It’s the most common question I get in estate planning: How much should I leave to my children?
The answer to that question is not a simple formula.
For many Americans, we’ll work hard and accumulate some level of wealth. At whatever level “wealth” is defined, there will be some level of relative value. The question is what will we do with that wealth, and particularly how much will we leave to children.
It’s an often-debated question and yet often ignored. For many, the default answer is to leave it to children. Many parents see that as their duty.
But Stephen Lewis, in his thought-provoking Music To My Heirs: The Challenge of Generational Wealth and How to Succeed, asks a question that gets at a worry many share. What is the right amount to leave my kids and grandkids without messing up their lives?
Lewis observes, “My research shows that if families transfer wealth without providing knowledge and values, it is more likely to be destructive than productive.”
As a point of reference, he emphasizes that everything we have will end up in one or a combination of four places:
- You will use it in your lifetime.
- You will give it to someone you care about.
- You may give it to charity.
- The government will take it.
Varied approaches in how much to leave
In my work, I’ve seen a broad spectrum of views. Some parents, particularly those who had to work hard to earn their wealth, take the view that they will leave their children little if anything. The rationale is that because they had to work for their money, their children should as well.
Others take a moderated view and structure their estates to leave their children varying amounts at varying ages of responsibility, i.e., 25, 35, 45, etc. The thought here is that wealth should not be dumped upon children and take away their incentive for work. Give wealth to them as they demonstrate greater responsibility.
Of course, some parents are fully of the mind that the entire estate should go to the children.
This decision can often divide spouses. Some see the inheritance as an act of love, while others see it as a curse. The curse particularly surfaces when children don’t act responsibly, whether through lifestyle decisions, financial decisions or addictive behaviors. Each gives reason for pause.
The decision doesn’t go away
From my own experience with families, I also know that the decision doesn’t go away. It may be deferred or ignored but it still has to be made. Worse, I see the decision often made in crisis—usually spurred by some trip where the parents realize, “Oh my, we both could die in a plane crash and then what would happen?”
Or I see the decision deferred until ravages of age creep in, and the parents no longer lack the will or mental acuity to make the decision.
Ultimately, Lewis stresses there are three things to pass on to heirs: (1) wealth, (2) knowledge, and (3) values. With that in mind, he returns to the question of how much to leave to children. His answer:
The amount of wealth you provide to your children should be equal to the amount of knowledge and family values transferred.
That is a wise approach, although not a simple one.
See the posts below for other principles and considerations by which families make this decision. And if you have your own thoughts you’d like to share, let me know in the comments.
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Published February 28, 2017
Topics: Estate Planning