involved for both the recipient and the donor of an inheritance to make sure the resources are used for the social good, Dr Stokes says.
“You’re a citizen in a society and so you’ve got the same degree of political sovereignty as anyone else to say: ‘This is how I think society should be operated,'” he says.
“[You could] see inheritance simply as a matter where somebody has died, and we have to work out what happens to their stuff. And you can absolutely say … ‘I can give it away however I want.’
“But it’s also the case that those choices do have consequences, and consequences also matter. We have an [ethical] obligation to try and bring about better consequences and avoid bad consequences.
“There are real arguments about what the best distribution of goods in a society looks like, or how you balance those distributive concerns against personal autonomy or individual rights. And we need good practical reasoning to make those kinds of decisions.
“If you receive a bequest, I think there is some sort of ethical imperative to not just waste it. if somebody gives you their life savings when they die, you are morally obliged to spend that well.
“But you [also] have some responsibility for how you spend your money, and that includes spending it beyond the grave.”
Spending money beyond the grave
Dale Schilling and his husband recently went through the process of drawing up their wills, and making decisions about how they would pass on their estates.
Mr Schilling comes from a “big farming family” and had just received a modest inheritance from two relatives who died within a month of each other: an unmarried aunt and an unmarried uncle.
They both left the money to their siblings, including Mr Schilling’s father, who passed away 10 years ago. He saw firsthand how complicated the inheritance process could be.
“We’re one of these modern blended families,” Mr Schilling says. “Dad remarried, so I’ve got a stepbrother and sister and half-brother. And so that money got divided amongst the seven of us.
“So there wasn’t a lot left after all of that. But that got me thinking about what sort of impact I would like to leave behind, a legacy I’d like to leave behind.”
Mr Schilling decided he wanted to give his inheritance to a charity that would be around for many more decades, but which was small enough to appreciate the sum. And he wanted to feel his money would go towards a cause he believed in.
“It was about picking charities that are meaningful for me, both for personal reasons, but also because I believe in how they’re going about things.
“I chose BirdLife Australia, mainly because Dad used to take us around birding when we were little kids around the farm and up at the sunset country, in north-west Victoria … And then also [the social enterprise] BackTrack, which works with rural and regional youth.”
For Mr Schilling, deciding how he was going to donate his estate made him think more about communicating his decisions to his relatives. He and his husband don’t have children, but they do have 11 nieces and nephews. He has brought up the topic of inheritance over barbecues — talking about it with humour to lighten the subject.
“It’s a tricky subject because you don’t want people to rely on your inheritance,” he says. “And there’s a bit of a social taboo nowadays to talk about finances, [especially] when it comes to wills and inheritances, it can get really tricky. And so I think you do want to be open and transparent.
“The last thing we want is a bunch of ‘waiters’ for nieces and nephews: people that are just sitting around waiting for you to die. It’s a sad thing when a relative passes away and you don’t want them looking forward to the money as opposed to wanting to spend time with you.”
