Why not to leave too much to your grown kids

Author of ‘Entitlemania’ Richard Watts suggests that leaving too generous an inheritance to your children potentially has a divisive and damaging effect on your family.  In this article, he argues for what some clients have told me is their philosophy for spending money in retirement: SKI, or even, SKIN … Spend Kids’ Inheritance, or Spend Kids’ Inheritance Now! As always with our content, we offer it for your interest, not as advice.

Somewhere in our DNA as parents, we believe it is an act of love, generosity, or for some, contrition, to leave our children an inheritance after we die. And the more money we leave, we think, the better! But despite the wisdom and warnings of historical philosophy, religious texts and psychology, we refuse to heed the whispers and acquiesce to our irrefutable belief that our children will both benefit from, and appreciate our gift.

Beware . . . For everything you give your child, you take something away.

Yet parents often adjust their retirement budget for food, shelter, travel and recreation so they can “leave a little something” to their children. And many, modestly surviving on Social Security, even feel a twinge of guilt if they exit the planet saddling their children with funeral and burial expenses.

How inheritances can cause permanent damage to families

How would you react if I told you that your children would never speak to each other again because you left your three kids your house? What if the son you designated as your executor or trustee seized control of your assets and was sued by his brothers and sisters? What if the family business you built during your life dismantles the family after you depart?

But you say, “No! Not my family!” To the contrary. In my 35 years of managing wealthy families every day, the incident of permanent damage occurring to a family is most of the time.

And just in case you believe your kids are going to be appreciative of the money you leave, it takes about three days of grieving for your children to consider your inheritance all theirs. Remembering that dear old Dad and Mom provided them a unique opportunity of financial security lasts about as much time as it takes the bank to clear the inheritance check.

Carnegie, Buffett, Gates and You

One of America’s richest men, Andrew Carnegie, wrote an essay in 1889 entitled The Gospel of Wealth and lamented: “I would as soon leave my son a curse as the almighty dollar.” Modern-day financial icons, Bill and Melinda Gates and Warren Buffett, similarly plan to leave relatively small portions of their massive estates to their children, choosing to promote their kids’ long-term emotional well-being instead of feeding their materialistic cravings.

Money is supposed to provide a security blanket, not a blank check. Your lifelong achievement in building a nest egg is like a dam being built across a stream. For you, a lake of financial security forms behind the dam. Downstream, your kids often nest, staying close enough to the stream to take advantage of the flow you permit from the lake. Too often, inheritance of any size is like a break in the dam. The kids downstream have no sense of controlling the flood, and all can be swept away.

So how do we fix this? And how should we think about what we leave our kids?

Changing the question we ask ourselves

Perhaps we need to change the question we ask ourselves from “How much is too much?” to “How little is too little?”

Do your kids expect you to hand over the loot? If they do, try this: Sit down with your children in a family meeting. Tell them Mom and Dad have decided to leave all of their money, excepting the personal belongings, to charity. Or an alternative would be to leave all of your money to a family foundation where the kids are the directors who would designate the money only to charities.

How would they react? If they say, “Great, Mom and Dad, it’s your money to do what you want!” you have probably raised kids that can control the cash. If, however, after the meeting, they secretly convene to discuss what they’ve concluded must be your newly-discovered early-onset dementia, perhaps you ought to rethink your intentions.

Cold Money and Warm Money

One afternoon at my office in Southern California, a family of three adult children in their 40s called for a meeting with their financially-successful parents and me. The oldest spoke on behalf of his siblings and began: “Mom and Dad, there is something called warm money and cold money. Warm money is money you give us with love, while you are alive, and you’re able to witness our appreciation of the gift. Cold money is the money we get, whether you like it or not, after you’re both dead.” There was a brief pause. He continued: “Your children would prefer to have more of the warm money.” The following week, Mom and Dad came to me and asked to revise their estate plan, giving their kids substantially less.

There are two parts to this debate: the process of your disbursing an inheritance and the amount you give for inheritance.

The first is simple. Do not let your kids be the executors and trustees of your will and trust. You will find this is contrary to most estate planning experts’ direction, but they only draft wills and trusts, they rarely deal with the aftermath.

And sell it all! Even the family business! Hard to say that out loud, isn’t it? But you must separate your kids from being involved with your estate upon your death. The best solution is to have an independent party liquidate everything except the personal property, then divide the proceeds by the number of your kids and give them each a check. Your family will soon realize your actions kept them together.

How much to leave

The second question of how much to give your adult children is a little trickier. How affected would your kids be if you left them nothing? Put another way, how dependent are your kids on your financial support? The irony is that the ones who do not need your money will probably be okay and the ones who do will most likely be negatively affected.

A suggestion is to leave half your estate to your kids and the other half to charities, allowing your kids to designate to which ones they choose to give the money. Doing this will leave a valuable life lesson to your kids that will be remembered.

The Coloured Stickers Story

As to the question of how to divide your personal property and memorabilia, my friend Mel had the best answer. His father had passed away and when his mother was dying, she asked Mel and his siblings each to choose a different colour of sticky paper dots. They were then asked in succession to put their coloured sticker on something in the house they’d like to have after their mother passed — furniture, antiques, jewelry, silver and family heirlooms.

Each time it was Mel’s turn, he waved his brothers and sisters on, skipped his turn and continued the conversation with his mother. When all the items in the house were tagged with dots, the kids circled around their mother. Mel’s mom asked: “Mel, don’t you want anything?” He carefully peeled off one yellow sticker from his unused sheet of dots and gently placed it on his mother’s forehead.

Perhaps this is your last act of “tough love.” Don’t turn a blind eye to the reality that even modest amounts of money carelessly given to your children can have unexpected and corrupting results.

Money is like a narcotic; a little more is always welcome and the last amount never quite fills your present need. Give your children enough that they do something, but not so much that they do nothing.

Your legacy, and perhaps theirs, is in your hands

Comments (5)

  • Hi
    There is another way around the legacy problem.
    Take out a last survivor policy which the kids will own and pay for.
    Advantages:
    The kids pay for their own legacy.
    The amount is up to them.
    Premiums can be increased in order to increase the value of the legacy.(Up to the kids).
    Premiums can be stopped when the first spouse dies.Or continued.
    Because the parents no longer need to provide a legacy , they can spend their money on themselves without concerning themselves about a legacy.
    Estate duty: There is a chance in the next budget for the estate duty threshold to be increased to R15 million before estate taxes, capital gains, etc will need to be paid.

  • A brilliant article, thank you Kim. Most parents struggle with the questions you raised in the article. And more so where some children are more financially successful than others, and seemingly do not ‘need’ anything from their parents according to the less financially fortunate members of family. The best legacy we can leave our children is to teach them sound values, respect for themselves and others and above all love and care. The legacy of monies should be a bonus.

  • Interesting article and I agree with most of the sentiments. My comments are based purely in a South African context assuming that my children will live in S.A. for as long as it is economically viable for them to remain here. I understand that this is not a political forum but find myself compelled to drag the current situation we find ourselves into the mix as this has a strong bearing on my views on what and how much I would like to bequeath to my children.

    I find that as a family we were able to get by with a lot less many years ago. The purchasing power of our rand diminishes each day as the political situation deteriorates with not much hope of the situation turning around anytime soon or the distant future. So what has all of this got to do with how much or little one needs to leave to your children. I come across many highly educated people without work or much hope finding any anytime soon. Against this background I believe I need to contribute sufficiently towards a venture of sorts to get them on a sound footing and then allowing them to grow and develop this further. Depending on the responsibility demonstrated by them I would decide on the need and amounts to disburse further.

    Any amounts in excess of that needed to get them on a sound footing would need to be prioritized against the many charitable needs in the Country.

  • In regard to your article, so called wealth and warm gifts can cause another problem. A financially unaware parent creating expectations that way exceed what will be inherited. Mothers, in particular, can create problems by giving endless hand outs, and a financially ignorant child making no provision for the future of his family, due to his expectation of what he would inherit, despite warnings from his siblings. You are clearly dealing with financially astute people, but those of the second or third generation group, especially where a family trust is involved, can be pretty clueless – I talk from personal experience.

    I think financial education is one of the greatest gifts one can give a child or grand child, even if it has to be simplified, for example showing an old book you bought new, eg a R3.50 recipe book and the equivalent price on a new one, or for a young adult, showing just what their salary is worth if it was from investment money at 5% drawdown currently. This really shakes some of them. Unrealistic advertising does not help, such as a young adult getting one million disability cover and showing his family living a good life – total rubbish.

  • Chartered Wealth Solutions Client

    We attended a meeting that was set up at Chartered Wealth Solutions some time ago and the main topic was to ensure that your will was well specified for heirs to overcome fights as a result. When asked for my opinion it is what your article talks about and my answer was “NOTHING”–if there was something left over I would change it into Travellers Cheques and take it with me to where ever I would end up . Then asked what was my thinking behind this:

    • The earning capacity of the youngsters today are unreal compared to “our days”, a lot of costs are proportional but not todays earnings for the younger generation–it is totally out of proportion.
    • I have thought about paying off a bond but that would just open the door for loans again against the access bond (think it is called ACSIS).
    • My parents never assisted me any way when I was struggling, they could not afford to and I don’t believe in touching any pensioners savings–that is an absolute NO NO ! I have come across far to many pensioners who have assisted (even selling their Houses and having to down grade ) their children who have got themselves into deep trouble. I cannot recall one who has ever repaid his parents no matter how badly they had been affected.
    • I inherited my Fathers ID Book, his ashtray and cigarette making machine and about a thousand Rand from my Mother when she passed on–this was originally R12,000.00 but reduced by Lawyers costs due to a step sibling with holding the Death Certificate.
    • I have no regrets for being forced to stand on my own two feet, it was a hard lesson learnt with many uphills on the way but have managed to retire very comfortably for our requirements in life.
    • Don’t get me wrong– I am a parent and just as my Mother would ask me when getting into the car (up to age of about 60) “Have you been to the toilet ? So one never stops loving and caring for their children who grow up so quickly but leave home so slowly.
    • My Mother went for an interview after leaving school, she then put me in her car and drove to Rand Airport stopped in front of Hangar No 2 and said “This is where you will be working !”, I left after 51 years if service–so THANKS MOM !

    So those are my opinions, thanks for asking for some feed back as it has made me aware that it is time to review my Will.

    When one has your own children as well as step children it makes the situation even harder when making decisions without being unfair.

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