Your Gateway

Gateway CU

Disinherit the kids

A recent philanthropy conference in Sydney did not receive a great deal of publicity. But it did discuss a topic of growing interest - how much of your wealth should you leave your kids? Do you have an obligation to ensure your heirs are taken care of appropriately? Or should you display a bumper sticker proclaiming, “I’m spending the kid’s inheritance”.

Billionaire investor, Warren Buffett, has pledged to give away 99 per cent of his wealth to charity. Microsoft founder, Bill Gates, has also declared he intends to donate his vast fortune to charity leaving his children “a minuscule portion” of his wealth. Australia’s richest person, Gina Rinehart, believes her children are unfit to manage the family business and the family’s wealth. 

Among the super-rich, the belief in a duty to leave a big pot of gold for the next generation is waning. Andrew Lloyd Webber’s five children will see little of their father’s wealth as the English composer uses it to fund budding artists. Someone else who does not want suddenly-rich offspring is Nigella Lawson. The TV personality expects her children to support themselves as adults.

Spoilt rich-kids often have more money than sense which is why tycoons, celebrities and other fabulously wealthy individuals are reluctant to leave buckets of money to their broods. Not having to earn an income can ruin a person’s life which is why an increasing number of wealthy parents want their progeny to develop a strong work ethic and succeed on their own. 

But what about us mere mortals who are not part of the rarefied world of the super-rich? How much should we leave our loved ones? As always, opinions are divided as to the best legacy to leave behind, albeit there are fewer pieces of silver to be divvied-up from the estates of the less well-heeled.

Spending it all on yourself or bequeathing all your worldly belongings to charity has the benefit of avoiding family inheritance feuds and fights over the fine china. Moreover, a “leave nothing” strategy stops the kids from spending your lifetime of accumulations in one fell swoop and forces them to stand on their own two feet and fend for themselves.

On the other hand, leaving an inheritance can help your kids create more meaningful lives of their own. Many parents have confidence in their children’s ability to sensibly manage money and believe an inheritance can do more good than harm. Contrary to popular wisdom, a bequest does not necessarily mean beneficiaries will become lazy, unproductive and void of ambition.

Whereas previous generations lived shorter and more frugal lives, today’s baby-boomers are expected to live much longer and many intend to spend up big in their twilight years. One group - referred to as SKIs (spend kid’s inheritance) - will certainly not be watching their pennies in retirement nor will they be sit-at-home grandparents with a blanket over their knees. 

Rather, SKIers are determined to travel - many are grey nomads – and enjoy the fruits of their long labour. SKIers lead very active lives and many will leave no financial legacy for their children, perhaps beyond the family home. For many Gen Xers and Gen Yers this will result in slim pickings from family estates and a smaller pie to be divided among siblings.

SKIers believe there is absolutely no guilt attached to splurging. Personally, I don’t believe you should scrimp and save in retirement just to leave the kids the biggest inheritance possible. Equally, I am not a hedonist and so don’t subscribe to spending all your money on a self-indulgent lifestyle just for the sake of it. For me, the balance lies somewhere in the middle. 

The benefits of giving while you are alive should also be considered. An “early inheritance” – like helping the kids purchase a home and/or paying for the grandchildren’s education - assists your family now and you get to see the joy it brings to their lives. When you are 85 your kids will likely be approaching 60. What’s the point of leaving them their entire inheritance when they are old and grey? 

Finally, it’s important to recognise that a legacy is not just about money. It’s also about leaving the world a better place than how you found it. Your legacy speaks to the value system you lived by and the memories you created. How do you want to be remembered? 

Regards
Paul J. Thomas

 

Posted Monday, September 29, 2014    View Comments 1 Comments    Make a Comment Make a comment  

RSS Feed