It is a good problem to have, as they say, but many wealthy individuals are concerned about the impact of leaving significant wealth to their children. CNBC recently published a review of several famous people who share the belief that leaving their money entirely to their heirs can do more harm than good. As Warren Buffet is quoted as saying: “I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing.” Rock star Gene Simmons agrees, saying that he believes everyone, including his own children, “should be forced to get up out of bed and go out and work and make their own way.”
Inherited wealth can certainly have the unintended effect of making it unnecessary for your heirs to work hard and earn a living, which, although it may sound good to those of us who do so out of necessity, can lead to an unfulfilling life over the long term. Regardless of the level of your wealth, these are important things to think about, and are issues we discuss with our clients in the course of planning how to pass their assets on to their children. Will your children be overwhelmed by inheriting a large sum of money? Will they be able to manage it responsibly and avoid the temptations that may come with it, including the temptation to give up working, which may not benefit them in the long term? In many cases, it is prudent to stipulate that assets will be held in trust for children, with distributions being made only for specific purposes or in limited ways, or delayed until a child reaches a certain age. This type of arrangement prevents wealth from becoming a disincentive for beneficiaries to establish themselves in their careers and support themselves and their families. Trusts can also protect against “predators and creditors” to which young beneficiaries are vulnerable, including divorce, bad business decisions, and poor judgment in money management matters.
For individuals who can say, like Pierre Omidyar (the founder of eBay), “We have more money than our family will ever need,” or for those who are charitably inclined, creating a plan that leaves some money to children and some to charity may be appropriate. Bill and Melinda Gates have created a foundation that bears their name, and have challenged other wealthy individuals to consider carefully how much of their wealth they need to leave to their families and to leave the rest to charity. In support of this philosophy, Michael Bloomberg has said: “And if you want to do something for your children and show how much you love them, the single best thing—by far—is to support organizations that will create a better world for them and their children. Long term, they will benefit more from your philanthropy than from your Will.”
No matter how much money you have, being thoughtful about how you leave your money to your heirs at death is important. Good estate planning will address these issues and create a plan that benefits your heirs over the long term.
July 2015