An Unhappy Inheritance: Leaving Your Money to Your Kids

As we learned last week from the published results of a survey of thousands of millionaires, there just doesn’t seem to be enough money, even for that crowd, to guarantee happiness.

But one other survey finding stood out for me as well as for the professors who commissioned the survey: respondents who had earned their fortunes scored higher on the happiness scale than those who had inherited or married into their money.

I’m certain that would not surprise Richard Watts, a personal advisor and legal counsel to the wealthy and founder of Family Business Office in Santa Ana, California.  He recently authored a book titled Entitlemania: How Not to Spoil Your Kids, and What to Do if You Have.  Marketwatch reprinted a short essay adapted from the book, and the correlation with the survey results is remarkable.  Watts argues that it is NOT an act of love to leave a huge inheritance to your children.  I think he can say it best:

“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 build during your life dismantled 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.”

It’s a sobering thought.  What you consider an act of love and generosity or even obligation to your survivors could be the very thing that tears them apart.  And no, it cannot usually be foreseen.  Family circumstances can change so unpredictably and be so out of character from what might reasonably have been expected.  It doesn’t always take money to cause that to happen, either; but money can be an accelerant. 

The Baby Boomer generation sits on massive wealth.  What will happen to it?  Financial planners often report that the more frugal retirees continue in their frugality and cannot bring themselves to actually spend their accumulated wealth.  With “experts” telling us we need $1 million or more in order to retire financially secure, it’s enough to scare the rest out of spending anything on themselves in their golden years lest they run out of money in their eighties or nineties.  This increases the chances that they will have a sizable inheritance to pass down.

Watts suggests that the bulk of a large inheritance should go to charities of the decedent’s choosing, or perhaps of the children’s choosing, and that the children themselves be given a much more modest bequest.  He points to Bill Gates and Warren Buffett as examples of the very wealthy who plan to do that very thing.  (Never mind for the moment that a “modest amount” of either’s wealth is still a boatload of money.)

At the very least this should give anyone pause before automatically turning over all the wealth to the next generation through a will or trust.  As one of the lead researchers in the millionaires survey said, “If inheriting wealth makes you less happy, perhaps you shouldn’t give it to your kids.”

Or, more chillingly, Watts’ warning: “Beware…For everything you give your child, you take something away.”

Until next time,

Roger

“A good person leaves an inheritance for their children’s children.” Proverbs 13:22 NIV®*

*Scripture quotations taken from the Holy Bible, New International Version® NIV®

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