More Than Money
Issue #32

Passing the Torch: The Great Wealth Transfer

Table of Contents


What Will Your Legacy Be?

How much money will you leave behind? That's easy: You can't take it with you, so all of it will have to go. But how much will you leave your heirs? And who are your heirs? Your children, your spouse, other relatives; your church or synagogue; your community, your country, your world? Will money mess up your kids? How much is too much? How do you pass on your wealth in the most healthy way? And how do you decide? Here are a variety of viewpoints, representing some of the many different facets of "the legacy question."

Respectful dialogue among people of diverse viewpoints is a hallmark of More Than Money. Because our members vary widely in age, family history, politics, religion, net worth, source of income, geography, and other factors, lively conversation happens whenever members get together—in person or in print. We welcome and encourage thoughtful commentary on topics of interest to our readers. The opinions expressed by the writers of Viewpoint are not necessarily those of More Than Money.

When I was doing my own estate plan, my advisor asked me, "When do you want your kids to have access to their money?" I looked at him like, "What do you mean, when? "
She said, "Do they get access at 18, 21, 25? Do they get some of it or all of it at those ages? Do you step them into it, little by little? There are lots of different ways to arrange it." I started thinking about these questions and we went back and forth on them for a while. I had been accustomed to thinking about these things as a financial advisor, but suddenly I was thinking about them as a parent, which felt quite different. I had to ask myself, "Why am I trying to control their lives?" I want to make sure they don't spend it on drug money, but I'd like them to go to school and get a college education, if that's what they want to do.
How do I make this judgment today about their lives tomorrow? You can set it up so they can withdraw the money for certain things—like health or education—through a trustee, but not give it to them outright. I decided to step my own children into their money gradually—give them a third of it, for example, at age 21. This allows them a chance to make some mistakes and develop the skill and responsibility to handle it, so they don't just blow it all at once.
I found out how much harder and more emotional it is to make these decisions than I had thought when I was merely the advisor. I also learned that your best guesstimate of today may not fit the reality of tomorrow. You just do the best you can.
—Elizabeth Glenshaw

Deciding how much to leave your kids is a real dilemma. On the one hand, the desire to help your kids never goes away, even when they're grown. Being able to offer financial help for graduate school or a first home is very rewarding. And when it comes to estate planning, it's tempting to leave them as well off as possible. On the other hand, you don't want an inheritance to rob your children of their incentive. You may want to provide for them so that they never have to worry about money, but with that comes the danger of taking away their initiative. I know that I personally want my children to experience the immense satisfaction that comes from hard work and making it on their own.
Of course, there is no easy answer. Your answer will depend on your circumstances and on your kids. To my mind, you need to try to find an amount that will be meaningful to your kids but that won't make a paycheck meaningless—an amount that will help them do something but that won't allow them to do nothing.
—Charles Schwab Reprinted from It Pays to Talk: How to Have the Essential Conversations With Your Family About Money and Investing ,by Carrie Schwab-Pomerantz and Charles R. Schwab, Copyright © 2002 by The Charles Schwab Corporation. Published by arrangement with Crown Business, a division of Random House, Inc.

Years ago I was flipping through a magazine and saw an article addressing the question, "How can I make sure my assets are passed on to my heirs?" Suddenly it hit me: "Who are my heirs? Is it just my two kids, or all the kids in the world?" From that point on, I began to think more in terms of my global family, with my own children as one small part of that.
My children were young then. They didn't know we were wealthy and weren't expecting an inheritance. My husband and I talked about what we really want to pass on to them, which is a more peaceful and just world. To us, that's more important than leaving money to our kids. We wrote our teenage children a warm letter explaining our viewpoint. They both read it and, I have to say, it was not a big deal to them. My son is interested in economic justice and so it rang true to him.
It's not as if nothing will go to our kids. We're paying for their college education, so they'll be debt free when they graduate. We'll give them some money over their lifetime—we don't know yet what the figures are for that. But the point is that at our death, we hope there won't be much left.
Just as important, I think, is how we prepare our children for handling money—whether they receive it from us or they make it themselves. We do what we can in this area. For example, we created an allowance system designed to help them deal with larger sums of money. It started when my oldest child was in sixth grade and wanted expensive tennis shoes. We decided to give him a shoe budget for the whole year. He could buy more of the less expensive shoes or less of the more expensive. We ended up deciding to give our children a weekly allowance until they got to high school; then they started receiving it monthly. In their sophomore year, they began to receive it yearly. It looked like a lot because it came once a year, but they had to pay for their lunches, clothes, and entertainment out of that, and if they ran out and needed money, they had to get a job. I found that this took them out of a dependent role—they didn't have to ask us for money and they learned how to make their own decisions.
- anonymous author

I thought a lot about the question of how much to leave my kids when my son was getting close to 18. I have three kids and I didn't want them to have the issues I have, like lack of motivation to work, but I wanted them to have the choices that money offers. It's a balancing act. When is someone old enough to deal with all this? When does money start to affect how they are in the world? My children had already received an inheritance from their grandmother, so I had to figure out how to help them handle it.
When I set up my son's account, I made myself a co-trustee with him, until he's 25. When he wants money from his account, he has to consult with me. A lot of people in my family thought he shouldn't have any control at all, because he has not made wise choices in the past, but I thought that was taking away from his capabilities. He has proved to be trustworthy. When it came down to going to a lawyer and getting it set up, he said, "You mean I'm a trust fund kid?" He realized that he was the kind of person a lot of people don't like. I gave him some More Than Money Journals that discussed the use of money and social responsibility. That was helpful to him because he could see that there is another way to think about wealth. Instead of using money to be a spoiled kid, there is a way to use it in the world. Working through this with him has shown me that money can dampen your spirit or give a lot to your spirit. It's your choice what happens.
- anonymous author

Inheriting money at age 30 was one of the best things that ever happened to me. I believe most of the "problems" of inheritance are avoidable with good parenting. Personally, my inclination is to pass on to kids more money rather than less. Some business people leave only token amounts because they want their children to make it on their own, but that implies the only thing worth doing in life is making money. Face it, if you are a successful entrepreneur, your kids will probably never make as much money as you did. Do you want them to spend their whole lives trying to compete and falling short? If you leave them enough to live on, they are freed to do other things with their lives.
Throughout history, some inheritors have done wonderful things with their money. I believe in giving children the opportunity and motivation to use their money for good. I think if you aren't leaving them money, you had better fully explain why.
—John Levy , excerpted and reprinted from "Trust Funds: Blessing or Curse?," More Than Money Journal , "Money and Children," Issue #9, Autumn 1995, pp. 6-7.

When any parent says, "I have a right to give all my money to my children," I think that's pure bunk. (I'm not talking about leaving some money—that's what I'm going to do—but not $80 million each or even $10 million!) This country was founded on ideas of political and economic equality. We're doing well on the first but flunking the second. People want to get in the economic race, but when they get started they find that a whole bunch of others are already on second base. I believe that kids should have an even place to start.
Wealthy people in this country have an implicit indebtedness. America is a place where the values of assets are enhanced by virtue of the regulatory laws and discipline of this country. For example, one of the major expenditures of the federal government is research. Without government funding of fundamental research, there would be no Internet, no software, no biotechnical advances. The federal government is the venture capitalist of this world; a lot of the federal government's money is wasted on research projects that turn out to be failures, projects that no one else would have funded, but which, eventually, lead to new breakthroughs. This is what fuels the unbelievable productivity of our economy in this country. Everybody who prospers does so because of the health of our economy. There is no large accumulation of wealth that is not substantially credited to the public and charitable investments that we all make together. That's why I believe that people should be willing to have their estates taxed at their death, and give money back to society in that way and through philanthropy, and not pass on their wealth just to their children.
—Bill Gates, Sr. , from remarks made at "Wealth and Our Commonwealth," Boston Public Library, January 16, 2003.

What About the Four-Legged Ones?
In the aftermath of September 11th, thousands of pets were left without people to care for them. Though it may sound frivolous, this often overlooked aspect of estate planning is important to plan for. Some estate planners advise specially designating funds to be sure your companion animals are well taken care of, financially and otherwise, in your legacy plans. (Residential "homes" will even provide long-term care.) For more information:

All My Children Wear Fur Coats: How to Leave a Legacy for Your Pet
By Peggy Hoyt
(Legacy Planning Partners, 2002)
Provides information about including your pet in your estate plan and real-life examples of legacies for pets.

Tax and Estate Planning Involving Pets:
Stupid Pet Tricks for the IRS and FIDO
By J. Alan Jensen, Esq.
Gives legal guidelines and restrictions for planning a legacy for your pet.

We are a family with young children and investment assets of about $10 million. Our goal as parents is to help our children pursue their own interests with a sense of financial security, and a commitment to service and philanthropy.
We recently used a portion of our lifetime exemption to make a gift to our children, which, together with annual gifting from their grandparents and us, puts their combined assets at about $1 million. Each of them will have access to their share outright when they reach age 18. Of the remaining $9 million, $2 million is in a generation-skipping trust from which they will begin receiving principal after the death of the income beneficiary parent (so long as they are at least 25 years old). We anticipate continuing annual gifting of the tax-free amount, and will make additional gifts if and when it seems advisable. Our wills provide for 25% of our assets to go to nonprofit organizations and the remainder, after taxes, to be shared by our children. Additional annual gifting and, we hope very far in the future, inheritance from grandparents, would increase their assets by 10 or 20%. Finally, we currently make annual charitable gifts equal to 2 % of our investment assets (excluding the kids' money and the trust). We hope to involve the children in these philanthropic efforts as they grow.
—N.W. and B.R.

My kids already have a pretty hefty stock account that cannot be changed, so the question for me is whether to keep adding to it or not. Many people I know who have inherited a lot of money have told me it has not been a positive thing for them and they do not intend to leave their kids much—or at least not at the early age they were given it. I understand that line of reasoning, but I also think it's possible for that money to be a positive thing, as it has been for some amazing young philanthropists around the country. It is my challenge to myself to do a better job of preparing my kids for what they're going to get than I was. I think part of making it a positive thing is to train the kids to manage it, to give it away, to not be derailed by it, and to know that it's coming! I hope my children will be able to do amazing things in their lives and perhaps the money can help it happen. Having said all that, I am also very interested in giving a lot of it away outside of my family.
—Martha N.

To me, the question of how much to leave one's children is not so much a question of how it will impact them individually —e.g., whether or not it will "mess them up"—it's more about how it will affect all children. The way I see it, the choice to pass on substantial wealth to one's children is a vote for individual security over collective security. It essentially says, "I do not believe my child will flourish in our society without special privileges"—in education, recreation, health care, safe neighborhoods, clean environments, et cetera.
I've noticed that each time we choose individual security we generally withdraw support for collective security. Car commuters do not have to be concerned about the quality of train service. People who live in gated communities often resent having to pay twice for security, municipal services, and open space—once privately, and then again through taxes. It is hard to sustain a sense of commonwealth ("common wealth") especially when those of us with the most resources have opted for individualized solutions. And the more we do, the more we feel justified in withdrawing because the services for the majority have crumbled further and further, creating a selffulfilling prophecy.
I received a large inheritance in my 20s and chose to give it away to impact the greater good. Now a parent of a first grader, I am working against the severe budget cuts in my daughter's public elementary school resulting from local, state, and federal cost-cutting measures. Instead of buying special privilege for my child, I have an enormous stake in the quality of public education for her and a lot of other children from much different starting points in life. I encourage people to invest in the common good by paying taxes and giving strategically, rather than to create islands of inherited wealth and privilege, which may provide solutions for a few, but not for the many. In the end, it's best for all our children.
—Chuck Collins

My views about how much money to leave my children have changed greatly over the past few years. A few years back, a lawyer friend asked me about putting philanthropic gifts into my will. At the time, I had absolutely no concept of giving great amounts of money beyond my family. I never had it modeled to me that there is a level of "enough" for myself, let alone for the people I would leave behind. I also had yet to experience the joys and rewards of donating to and working closely with a terrific charity. Today I am a different person, having been exposed to many people who are choosing to give generously to others while still providing for their families, and having directly experienced the enormous joys of giving for the purpose of benefiting others beyond my family and friends. —Jackie

How Much Do You Want to Leave?
Some Questions to Consider
  • What is the ultimate goal you want to accomplish with the financial capital you leave to your heirs—including individuals, organizations, and society?
  • If taxes were not an issue, how much would you leave your children? How much would you give philanthropically?
  • How much of your charitable gifts will you designate to be given away while you're alive, when you may be able to exercise greater control over their use? How much of your charitable gifts will become a lasting legacy for future generations to distribute?
  • What do you want to accomplish with the money left to your children? e.g., Do you want to help your children with their home? Business? Education?
    • Is it an attempt to prove love?
    • Do you want to protect and make them secure?
    • Do you want to teach charitable giving?
    • Do you want to leave a philanthropic legacy?
    • Do you want to allow for continuity of a family business?
  • Which of the above (or other reasons) are most important to you? Can you prioritize them?
  • Would you be more upset if you left a lot of money to your children and found out they could not handle it, or if you did not leave them very much and found out they could handle it?
  • Have you considered making some bequests contingent upon the inheritor meeting specified conditions or appointing someone to monitor the bequest according to your wishes?
  • Have you discussed guardianship, trusteeship, or custody of your dependents with those you would appoint? Is it appropriate for you to to prepare them in any way?
  • Do you have a plan to communicate your financial and philanthropic mission statement to your family? What is it?
  • If you have communicated to your children, what have you communicated?
  • If you have not communicated to your children, why not?
  • At what age to you feel the communication should start?
  • Do you and your spouse or partner agree on a plan for wealth transfer?
—Excerpted and adapted from Wealth Transfer Decision Making Process

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