Author Topic: Inheritance for children  (Read 1944 times)

Heinz

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Inheritance for children
« on: June 23, 2017, 03:46:06 PM »
Hi, I have not seen this discussed but am interested in different perspecives.  We have two boys, 17 and 11 and my wife and I are struggling with how much of an inheritance we should leave them.  We have enough saved so each can complete college and an advanced degree (most of this was gifts from my parents).  Also, we have enough saved so my wife and I could retire today and not have to work; we are 50 years old.  My wife and I grew up in families that lived paycheck-to-paycheck-- I paid for college through and ROTC scholarship and graduate school through a research assistantship. 

However, I feel a true obligation to fund my grandchildren's education (as my parents did for theirs -- my mom married a wealthy man when I was 22) and also to leave a substantial inheritance ($4M each child).  I would stop working tomorrrow if we were there financially (net worth about $5.5M, $4M investible assets).  My wife likes her job and does not want to stop working in the next decade.  I am also locked in a bit as I am part of a PE backed company, with a sale date in 2020 most likely.

How are others approaching this -- once you have enough for your retirement, how much do you think you should save for you children? 

cchrissyy

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Re: Inheritance for children
« Reply #1 on: June 23, 2017, 06:54:59 PM »
I wouldn't work even a little bit extra to increase the inheritance - everything you already have will be theirs and even while you spend some of it, the bulk will grow simply thanks to being invested over a long time.

Goldielocks

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Re: Inheritance for children
« Reply #2 on: June 23, 2017, 07:01:37 PM »
I wouldn't work even a little bit extra to increase the inheritance - everything you already have will be theirs and even while you spend some of it, the bulk will grow simply thanks to being invested over a long time.


Yep!  think about it,  if you start at age 70, for every $1 million in your retirement account that you don't touch, it will grow to nearly $4 Million by age 90.

If you need it for elder care instead, well, that's ok too.

Guide2003

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Re: Inheritance for children
« Reply #3 on: June 23, 2017, 07:05:27 PM »
This was a pretty detailed post on the topic that got me thinking:
http://actionecon.com/building-generational-wealth/
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SwordGuy

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Re: Inheritance for children
« Reply #4 on: June 23, 2017, 07:06:45 PM »
First of all, I would not want my children (even as young adults) to ever get the idea that there would be a substantial inheritance waiting for them.

I want them to go out and prove themselves to themselves.   They need to earn success.   That's for their benefit because it will make them stronger people, with better character, and with a better chance of raising quality children of their own.

That said, making it easy for them to get a degree without crushing debt is a good thing.  I think they need to work to have skin in the game, though.   People value what they have to struggle for.

Now that my son's character is well established, he's got a good (and wise!) head on his shoulders, and he's been a success at his career, I've let him in on the fact that we expect to leave him a good bit.  Now we're in the process of teaching him about money.  We didn't raise him to learn what we know now because we didn't know it then!

ixtap

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Re: Inheritance for children
« Reply #5 on: June 23, 2017, 07:24:56 PM »
What is your purpose in leaving your children such an inheritance? That is, do you see it as play money? Money for them to pass on? Do you see them with a lavish lifestyle? Do you picture them as philanthropists? Are you leaving them properties that require significant upkeep or primarily assets?

Another way of phrasing it: why do you feel an obligation to set your children up to be in the top <5% of US households? And that is assuming that you haven't set them up to do at least as well as yourself (or see them choosing different paths that won't lead to the type of accumulation you have achieved).

Once you can answer those questions, the follow up would be is there a better way to achieve those goals?

One reason I ask is because most people I know who have worked their way up to your level are freaked out at the prospect of leaving that much to their children and are off looking for charities or trust structures to mitigate the impact. Or suddenly spending a little more on themselves.


Heinz

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Re: Inheritance for children
« Reply #6 on: June 23, 2017, 07:39:05 PM »
What is your purpose in leaving your children such an inheritance? That is, do you see it as play money? Money for them to pass on? Do you see them with a lavish lifestyle? Do you picture them as philanthropists? Are you leaving them properties that require significant upkeep or primarily assets?

Another way of phrasing it: why do you feel an obligation to set your children up to be in the top <5% of US households? And that is assuming that you haven't set them up to do at least as well as yourself (or see them choosing different paths that won't lead to the type of accumulation you have achieved).

Once you can answer those questions, the follow up would be is there a better way to achieve those goals?

One reason I ask is because most people I know who have worked their way up to your level are freaked out at the prospect of leaving that much to their children and are off looking for charities or trust structures to mitigate the impact. Or suddenly spending a little more on themselves.



I just want to thank you for the considered comment.  I feel an obligation to leave my children as well off as I was or that I will disappoint my parents.  Also, I believe that with the large federal debt economic growth will be lower so i will be more difficult for my children to attain our standard of living. 

former player

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Re: Inheritance for children
« Reply #7 on: June 23, 2017, 07:50:07 PM »
Your first consideration should be to bring up children to the point where they can earn their own living.  Anything you give them after that is about elevating their economic status above what they have earned for themselves.

I can see that there is a case for providing some money towards the purchase of a house, given that houses are relatively rather more expensive in relation to earnings than they used to be for the generation before (depends a bit on where they are, though).  There might also be a case for kickstarting a retirement fund, given the benefits of investing early.

Anything after that, in my book, goes to me first and my heirs get the leftovers once I'm gone.
Be frugal and industrious, and you will be free (Ben Franklin)

okits

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Re: Inheritance for children
« Reply #8 on: June 23, 2017, 07:53:30 PM »
How are others approaching this -- once you have enough for your retirement, how much do you think you should save for you children?

If my children are physically and mentally capable of earning their own financial success, I'm making no special provision for their inheritance.  Good chance we'll die with something leftover, but I'm with SwordGuy.  We do them no favours, shielding them from hard work and self-reliance.

As a (potential) future grandparent, I'd be much more concerned if my grandchildren received no teaching/fostering of capabilities and adaptability than received no inheritance.

scantee

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Re: Inheritance for children
« Reply #9 on: June 23, 2017, 08:42:05 PM »
What is your yearly spend? I just plugged your $4MM into firecalc and, if you saved not one more dime, you could spend $100k a year and your average portfolio in 30 years would be $12MM. At a $150k yearly spend, you'd end up with your $8MM in 30 years.

I think you can quit now and live a luxurious retirement and leave your kids a ton of money as an inheritance. If you're an anxious type and you need to actually reach a $8MM portfolio before you'll quit, then early retirement might not be a good fit for you.

SwordGuy

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Re: Inheritance for children
« Reply #10 on: June 23, 2017, 10:09:44 PM »
If you haven't read "The Millionaire Next Door", do so.   It demonstrates quite effectively that giving kids too much cripples them instead of helps them.   The numbers don't lie.

Laura33

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Re: Inheritance for children
« Reply #11 on: June 23, 2017, 11:46:53 PM »
What is your purpose in leaving your children such an inheritance? That is, do you see it as play money? Money for them to pass on? Do you see them with a lavish lifestyle? Do you picture them as philanthropists? Are you leaving them properties that require significant upkeep or primarily assets?

Another way of phrasing it: why do you feel an obligation to set your children up to be in the top <5% of US households? And that is assuming that you haven't set them up to do at least as well as yourself (or see them choosing different paths that won't lead to the type of accumulation you have achieved).

Once you can answer those questions, the follow up would be is there a better way to achieve those goals?

One reason I ask is because most people I know who have worked their way up to your level are freaked out at the prospect of leaving that much to their children and are off looking for charities or trust structures to mitigate the impact. Or suddenly spending a little more on themselves.



I just want to thank you for the considered comment.  I feel an obligation to leave my children as well off as I was or that I will disappoint my parents.  Also, I believe that with the large federal debt economic growth will be lower so i will be more difficult for my children to attain our standard of living.

As well off as you were at what point in your life?  It sounds like you and your DW both grew up without much, and the wealth has come later, either because your mom married well, or through your own hard work/savings, or both.  So do you want your kids to be you at 18, or you at 50?  There's a difference, right?  And even right now, your kids have a better start in life than you did at their ages, right?  So how could that possibly be disappointing to your parents? Is it reasonable to expect that your kids should have at 18 the lifestyle you didn't earn until 50? 

I would focus less on the financial situation at any given age and more on the life skills that earned that position.  IOW, maybe you are where you are at 50 *because* of where you were at 18, not in spite of it.  That is certainly true with me -- as much as I resented my much younger brothers getting free rides to college courtesy of the Bank of Dad, they also took those privileges completely for granted and screwed around too much.  25 years later, I am the only one in a position to RE.  That is not a coincidence.  Growing up with nothing taught me early that I was on my own and needed to earn whatever I wanted, save aggressively if I ever wanted to be secure, and spend wisely.  My brothers didn't get that lesson until much, much later.

Not saying that giving kids money and privileges necessarily screws them up (my DH also had a free ride courtesy of the Bank of Dad and did just fine).  But the point is rather that simply providing kids a specific sum of money will not guarantee they use their powers for good.  So why work for X more years when you are already at a level that would leave your kids more than amply provided for if you died today?  All the focus on specified dollar values is the tail wagging the dog.

For me, I am making sure my kids have college covered before I quit.  College costs are quite dramatically higher than when I went, and so to know I can cover my kids' education and set them off in life not weighted down with massive debt is critically important to me.  I am also using my own money to fund a Roth for them that matches whatever they earn from paying jobs, because compounding.  Other than that, I am not planning on working longer so I can try to leave them a specific sum.  My kids have grown up knowing they will need to earn their way, because while we make plenty of money, we do not make enough to set them up with a trust fund to support them in the style to which they would like to become accustomed.  So I *hope* that they will use their college degrees to go get jobs and support themselves in a reasonable, sustainable lifestyle, so that even if we blow through all of our savings, they will be just fine; OTOH, if they do inherit something (more likely), that will be a nice bonus that helps them cover college for their kids, so the grandkids get to start off with the same advantages we provided their parents.

Tl;dr:  what you teach your kids while you are here is infinitely more important than what you leave behind after you are gone.
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Sydneystache

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Re: Inheritance for children
« Reply #12 on: June 23, 2017, 11:58:41 PM »
Agree with others - you may leave them too much and they'll self-destruct. I remember talking to HNW people at the height of Paris Hilton's fame. They were genuinely concerned their heirs will turn out like her and her ilk. So many fucked up heirs around who are living life without purpose. Have you thought about setting up a trust so you can take care of your grandchildren and future heirs that way? I'm reminded of Princess Diana's American ancestors - it was her rich great-grandfather Frank Work who set things up so that she could buy that flat at Earl's Court as her bachelorette pad several generations after his death.

ixtap

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Re: Inheritance for children
« Reply #13 on: June 24, 2017, 12:01:00 AM »
I think you need to recognize that you have come for advice to a group of people who generally don't desire 4m for themselves, much less as a legacy to multiple offspring. Moreover, this is a group that generally eschews social pressures such as the one you claim to be under.

Whatever good the money you pass on may do, is it more important than how you would otherwise spend the time?

Can you imagine the pressure you are putting your own kids under? You feel obligated to exponentially expand the generational wealth, what are their obligations upon inheriting it?!

Leisured

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Re: Inheritance for children
« Reply #14 on: June 24, 2017, 01:41:54 AM »

As for how much to pass on to your kids, Buffett once offered a good rule of thumb: The perfect amount to leave to your kids, he told Fortune in 1986, is ''enough money so that they would feel they could do anything, but not so much that they could do nothing.''

Heinz

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Re: Inheritance for children
« Reply #15 on: June 24, 2017, 09:07:15 AM »
I absolutely agree on the points about educating your children;  I make a consious effort to do that with them, so they understand what life costs, what are optional expenses and the importance of savings (both have savings accounts, one has a Roth IRA that we matched).  I love this letter from the NYT:
https://www.nytimes.com/2016/06/18/your-money/the-money-letter-that-every-parent-should-write.html?ref=business&_r=0

Savings gives you freedom and that is probably the most important thing.  For us, I think i will probably work another 4-5 years and then my wife another 8 -- she loves her job and it is beneficial for her to work at least another 5.  In response to one question, I am sure that my conservative/not spendy nature came from my upbringing.  Also, my stepdad was very clear with each person what they would inherit when he passed -- he had two other children.  One sold a business and is very successful; the other never worked and lived off her dad/various husbands. 

Goldielocks

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Re: Inheritance for children
« Reply #16 on: June 24, 2017, 03:17:57 PM »
I think about my parents, who received an inheritance when they were about 40 years old.   My father, in particular, made a nice second business out of the inheritance, and it added a lot of value to their lives (bought many extras including cars, vacations, and even more charitable donations over the years, etc) .  He still has retained and grown the original capital, and I am likely to get it and more when I inherit.

The difference?  If I am lucky, I will be close to 65 years old before I see any of it... so it really does not matter to me or my life, in any practical way.  I need to plan my own retirement fully, because it is not guaranteed, and if it does not materialize, I won't have a lot of options after age 60 to make up for it.    I won't get the money early because of parent's wish for it to not be part of a divorce settlement (just in case DH and I don't make it), so they will put it off until they die.


Is there any chance that the age of your kids in future, versus your inheritance age would be vastly different?   Are you thinking about giving a living trust now, instead of after you die?

Dee18

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Re: Inheritance for children
« Reply #17 on: June 24, 2017, 04:04:48 PM »
+1 on supporting through college and funding Roths during college(but they have to do the paperwork, DD waited until the last minute this year and messed up a document and missed out on Mom's matching Roth money).

I am not leaving all my assets to my daughter.  I have designated charities I care about for the money in my retirement accounts.

TrMama

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Re: Inheritance for children
« Reply #18 on: July 07, 2017, 02:21:27 PM »
We have enough saved so each can complete college and an advanced degree (most of this was gifts from my parents).  Also, we have enough saved so my wife and I could retire today and not have to work; we are 50 years old. 

However, I feel a true obligation to fund my grandchildren's education (as my parents did for theirs -

Unlike most on this board, I also feel an obligation to pass on significant assets to my children. The main reason is likely the same as you. A significant portion of our 'stash came to us from our parents/grandparents. Definitely not millions, but smaller amounts passed on earlier in our lives; which frankly has been more valuable.

If DH and I were to simply spend it all on ourselves, it would make us the most selfish people I could imagine. We didn't earn this money, we're not entitled to it, we're just stewarding it so it can be passed down one more generation. We've been given the incredible gift of being pushed out to the front of the money wave*, of course I want to do the same for my kids.

For everyone that says, "But your kid will be spoiled and waste the money" I call BS. If you educate your child properly and give them a nice life without spoiling them, they'll grow up to make good decisions. I'm proof of this and my kids will be the same. They know they're among some of the richest, luckiest kids on the planet, but my 10yo is still out delivering newspapers in the scorching heat. They're not entitled, they'll be fine.

*https://www.mrmoneymustache.com/2013/05/25/which-part-of-the-money-wave-do-you-surf/

Chesleygirl

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Re: Inheritance for children
« Reply #19 on: July 10, 2017, 07:27:41 PM »
Have you made a will?
My mother wanted to include my daughter (her granddaughter) instead. Her lawyer strongly advised against it as it would cause problems with how the money in the will was managed for my daughter, and such.  Eventually he talked her into putting only her own children in to the will and excluding grandchildren.
Most (good) lawyers would advise you to only include your children. Including other relatives can cause problems later on with the will being held up, contested by the children, etc.
Consult with a lawyer, they will likely tell you the same thing.
if you want to help your grandkids with college, set up a 529 plan for them now as the beneficiares.

maizeman

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Re: Inheritance for children
« Reply #20 on: July 10, 2017, 08:14:42 PM »
I feel an obligation to leave my children as well off as I was or that I will disappoint my parents.  Also, I believe that with the large federal debt economic growth will be lower so it will be more difficult for my children to attain our standard of living.

You're getting a fair bit of pushback but I think this is a very reasonable position to take. We live in a strange window where it is possible for regular people to accumulate enough wealth to buy their freedom. There is no guarantee this will continue for additional generations so while you shouldn't feel obligated to work more help out future generations, if you do more power to you.
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