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WHEN STEWART MOTT graduated college in 1961, he received $6 million from his father, an auto industry entrepreneur who was one of the founders of General Motors. On top of the $6 million, a family trust began paying Mott an annual stipend of $850,000.
That allowed Mott to spend his adult life pursuing a variety of eccentric endeavors. He funded research on extrasensory perception. Inside his Manhattan apartment, he built a 10,000-square-foot garden, along with a chicken coop. He also spent time living on a junk in the Hudson River. In addition, Mott loved politics, so much so that, at one fundraiser, he arrived with a live elephant and two donkeys.
While Mott was unique, stories like this are not uncommon. Inheritances can yield unintended consequences. That’s why Warren Buffett always said that his goal is to leave his children “enough so that they can do anything, but not so much that they can do nothing.” This may be easier said than done.
How can parents best help their children? In my experience, this is one of the hardest questions in personal finance. In fact, I believe it’s the hardest question because it lies at the intersection of several other complicated questions. It isn’t strictly a financial question, or a tax question, or a parenting question. Rather, it’s all of the above. If you have children and are trying to think through this topic, you might consider these seven steps:
1. To start the process, I suggest this: Imagine you had a magic wand and were able to cut through all the complexity to create the perfect outcome for your family. What would it look like?
To better illustrate this question, imagine a spectrum of parenting approaches. Stewart Mott’s father, who enabled his children to lead lives of luxury, would be at one end of the spectrum. Meanwhile, someone like Mick Jagger, who has communicated to his eight children that they’ll need to be self-sufficient because he may leave all of his assets to charity, is at the other end of the spectrum.
While these are extremes, they may serve as reference points as you develop a picture of what you’d like for your own family. For example, some parents want to help their children graduate from school without student loans, while other parents want to help their children purchase their first home. Some parents simply want to do as much as they financially can.
I suggest starting at this big-picture level because the topic is so complex. By doing so, you avoid details that may cause you to see obstacles before you find solutions.
2. If you have more than one child, consider your definition of fairness. For some parents, this means treating each child exactly the same, regardless of differing financial circumstances or needs. For others, helping each child according to their individual circumstances may work best. For example, if one child is a physician and the other a schoolteacher, some parents feel it would be unfair to treat them equally.
Children can differ in other ways. One child might be thriftier, while another has trouble managing money. One child might simply live in a more expensive part of the country. Some children have disabilities that require ongoing care. Should all these children be treated equally?
3. Another consideration is how much complexity you’re willing to embrace to get the outcome you want. For example, you could move assets into an irrevocable trust. This type of structure can help moderate future estate taxes and provide other benefits, such as greater control of the bequest’s assets. Would you like to avoid a Stewart Mott scenario? Trusts like this typically limit distributions to uses that are deemed productive, such as buying a home.
But setting up an irrevocable trust requires legal services and thereafter careful accounting. This type of trust also requires the ongoing involvement of a trustee, who might ask to be compensated. And even the most intricately thought-out provisions aren’t guaranteed to produce the desired results. Trusts that are too restrictive can lead to resentment. Some trust beneficiaries spend their entire adult lives battling tightfisted trustees. That’s why some families prefer a simpler path, even if it means relinquishing some control, along with potential tax benefits.
4. If charitable giving is important to your family, make it part of your plan. Some families try to dovetail estate tax planning with philanthropy by specifying that any part of their estate that is over the lifetime exclusion—or in excess of some other specific number—should be donated to charity.
5. If your estate includes unique assets, such as a vacation home or a business, be especially careful. These can be the most difficult to divide among children and can also carry the most emotional baggage.
6. Another key decision: When would you like to make these gifts? Some parents prefer giving during their lifetime since this allows them to see the impact of their gift—such as helping a child buy a first home. It also gives them the opportunity to see how children handle smaller amounts of money before giving them larger sums. These early gifts can be particularly helpful to children in their young adult years, when life is most expensive.
On the other hand, some families prefer to bequeath all assets to their children. In doing so, parents avoid struggling with the question of how much they can afford to give during their lifetime. Another reason some families prefer this approach: They don’t want money to become a factor in their relationship with their children. In addition, giving only by bequest can help avoid diminishing their children’s work ethic during their early adult years.
7. Money can be a taboo subject. Still, I suggest transparency when it comes to family gifting. Let your children know your plans—and the thinking behind it.
In a recent letter, Warren Buffett mentioned that he updates his estate plan every few years. While he may be at a different financial level than the rest of us, it’s a reminder that the plan you develop today need not be the permanent plan. Some plan is better than no plan. Follow Buffett’s lead in updating your plan as circumstances—and your thinking—evolve.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam’s Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
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In my experience, #7 is the hardest for most families to manage. Among the reason given are: 1) I am afraid my children will take advantage of me if they know how much money we have, 2) My kids will do nothing productive if they know they can count on a fat inheritance, or 3) It’s none of their business.
I always counseled families to discuss their estate plans, especially if the plan included an uneven distribution. Talking about your plans ahead of time can diffuse a lot of hurt feelings and confusion after you are gone. It provides children with a chance to ask questions, but it also needs to be made clear that they don’t have a vote in how your estate is divided.
I always thought it was a little funny that America, with all principles of hard work and earning your keep and the whole bootstraps thing, clings so hard to passing inheritances on the future generations. Doesn’t that seem like a terrible idea for a society that espouses meritocracy? It will always lead to unfair advantages and the perpetuation of wealth, education, and ownership inequality. I just wonder what it would look like if you couldn’t pass money on at all? Like a 100% tax assets at death or something of that nature. Just an idle thought.
Interesting idea, but for me that’s a hard pass. As someone who worked 2 jobs and completed 6 years of college at night while working 50 hours a week, I’m where I am today because of the work I put in and the sacrifices I made. My sister on the other hand, married 3 times, worked rarely, filed for bankruptcy 3 times, and is always looking for a handout. My brother hates the so-called establishment, so he works infrequently doing odd jobs and at 50 years old, and is like my sister, always looking for a handout from my 80-year-old mother. They both know better than to ask me, because I am not an enabler. It’s the old story of teaching someone to fish vs. handing them the fish.
My husband and I help our children along the way, and when we pass, they along with our favorite charities will receive OUR money. I would never support giving my money back to the government to do as they like.
This article raises a lot of great questions. Perhaps each of us could write an article about each of these.
The opening statement alone is complicated: “Imagine you had a magic wand and were able to cut through all the complexity to create the perfect outcome for your family. What would it look like?”
I have ideas of what I would like, but my kids clearly want other things. I had a discussion about this with one of them a few weeks ago. She said that she was sorry that many of our fantasies for the future don’t conform, but she envisions her life differently than I do.
We’d need a magic wand to solve this problem since whereas some aspects of what she and I imagine as the perfect outcome do overlap, but critical details don’t. This is just the way life is.
I didn’t discuss this with her, but an important point that we all need to consider is one that my father, an attorney who sometimes wrote wills and trusts, advised his clients: a sure way to cause or exacerbate family strife is to try to control them with money.
Your last paragraph is so important and so true! Thank you!
We have 2 areas where we feel our contributions will be effective and appreciated but not thwart individual endeavor: we fully fund 529s for each niece and nephew, and we match wages in a Roth IRA up to $100k each. Both of us had to work FT in college, that balancing act was not fun and we missed out on a lot both socially and academically (honors clubs, newspaper and such). We also graduated with debt. The Roth hopefully means they won’t be destitute in old age, though they could always blow it in one swoop at 59.5. We agree with Adam that it takes quite a while to think this through and sift through examples to figure what works best and also matches your family values.
I think the non-monetary considerations impacting inheritance and legacy greatly overwhelm the effects of the money itself. I suppose it’s somewhat natural for parents to want to have some influence on their children’s lives. This is most obvious when they’re young kids, but although there are legal definitions of adulthood they don’t tend to apply to inheritance issues, therefore the existence of trusts and such.
But ultimately most children grow to simply model the behaviors and tendencies of the adults around them, and in some cases it is not their parents, but instead proxies that take the place of adult role models, some good, some less ideal. For example, growing up in a household where wealth was obtained by hard work, good choices, and a bit of good fortune might imprint on the next generation something different than ones raised by a variety of paid proxies and the like. I suspect it’s easier for the former to better manage an inheritance, as is can often essentially be, “business as usual,” vs a windfall meant to be spent expeditiously. In either case, from the perspective of parents, there probably is a time where one needs to “let go,” and maybe from beyond the grave is that time.
a caveat is that money, especially large dumps of it, is not useful to the unprepared, the batshit crazy and the whims and conceits that it can produce are not good for the individual or to society.
John du Pont is a good object lesson…’He was ruled to have been mentally ill but not insane and was sentenced to prison for thirteen to thirty years. Du Pont died in prison at age 72 on December 9, 2010. To date, he is the only member of the Forbes 400 richest Americans to be convicted of murder.’
money or debt owned to a society is a resource..like water or air or pork bellies or beaver pelts…it has no soul or virtue and is vulnerable to conceits and whimsy. when you have money people tend to do as you wish, tell you you’re great and you might start to believe it..
‘pride comes before a fall’ is not just wisdom, it is a disclaimer. our job if we have resources to pass along is to not just acquire but prepare, to context and judge as best we can decide where the resources go and how best to utilize.
good luck.
I recently read Die with Zero by Bill Perkins. I didn’t agree with all of his thoughts, but Chspter #5 What about the kids? suggests that we periodically gift monies to our kids and charities when we’re living and the kids and charities need the money to better their lives. ie Do you want to be gifted $200K when you’re 60-65 years old, or would you have preferred to receive the gifts when you were 35 and your family is young and looking to buy a bigger home or remodel your old kitchen? And don’t be guilted into thinking the kids NEED/DESERVE it all!! Hopefully, you/spouse have meaningful non-profits that would appreciate your financial generosity now!
Agree on the Die with Zero book – a lot of good points in there especially about giving it to your kids when they need it most. We’ve been doing that and my sons are truly appreciative and it makes me happy to see them using the money while we’re alive. We also spend money on travel and our house – because yes, we earned it and we don’t feel guilty at all.
My second husband and I have told our respective children (1 each) that our plan is to die with zero. For good or ill, the current market is making that look more and more probable.
I recommend giving earlier than later. In my case, a small inheritance allowed me to purchase a starter home, which greatly aided my financial trajectory. Giving a large sum now would have minimal impact on my life.
Adam, I think you did an excellent job to give people some tools to do their best for their families. I am 78 and we made these choices back in 2012 when we were 65. For us it was important to pick our middle daughter as executor and to divide our funds equally among 3 children with a Living Trust. Further we are for giving during our lifetime, like a family trip, and to help with major purchases from time to time, when life is difficult, so we try to make it a little easier. There is always concern, is your net worth enough for a long retirement? We balance that as best we can. This upcoming June we have planned an extended family get together, which should be great FUN. Again our overall goal is to enjoy your life with your family.
Love the family trip idea as a way to spend money – it benefits everyone and you get to enjoy time together.
My biggest issue with discussions about bequests is the presumption that you have any form of a magical wand and can determine what your kids (whatever age they may be) may need in the future based on your perception … ie. judgement of who they are today. The future is unknown and is even more uncertain. You could think one child is better off than another but that could change after your passing due to an illness or accident. The death of a spouse or child, etc. You could pass more on to one with less resources but they squander the money and then look to a sibling for help. That sibling will know that you believed they had to shift for themselves so they will not suddenly shift for their sibling in a more severe time of need. Far more work needs to be done and written on the behavior of recipients of inheritance’s and taken into consideration when transferring wealth! Please! Just like behavior financial research has dramatically improved how we have created wealth today! As it stands today Americans have created incredible wealth but are about to squander it in a massive transfer of wealth to attorney’s, CPAs, financial advisors, and children who do not have the behavioral or financial ability to handle wealth.
In the last 10 or so years my wife and I have (1) created wills and trusts, and (2) revisited our wills and trusts. My goal for my sons is fairness – straight down the middle, as someone else said. My wife plans the same for her two daughters. But, as Adam points out, not all kids are the same. My concern is that one of my sons will not take the long view and invest for long-term use.
My other concern is executor/trustee. My wife is five years younger, and expect her to outlive me. But will she want or be able to fulfill the role? I don’t wish to name one of my sons for fear of then not getting along in the aftermath.
I think fairness is equal shares. We cannot control what people do with the money once they have it.
Example: I was executor of an estate in the late 1990s. I advised one of the heirs not to not put it all in the stock market. I knew he loved tech, but I was wary. He didn’t listen to me and lost all of it in the tech crash. At least one of the other heirs invested it all for the long term and came out ok. My chunk I split between paying down a little of our mortgage, buying a car, and funding my children’s college trust. We made different choices. I only had control over my piece.
Michael – thanks for your thoughts. I agree with them. Realistically I know I cannot control from the grave, it’s just that I want the best choices/decisions for my kids. As with all things, my thoughts on what’s best for them may not jell with their thoughts.
I always wonder if it is selfish to spend what I want to and leave the balance to family, or set a number for what to leave and the balance is the retirement spending budget.
At 81 I am still spending.
As Langston Holland said below, different children require different approaches. And I think of Jonathan’s preference for simplicity. I agree that it makes sense to implement whatever plan you can best think of, but to revisit it and make adjustments over time if they make sense. Strategic gifting to our kids along the way in addition to leaving an inheritance is our preference. Communication between my wife and I with our children about our decisions is invaluable.
Those are great considerations, Adam. My wife and I–mostly me–approached estate planning with a complicated plan in mind. Thankfully, our attorney convinced us that a simpler approach would be more reasonable, as well as less expensive. There are no true dead-hand provisions, just a couple of age thresholds for our one child, who is currently 19, to pass to receive assets. A trusted executor, who is well-fixed financially and has experience handling investments and property, will control the process.
I’ve thought about this topic a lot. I know of folks in my family and circle of friends who appeared harmed by access to money they didn’t earn. On the other hand, some have used monetary help as a step up or springboard to a more stable, less worrisome life. That’s what I want for my daughter. I know that some aspects of personality and character are inborn, but my wife and I have tried, and continue to try, to instill good habits of living and use of money in our daughter.
A few weeks ago, we ate breakfast with two couples at a family weekend at my daughter’s college. After the pleasantries, talk centered on the challenges of parenting from a distance, and the difficulty of giving up control. But an independent child is the goal. right? A big part of our estate plan is preparing our daughter to handle it after we’re gone. And that involves letting go now.
Great article. #2 resonated with me, Adam. I have four grown children, all very different. One, or more, will have relatively high earning power, all are doing well. I think I’m going to go even, straight down the middle on the assets my wife and I pass on. How they do financially, relative to each other, will be a result of the decisions they make and possibly how hard they work. Keeping it all the same for each will be the fairest way to go for us. My father had a hard decision regarding this issue when he died. I have a sibling that had disowned the family many years (30+) before his death, and yet he still gave her an equal share of the estate. None of us remaining 5 siblings were bothered by that. It was his decision, his money, not ours.
My brothers and I were on the receiving end of a no questions asked gift at age 18 (UGMA). Large enough to forgo the need to work for a lifetime. Two of us followed my father’s hard working ethic, two did not.
Ultimately, you need to provide your children with a lived example that follows biblical principles, but that won’t guarantee success. Adam’s thoughts are important – we have tools, but it’s the heart of the child and his parents that will win the day.
My opinion is that you open Roth IRA’s for the kids and match their contributions, which of course requires earnings on their behalf. When they marry, have kids, buy homes, have health issues, etc., help them as needed. Surprise them at times. Take the heat of the world off their backs, but not so much that they lose ambition.
Different children require different approaches, mine have not received the same help over the years. They didn’t receive the same discipline in their youth either – they are individuals with different needs.
Make sure your spouse is on the same page. Communicate with them. Let them know your philosophy and pray for them. Enjoy the journey, do your best and you will succeed. Love always wins.
Well-said. Good to read a comment from you again.