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Should Rich Families Leave Their Wealth to Their Children?

This article was written by in Featured, Wealth and Affluence. 26 comments.


One of the great promises of the United States of America is economic mobility. In the Land of Opportunity, in theory, you can design your life’s economic fate. Immigrants from Europe looked forward to leaving economic and religious oppression in their past, as they came to the land that is or would become the United States of America. No longer would you need to be a first-born male in a wealthy family, in many cases descended from nobility, it order to inherit property and financial security.

Putting one caste system behind, however, simply made room for a new system. Mobility upwards through socioeconomic classes is not as simple was holding down a good job for a lifetime, it requires education, ingenuity, and the ability to break generational economic cycles that keep families from achieving financial independence over the long-term. These can be tough lessons, and some people who have succeeded in their efforts to build wealth on their own want their children to learn the same lessons.

CashBank of America’s private wealth division, U.S. Trust, recently reported the results of a survey showing that 32% of Americans whose wealth categorizes them as “high net worth” or above — usually those with investable assets of $1 million or more — consider it unimportant for wealthy parents to leave inheritances for their children. Keep in mind that this particular survey doesn’t measure whether wealthy individuals do leave an inheritance, just people’s opinions about the relative importance of doing so or their plans. Plans may change. To illustrate the former point, I might think that watching television carries a low level of relative importance in my life, but I do it anyway.

Perhaps parents want life to be easy for their children, but not too easy. I would like for my (future, hypothetical) children to have every opportunity available for them to succeed on their own, and I’m willing to support them financially to make that possible, but the goal should be for them to live a life of their own without falling back on their parents (that is, me) as an adult unless in an emergency. Teaching someone to be independent is one of the best lessons you can give.

For those not leaving money to children, a majority of those surveyed believe that each generation should build their own wealth. This brings to mind there may be two interpretations of the American Dream for prosperity. On one hand, the opportunities provided to all citizens of this country relatively equally provide a chance for people with a variety of economic backgrounds to thrive. One benefit of thriving is to move from the class in which poverty was an inherited trait to the class in which wealth would be an inherited trait. Those who interpret the American Dream as a post-class ideal are comfortable with a reset button for each generation in the family, giving a fresh chance for each child to economically thrive or wither.

The latter philosophy seems to be followed by the majority of survey respondents who say it is up to each generation to build its own financial independence, but I am willing to argue that those who have the capability will give that generation as much of an advantage as possible while they are still impressionable children.

A quarter of the respondents plan to donate wealth to charity. Whether altruism exists or not is a question for another day, but I am certain that tax advantages for charitable donations play a significant role in this decision. When it comes to estate taxes, the heirs pay tax on the money they receive, so this is an advantage that isn’t borne while the progenitor is alive. The wealthy individual, though, who contributes charity during his or her lifetime, certainly benefits from the tax advantages.

Another quarter of respondents simply want to use the money themselves.

How is it important for your children to succeed financially as adults without help from your estate — whether small or large? Does your opinion change as your children grow older and begin to build their own wealth before you make decisions surrounding your (real or potential) estate? Given two children, one who has succeeded on his or her own and another who may have succeeded but chose a less lucrative life path, would you treat each child differently in terms of your estate plan?

Photo: JMR_Photography
CNN Money

Updated June 19, 2012 and originally published June 18, 2012. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 26 comments… read them below or add one }

avatar Lance@MoneyLife&More

I think I would like to leave something but would also like my future kids to be successful on their own. I think I would leave enough to make life a bit easier but put some restriction on the money that would make them work for it.

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avatar Luke Landes ♦127,550 (Platinum)

That sounds like a reasonable approach.

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avatar krantcents

I spent a portion of my children’s inheritance on their education. They graduated collegeg without debt and a good education. They are successful adults and there is no need to leave thenm any more money. Any inheritance will be used to supplement their children’s education.

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avatar Joe Morgan

That sounds like a fair trade to me!

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avatar jim

I think most people should focus on their own retirement rather than worry about leaving money to heirs.

If you’re a mult-millionaire then worrying about how you’ll leave your money is another matter.
In the case of larger amounts of wealth, I would prefer to pay my kids way through college and then expect them to make their own living after that. I wouldn’t want to give them the expectation that they’ll get a big fat inheritance.

I think the problem with large inheritance is the motivation factor. If someone knows/ expects they will get a large inheritance then that can give them little incentive to succeed on their own. If your kids aren’t motivated then they do little to succeed on their own. Its particularly bad if you give them financial support during their adult years and give them the expectation of an inheritance.

I’m not really opposed to leaving money to your family. I mean its your family and you want to help them out. But I don’t know that I’d give them the expectation that they’ll get anything. I guess its a fine balance between helping them and properly motivating them.

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avatar Early Financial Freedom

I have a 7 years old son who wants to be an entrepreneur when he grows up. I prefer to teach him fishing rather than payroll his fish consumption through out his life. As far as I am concerned, no matter how much you leave your children as inheritances, they would end up wasting it all if they don’t know how to manage the wealth.

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avatar Luke Landes ♦127,550 (Platinum)

What does it mean to “want to be an entrepreneur when [one] grows up?” That’s like saying, “I want to be a manager when I grow up,” or “I want to have money when I grow up.” What are your son’s interests? Entrepreneurship is a path you can take to a goal, but it isn’t a goal in and of itself.

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avatar Mike

Have him marry an accountant.

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avatar Early Financial Freedom

What it means to him is that he wants to be his own boss, wants to own his company (whatever it might be), like his parents. He already came up an idea and has been monetizing on it (by the help of his mom, of course.) We work from home and plan to travel overseas since our business does not require us being psychically in New York or anywhere in particular as long as there is an Internet connection.

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avatar Squeezer @Personal Finance Success

I remember reading somewhere that Warren Buffet was leaving each of his kids only $1 million, and the rest was going to charity (mainly the bill and melinda gates foundation). Of course Buffet doesn’t have to give his kids a dime, but when you have $50 Billion, a million bucks seems a little low.

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avatar DR

I think he is leaving them with $1Billion each not million. Billion is good enough :)

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avatar Marshall Sattler

Leave your wealth to your family. This is what God intended ,The jewish families follow this tradition as it was handed down by God. God only commanded 10% of your wealth be given to him. and on every third year a double portion. Warren buffet put his wealth in a trust as did bill Gates. The progressives or the demoncract as i call them,want you to turn from Gods teachings and give your money to the people who refuse to rely on God and who wait for the handout of man.I dont believe in the right of Government to tax like they do. Cut cost stop the welfair ships or yester year. Keep your wealth for your family. you earned it charity is for the guilty. God said give me the tieth for my store house if he only said 10% where the hell does the government think i need to pay them. They do nothing for me, i hate government in my life they only take from the worker and give to those who wont work as hard as me to get it.

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avatar Luke Landes ♦127,550 (Platinum)

Marshall, I’m not clear on your point. Are you averse to all charity or just to the idea that government’s role in a modern society carries a cost that citizens must pay?

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avatar Mike

A lot of charities are shady. Red Cross is good though.

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avatar Mike

I’d rather give my cash to my kids than the government.

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avatar Luke Landes ♦127,550 (Platinum)

I’m not sure that the choice here is between your kids and the government. If you give your money to your kids through estate planning, if your estate exceeds a certain (high) amount, *they’ll* have to pay the government. You might be able to choose between charity and your kids… or between your own spending and your kids… Unless there’s something I’m missing in your logic.

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avatar Mike

If I were to invest in rental properties overseas, would the US government include those properties in my estate? What is the limit on estate planning where the government gets a cut?

Thanks

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avatar qixx ♦1,895 (Half-Dollar)

The limit on estate taxes begins at the $5 Million amount. If you go over that amount you (your descendants) are subject to the tax.

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avatar Marshall Sattler

That is the whole point the constitution gives no authority for the Government to tax. They dont follow the constitution, they maintain a standing army, your not allowed to take a mans property and give it to another ,however that is what welfair is. we dont need Government. RON PAUL FOR President.

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avatar Apex

The 16th Amendment gives government the federal government the right to tax income. I am not a particular fan of that Amendment but it passed which makes it part of the constitution. I am guessing you like the 1st Amendment which grants freedom or religion and the 2nd which grants the right to bear arms. The 16th is just as valid as any of them.

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avatar SteveDH

It’s not so much my opinion that’s changed as it is my kids. As our children grew up and where successful they repeatedly said, “We don’t want your money just spend it in retirement and enjoy what you’ve earned.” Their own spending and savings discipline may have come from us but they don’t covet what we’ve done. A retirement nest egg should serve four purposes:
1. Generate Income
2. Fund extra-ordinary (expensive) retirement events.
3. Serve as a safety net
4. Remain as your estate.

…and they are in priority order!!!

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avatar Ceecee ♦53 (Newbie)

First of all, save for your retirement or you kids may have to support you then. As an elder caretaker I can tell you that getting old cost big bucks! That said, I hope that every parent would want to leave a little something for their kids. I’m not worried about the rich—-they may say they are not leaving them much, oh, only a few million or so…what would be a giant windfall to the rest of us. So much is relative.

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avatar cas

My parents were very poor when they were young (children of recent immigrants during the Great Depression). My brothers and I were not pampered when we were growing up either, but our parents did spend for our education. They also saved, and taught us (more or less) the value of delayed gratification. The money they have saved will not go to my brothers and I when they pass; it is in a trust for each of their grandchildren, equal shares for each. They range from adults (my daughter is 28, my nephew the same age) to young children (my other nephew is only 5). My only wish is that my parents enjoy their retirement (they have travelled extensively) and that they don’t leave huge debts for my brothers and I to pay. What else should children expect from their parents?

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avatar SteveDH

Although estates must pay debt obligations before heirs receive anything (outside of the trust) debt can not be inherited. Keep helping them enjoy their retirement!!

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avatar slug

For me it’s important to leave a legacy, and so I work hard to create an estate worth passing along. That said, I plan to enjoy my retirement. My kid can have the leftovers!

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avatar Joe Morgan

If I had enough to be considered an inheritance, I would only leave it to my children to be available upon their 30th birthday (maybe 35th) provided they were already self sufficient.

I would want to avoid the trust-fund baby syndrome and be reasonably sure they had sound money skills and could make a living on their own.

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