By Eric Reich
My kids are at an age where they are now working during the summer. With hard work comes the realization that decisions have to be made about what to do with their money. In my house, we require a spend/save/share approach. They must do all three with their money. I request that they save one-fourth and donate one-fourth. The last half is for them to spend however they want. The reality is that over time, they have started to save 60%, share 20% and spend 20%. The balance of their share money is made up in service hours. Interestingly, I did not push for them to save more, but rather they came to realize the value of it by being active with their own investment choices and watching those investments grow.
Seeing how your kids react to having their own money can help guide your own estate planning. If your kids are frivolous with their own money, you can get a sense of how they might be with an inheritance from you. In my experience, money inherited is not treated as carefully as money earned. With this in mind, it begs the question: Is an inheritance demotivating?
Warren Buffett said one of my favorite quotes: “I want to leave my kids enough money so that they can do anything, but not so much as to do nothing.”
My deeper question then is how do I keep my kids motivated after an inheritance? How do I keep them from spending the rest of their lives doing as little as possible and living off their inheritance?
Since my kids are young, I designed my trust to make all of the decisions for them. Once they get older, some of those decisions can start to shift over to them within the guidelines I set. For example, first, in order to receive distributions from my trust, they must be employed on a full-time basis or disabled. I have given my trustee discretion for things like staying home to raise kids, etc. I don’t care what my kids do for work. However, if they want money, they have to work for it. If my children need additional money other than their scheduled distributions, which are based on my kids’ ages, they can have it for things like college or a first home purchase, but not for purchases such as a fancy sports car.
Keeping kids motivated when leaving them an inheritance involves more than just the restrictions put on them in your trust, will, etc. It also involves teaching them how to handle money throughout their lives. One way to keep them motivated is to give them incentives for hard work or smart decisions. The more they do, the more they get. I’d gladly give extra money to heirs who “earn it”. Sadly, I have seen too many people leave their kids a large sum of money, many of whom didn’t even know it was coming, only to see it gone in a few short years. Money without the knowledge of how to handle it is a potentially dangerous combination.
My advice is this: Start to think about what you want to happen with your money when you are gone. Yes, I know it isn’t a fun thing to think about, but you need to address it. Second, you need to seek out an experienced estate planning attorney. When I say that, I mean an expert in that specific area, not necessarily someone you may have used for a totally unrelated matter. A great attorney can help to facilitate getting all of your wishes down on paper in a way that isn’t too restrictive and is easy for executors/trustees to carry out.
Lastly, you need to discuss your plan with your heirs. This isn’t a popular topic either, but again, it is a necessary one. You don’t have to go into every detail, but you also can’t drop tens of millions of dollars or even $50,000 into someone’s lap without guidance. At least discuss what your wishes are and explain that you have made a plan, even if you don’t tell them the amount of money you have.
If you don’t know who to call, then call us. We can refer you to a qualified estate planning attorney to get the process started. A little planning today saves an awful lot of heartache in the future.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is a Certified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations.
