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The decline of probate has another dimension that has not been well understood. Fundamental changes in the very nature of wealth have radically altered traditional patterns of family wealth transmission, increasing the importance of lifetime transfers and decreasing the importance of wealth transfer on death.
In this article I shall be concerned with private-sector wealth. Into the eighteenth century, land was the dominant form of wealth. The technological forces that broke up older family-centered modes of economic organization called forth two new forms of private-sector wealth. One category is what we today callfinancial assets - that is, stocks, bonds, bank deposits, mutual fund shares, insurance contracts, and the like - which now comprise the dominant form of wealth. The other great form of modem wealth is what the economists call human capital. It is the skills and knowledge that lie at the root of advanced technological life.
The main purpose of this article is to sound a pair of themes about the ways in which these great changes in the nature of wealth have become associated with changes of perhaps comparable magnitude in the timing and in the character of family wealth transmission. My first theme, developed in Part II, concerns human capital. Whereas of old, wealth transmission from parents to children tended to center upon major items of patrimony such as the family farm or the family firm, today for the broad middle classes, wealth transmission centers on a radically different kind of asset: the investment in skills. In consequence, intergenerational wealth transmission no longer occurs primarily upon the death of the parents, but rather, when the children are growing up, hence, during the parents' lifetimes.
My other main theme, developed in Part III, arises from the awesome demographic transformation of modem life. For reasons that I shall explore, those same parents who now make their main wealth transfer to their children inter vivos are also living much longer. The need to provide for the parents in their lengthy old age has put a huge new claim on family wealth, a claim that necessarily reduces the residuum that would otherwise have passed to survivors. A new institution has arisen to help channel the process of saving and dissaving for old age: the pension fund. The wealth of the private pension system consists almost entirely of financial assets. I shall emphasize a distinctive attribute of pension wealth, namely, the bias toward annuitization. When wealth is annuitized, virtually nothing is left for transfer on death.
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