It’s called your “golden years” but for many seniors and baby boomers, there is no…
Congratulations are in order—you have accumulated enough wealth to be concerned about eventually passing it along to your children and grandchildren in a manner that will encourage them to lead positive and productive lives. Like many, your objective is to allow your children to enjoy the rewards of wealth without becoming irresponsible, overindulgent or feeling entitled to anything money can buy.
When it comes to sharing one’s wealth with adult children, there are some general principles that may help you guide your children as they shape their values. Two quotes about sharing wealth with children are an excellent starting point:
I wanted my children to have “enough money so that they would feel they could do anything, but not so much that they could do nothing.” – Warren Buffett
“It’s better to give with warm hands than with cold ones.” – Unknown
Establish Inter Vivos Trusts for Your Children, And Use Restrictions Creatively
You can establish inter vivos trusts (trusts that go into effect during your lifetime) and appoint professional trustees during your lifetime. Consider some combination of the following restrictions on the trust funds to help your children develop into competent, capable adults:
Make receipt of funds dependent on employment
Use trust funds to match income from employment
Prohibit distribution of trust earnings until the child reaches a certain age (it is not unheard of to distribute trust earnings to children once they reach age 65)
Make attaining a certain level of education a prerequisite to distribution of trust income
Consider establishing a charitable trust or family foundation, with room for employment of your adult child in the foundation’s management
Consider a generation-skipping trust, so that your wealth is shared directly with grandchildren
Make Gifts or Loans During Your Lifetime—And Not Just Gifts of Money
This is the meaning behind the quotation above regarding warm hands and cold ones. It is better, in so many ways, to give gifts during your lifetime rather than after your death. In addition to gifts, consider making strategic, interest-free loans to your children to help them achieve certain goals without losing a lot of their own income to interest payments:
Interest-free loans for higher education
Interest-free loans for private education for grandchildren
Interest-free loans for home purchases
In addition to giving gifts of money or making strategic loans, there are other “gifts” you can give your children to help them learn to live with wealth. Consider the following suggestions,:
Hire a professional to teach your children how to manage their money, instead of banking on your children listening to your own lessons.
Pay for family vacations that serve a philanthropic purpose, such as travel to Africa to deliver medical equipment to a remote town or travel to South America to help clean a national park.
Begin or continue a family tradition of local volunteer work with disadvantaged people in your own community to ensure that your children get firsthand knowledge of how fortunate they are to have the resources your family has accrued.
In general, experts agree that families fare better when their wealth is used to enrich their lives and to help others less fortunate. Give your children opportunities to learn to use money in responsible ways, from as early in their lives as possible. Show them the difference between buying a new sports car and donating the same amount of money to a program that sends food to people in need. That isn’t to say a new sports car shouldn’t be on the shopping list – but perhaps it shouldn’t be the only thing on the shopping list.