Some high net worth individuals, including some celebrities, are increasingly worried about how much of their fortunes, if any, to give to their kids.
A couple years ago, CNN host Anderson Cooper announced that his son, Wyatt, would not receive an inheritance. According to Cooper, “I don’t believe in passing on huge amounts of money.” He said in an interview, “I’m not that interested in money, and I don’t intend to have some sort of pot of gold for my son.” He decided to do what his mother, the late Gloria Vanderbilt, did: “College will be paid for, and then you gotta get on it.”
Police front man Sting agreed saying, “I certainly don’t want to leave them trust funds that are albatrosses around their necks. They have to work. All my kids know that, and they rarely ask me for anything, which I really respect and appreciate.”
Hollywood couple Ashton Kutcher and Mila Kunis have stated in an interview with Dax Shepard that they plan to not leave a large inheritance for their children. Kutcher and Kunis have stated that instead they plan to donate their fortune mostly to charity and good causes. According to reports, “they say they don’t want their children to become spoiled and entitled, and want them to be motivated to work hard.”
Yet many other high net worth individuals disagree, and believe that their children should inherit some or all of their fortune, as long as there are conditions and controls in place.
Should Wealthy Individuals Leave Their Children an Inheritance?
When people think of high net worth individuals and inheritances or trust funds, they conjure up images of those who ended up doing little with their lives and abusing drugs and alcohol or “trust fund babies” who sleep all day and party all night. These images are why some parents fear that leaving their children a significant part of their wealth could ruin their drive to live a productive life, worrying that they simply might not feel the need to work.
In a survey, the Motley Fool asked 2,000 high net worth individuals, classified as people with a net worth over $1 million, about their attitudes toward inheritances.
- Among the top concerns the individuals surveyed had was the possibility of leaving too much money to their heirs, something that 67 percent of respondents mentioned.
- The respondents had numerous concerns that the wealth would be “used irresponsibly” or that it “would cause beneficiaries to be lazy.”
- Eighty-five percent of high net worth individuals who had to meet certain conditions to receive their own inheritance agree that it is possible to leave too much money to an heir.
- Despite their concerns over what size inheritance they should leave, 60 percent of survey respondents said they found it “very important” to leave an inheritance, and roughly 34 percent said they planned to leave over 50 percent of their assets to their heirs.
- High net worth individuals are aware of and actively consider leaving inheritances with conditions that incentivize their heirs to pick up on values that they think are important, such as hard work, doing well in school, and finding a good career track.
Are the Concerns About “Spoiled Rich Kids” Valid?
According to a 2018 Charles Schwab Study, more than half (53 percent) of young people ages 16-25 “believe their parents will leave them an inheritance.”
But are large inheritances an “initiative sucker,” or can they be used to create a better and more fulfilling life? According to an article in Forbes, the answer is a resounding YES to both! Inheritances can cause some to lose their drive and ambition, but with the proper structure, those who inherit can use the money as a tool to create meaningful lives of their own.
Parents may fear that leaving their children money will end up doing more harm than good, but if they teach their children from a young age how to properly use their wealth, and set good examples and realistic expectations, it’s less likely that children will use their inheritance irresponsibly. If parents are still fearful their kids won’t use their money properly, they can place controls and restrictions on what they give. But parents’ goals will inevitably change as they get older and situations change, so they should always leave room for flexibility.
What Can Parents Who Want to Leave Their Children a Substantial Inheritance Do?
When parents set realistic expectations, provide sound parental guidance, rules, and encouragement, and set limits when the children are growing up and entering adulthood, any child with inherited wealth can lead a productive life and not wind up falling into the “spoiled, lazy, and entitled” stereotype. As with most aspects of raising children, it’s up to parents to teach their children how fortunate they are to inherit anything, and that responsibility comes along with having money.
Used properly, wealth can provide a safety net for unforeseen circumstances and provide a better lifestyle than a child might otherwise attain with his or her own income. Parents can teach their children that while they have a comfortable lifestyle, they can also use their money to benefit the world around them.
Determine Your Goals
Parents’ goals and perspectives change over time, and financial plans change along with them.
If a parent’s concern is that they will harm their child by leaving them too much money, they need to determine what dollar amount will cause that harm. The answer depends on what they want their children to achieve with the money. Then, they should consider the what-ifs. For example, assume a parent wants to leave their child $500,000. Here are some things to consider:
- What if the adult child has a health crisis or they have a baby with a disability, incurring significant costs to the adult child and/or preventing them from being able to work?
- What if despite working hard, they or their employer are put out of business?
- What if the market sinks and the $500,000 becomes $250,000?
Learn About Controls
As mentioned, if parents are concerned about leaving children a substantial inheritance, they can put controls on the wealth they leave their adult children by using trusts.
- Parents can choose a trustee to manage the trust so the kids don’t have full access or control.
- The trust can be designated to help the children get an education, buy a place to live, and/or start a business, but stipulations can be made that they can’t just live off the trust and sit around doing nothing.
- These controls can be different for each child. If parents know one child won’t lose their drive no matter how much money they have but another child will spend it all in a week, the children can be given different access, controls, and rights over their trusts.
- Whatever is decided, parents should keep an open line of communication with their children to explain their concerns and why they set the trusts up the way they did.
Parents may fear that leaving their children money will end up doing more harm than good, but if they teach their children from a young age how to properly use their wealth and set expectations and controls, it’s more likely that the children will use the inheritance responsibly.
Plan Ahead for Your Loved Ones
With proper planning, careful analysis of your family’s unique needs, and the help of an estate planning professional such as the attorneys at the Farr Law Firm, a trust could be the perfect way to ensure your offspring benefit from your hard-earned savings — without spending all that money at once.
If you would like more information about estate planning, trusts, and/or trust funds, please call our office to make an appointment for a consultation:
Northern Virginia Estate Planning: 703-691-1888
Fredericksburg, VA Estate Planning: 540-479-1435
Rockville, MD Estate Planning: 301-519-8041
Washington, DC Estate Planning: 202-587-2797
About Evan H Farr, CELA, CAP
