For wealthy parents, one of the most challenging estate planning decisions is whether to give all their money to their children. Should they convey their assets to their heirs, all at once, dole them out over extended period, or donate all or a portion of their wealth to a worthy cause?
To attempt to answer that question, it is important to state that every family is different. There are differences amongst the children and grandchildren that need to be considered, as well as the nature of the wealth being conveyed to the next generation. For instance, is the largest asset a family business and how do we deal with that complexity? What is the best way to divide up an art collection or real estate?
If the family wealth consists primarily of stocks, bonds and other liquid securities, it may be relatively
simple to designate a portion for the children and to charitable organisations, leaving a lasting legacy. For instance, Warren Buffet, Bill Gates, Jeff Bezos and other billionaires have gifted large proportions of theirwealth via foundations, specifically designed to support charitable initiatives across the globe. In each casethey have given a very small proportion of their wealth to their children, even though the amounts are still quite considerable.
Regardless of the family dynamics or portfolio composition, an experienced outside professional can help sort through the issues associated with conveying wealth to individual heirs, leaving a legacy through a charitable trust or splitting up the assets to accomplish multiple goals.
When considering how and if you pass along your wealth to your children, it is common practice to do so through trusts, which can be structured to protect your children while enabling them to live a comfortable life. If you simply pass on the wealth, you run the risk of changing your child’s lifestyle. Instead of focusing on their career, creating the next unicorn or becoming a leader in a business or non-profit, your child might become what is otherwise known as a trust fund baby, spending their inheritance on frivolous purchases or partying.
Another risk is ensuring your child’s relationships are genuine and that their future spouse is not manipulating them because of their inheritance. If the assets are held in their name, divorce can lead to high legal fees and could strip your child of much of their inheritance. Their unfettered access to liquid assets could also attract salubrious characters as well as friends who might be clamouring for money for new business ventures or to support their own families.
Now is the time for wealthy parents to sit down and decide how much money they intend to leave to
their children and what proportion if any to charity, as well as the best strategy for protecting everyone’sinterests. This is very tenuous subject at the best of times and should be facilitated by an outside financial professional, so that the outcome will be a plan designed specifically for the needs of the family, both todayand tomorrow.