“Well, She Got Her Daddy’s Car…”

“And she cruised through the hamburger stand, now.” The philosophers Brian Wilson and Mike Love remind us of the perils of giving children too much too soon, in “Fun, Fun, Fun (‘Til Her Daddy Takes the T-Bird Away).”

This is a theme common in literature going back centuries, at least to King Lear, and it’s something that remains a significant issue for families at the present day, with the creation of so much wealth all over the world. But one of the reasons why people strive to accomplish something during their lives is to be able to pass it on to the next generation and to spare children the struggles that parents might have had in achieving success. How to resolve this dilemma?

Unhappily, one solution, which is seen all too often, is to do nothing, hoping that, “The kids will work it out after I’m gone.” That usually doesn’t work and leads to generations of conflict and unhappiness. Some clients have chosen to limit how much their children will receive, to ensure that they are educated and prepared for whatever they choose to do in life, but not given so much that they lose interest in working. Another solution, which is quite common, is to place assets in trust, during life or at death, so that children and grandchildren have to wait to receive their inheritances, and perhaps receive them in installments at different ages.

For example, distribution might be made in thirds, at ages 35, 40 and 45. We often tell clients that the first installment paid might be largely wasted, because the recipient will want that little red Ferrari or condo in St. Bart’s, but that by the time of the second and third installments, the need to spend might have been satisfied. Sometimes, not always.

Here’s another planning idea, which is becoming more popular with both parents and grandparents. The payment of an inheritance might be contingent on achieving certain goals, such as finishing college, getting married and having children, perhaps in that order. A promise might be made to put aside funds for education whenever a grandchild or great-grandchild is born. There is, of course, a risk in this, in that the children and grandchildren might feel that their lives are being manipulated from the grave by dangling money in front of them. An extreme version of this idea was seen in the will of Leona Helmsley, who required that her grandchildren visit her tomb each year in order to continue receiving trust income.

The risk that too much money will become a burden rather than a source of happiness is not a reason to stop striving or to give all of one’s money to charity. But it illustrates an important point: The accumulation of wealth is only half the battle. The other half is to plan so that the accumulated wealth can have a positive effect on future generations, as a source of strength and opportunity rather than an excuse to do nothing.

Robert H. Louis
Saul Ewing


Explore posts in the same categories: Robert H. Louis, Trusts and Estates

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