Wealthy Parents & Inheritances: Transmitting Values with Money

An interesting article in Worth magazine this month talks about how many of the country’s leading attorneys are helping their clients grapple with how to pass money along to their kids. The problem, of course, is making sure the wealth is treated as an opportunity and not as a tool to derail motivation and the desire to succeed. The lawyers in the article point out that in the 70’s and 80’s, a typical meeting between a client and his or her attorney or financial advisor would be comprised of strategies which ensure giving the IRS as little money as is legally possible during a wealth transfer. The goal was to maximize the amount of money being transferred to younger generations and minimize the tax implications. Nowadays, the shift is away from taxes and onto the effects of inherited wealth.


In many cases, values and attitudes about money are learned from ages 4-18, in which case newly found concerns about passing along wealth may be a moot point. If your child is already accustomed to a lifestyle which he or she doesn’t necessarily deserve or appreciate, it may be a good idea to appoint your child as a co-trustee on one or more of their trusts. By involving themselves with their own money, they will learn basic principles of investing and see that money has other uses besides buying cars and drinks.
The common understanding between most parents with a net worth of $5M+ is that they want to provide funds for education, possibly seed money for a business or a down payment on a home. However, from that point forward they want their kids to take these advantages in life (which many of the parents didn’t start with) and use them to lead productive and financially fruitful lives. Parents will rarely provide the extra few hundred thousand dollars which allow their kids to remain lazy and not form an identity in the work world.
The scary reality for kids is often that parents don’t see a reason to leave via inheritance more than a certain amount of their money. A family worth $100M may decide to give a total of $20M to family member’s and give the rest away to charity. The hope is often that the child will have the motivation to bring their wealth to the same or higher level than the older generation. This ambition can be near impossible if a child is given an extremely large sum of money.
Another emerging pattern, which is a big switch from 30 years ago, is that kids are getting involved with financial decisions including real estate, charities, and trusts. This involvement gives kids a greater perspective on the value of money and often makes them feel partially responsible for the impacts of family decisions. As I’ve discussed in prior posts, depression-era parents are used to secrecy and privacy regarding their money and sometimes want to keep their kids in the dark.
One lawyer in the article who had a more ‘extreme approach’ suggested matching distributions from a trust with a child’s earned income. In other words, if your child earns $100,000, they are entitled to a $100,000 distribution from the trust. If their earnings cut in half, the distribution follows. The author points out that this strategy has flaws, such as stay-at-home kids and jobs such as teaching which generally don’t produce a high income. That being said, the point of wording the trust this way is very clear.
The bottom line is quite similar in a lot of the estate planning books I’ve read: parents must communicate with kids. Grandparents often must overcome old values which don’t work as well in today’s world. Most importantly, kids must be raised with a head on their shoulders, regardless of what their parents may be achieving in their careers. As always, feel free to e-mail me with questions or comments.
Russell Bailyn

Wealth Manager
Premier Financial Advisors
14 E. 60th St. #402
New York, NY 10022
(212)752-4343 *31
rbailyn@premieradvisors.net
Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

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