I was playing tennis with a friend who happens to be a partner at a large mutual fund company. During warmups, we got to talking about what is the right amount of money to leave our children.
I told him the right amount of money to leave our children is enough so that they'll never starve, but not enough that they'll completely lack motivation to make their own money.
He agreed with my statement. However, where we disagreed was on the amount of money to give and leave our children.
My friend used the example of what if his son wanted to be a college professor. His son would “only” make about $150,000 a year, which might not be enough to raise a family if his son's spouse didn't work. As a result, he feels that setting up a trust worth $10 million was the right amount.
My instinctive reaction was that $10 million is way too much money. Surely, that amount would spoil his son rotten. But I shrugged off his belief and we started to hit.
After our session was over, however, I started to think more about this subject. Let's discuss further what is the right amount of money to leave our children so they don't become spoiled, entitled, and lazy!
Leaving Our Children Money
One of the big points of contention about the Financial Samurai Safe Withdrawal Rate is whether one should spend all their money before they die or leave some money for their children and charitable organizations.
There is no right or wrong answer. Just different answers depending on your financial circumstance, family situation, and what you believe in.
If you don't have children, then generational financial planning is probably not relevant, unless you have nieces and nephews you adore.
If you have children and believe in leaving money to your children and/or to charitable organizations, you won't find it absurd to amass a net worth equal to 200X your annual expenses.
200 years worth of expenses covers the remainder of your life and perhaps two additional lifetimes after you're gone. Every person I have met who regularly donates money has thought about making their wealth last way beyond themselves.
Leaving A Legacy As A Default Assumption
One thing I realized after reading all the feedback in my proper withdrawal rate post is that not everybody has the same default assumption on the passing of wealth. I call this the Legacy Retirement Philosophy vs. the YOLO Retirement Philosophy.
For example, when I was in high school I just assumed I was going to college because that's what all my friends did. I didn't realize I had a choice not to go, unless I wanted a whipping. But the reality is that less than 40% of Americans have college degrees.
I also assumed, since having children, that I would always leave some amount of money to them when I die. Life can be full of hardship. It's easy to see hardship after growing up in Zambia and Malaysia as a kid. Trying to protect my children from extreme hardship is one of the main reasons why I have all sorts of insurance, including life insurance.
This type of default thinking comes from a place of privilege and my socio–economic surroundings. I'm privileged to have enough money to think about estate planning. At the same time, I'm also surrounded by friends who will all be leaving some amount of money to their children when they die.
Perhaps you are too, which is why you're reading this post. I also think it would be great to provide a perpetual giving machine to charitable organizations you care about.
You may not have enough money to put your family's name on a university building to buy your child's admittance. However, how neat would it be for your trust to donate $1,000 a month to a couple of charities you care about for a couple of centuries?
I'm personally excited to figure out a way to do just that. But enough about charitable organizations. Let's talk about the right amount of money to leave our children so they don't turn into zombies with no direction.
The Right Amount Of Money To Leave Our Children
As a parent, there's probably nothing sadder than seeing our children fail to launch. We want our children to find happiness in their careers and as individuals. We want them to find love!
For over six years, I've been reminded about the sadness of failing to launch each time I see my neighbor's son, who was given everything. He took the super-duper senior route of graduating from college in six years. Now, at 30 years old, it looks like he'll be living with his parents for life.
Giving our children money may increase their failure to launch. If we solve the problem of them living at home by buying them a house, do they end up doing nothing since they got their home for free? Such conundrums!
Let's talk about various levels of money to give our adult children while we are still alive. Then we'll discuss the right amount of money to leave our children once we are dead.
Again, there is no right amount of money to give or leave our children as the decision is personal. However, we can come up with a framework to help us make more rational decisions.
Giving Our Children Money While Alive
Giving money to our children feels better while we are still alive. While we are alive, our adult children will likely also need more financial help from us.
Further, there's a balancing act between how much to financially support our children while also supporting ourselves in retirement. Therefore, focusing on the right amount to give our children while we are living is more important than after we are dead.
Up To $16,000 A Year
Giving our adult children up to $16,000 each year is a great way to decrease the value of our estate. The $16,000 is called the annual exclusion amount (from your estate). Ideally, you don't want to leave any money above the estate tax threshold, otherwise, your estate will end up paying a ~40% death tax on every dollar above the threshold.
I think giving up to $16,000 to an adult child every so often is fine. However, if you regularly start giving the annual exclusion amount, your adult child might come to expect it. Once they expect the annual gift, they'll stop appreciating it as much. They will rationally bake in the annual gift as income.
Therefore, it is best to limit the annual exclusion gift amount to no more than once every three years. With this cadence, you get to help while minimizing entitlement.
Up To $32,000 A Year
Given the annual exclusion gift amount is per person, two parents can give a total of $32,000 a year to their adult child.
Once you start giving $32,000 a year to your adult child, you run the risk of him or her slacking off. Most single individuals can live off $32,000 a year, especially if they can live rent-free in their dad's basement.
Therefore, I recommend only giving the double annual exclusion gift amount once every six years to prevent spoilage. This is consistent with giving your child the annual exclusion gift amount from only one parent every three years.
If you have young children, funding their 529 plan for private grade school and college every year is a great way to give money to your children. After all, one of a parent's main responsibilities is to provide their children the best education possible.
Lump Sum For A House
The annual exclusion gift limits are enough to buy a median-priced car. The money will surely help with rent, food, and clothing. It's enough to help with graduate school tuition as well.
However, if your adult child wants to buy a house before 30, then the annual exclusion gift amount is likely not enough.
Given there is so much variation in housing prices across the country, let's assume the lump sum gift amount is equal to a 20% down payment, whatever the house price.
If your adult child follows the 30/30/3 rule for home buying, paying for a 20% down payment should still be safe. This is because if he does follow the rule, then he will still have to come up with a 10% buffer and make enough money to satisfy the other two parts of the rule.
If he doesn't or can't, then I recommend you delay providing all of the 20% down payment. Give your child more time to make more money. Otherwise, you run the risk of your child always asking you for more money. You also take away all sense of pride for independent living.
Money Beyond Housing
After you've paid for their education, provided a down payment for a house, bought them a car, and given the occasional gift tax exclusion amount, giving your adult child even more money becomes riskier. Heck, giving all this stuff already is already red-lining your risk-o-meter.
Remember, you're trying to prevent your child from becoming completely unmotivated in life. You want them to achieve happiness by letting them earn their reward. Let them struggle making a minimum wage service job as an adult. You want them to appreciate the value of a dollar.
Therefore, once the above conditions are met, it is my opinion that no more money should be given to your adult child until after your death. Whatever excess money you do have should be spent on yourself or on charitable foundations.
That said, I think the fear of spoiling our children when they are adults is overblown. If we are giving tens or even hundreds of thousands of dollars to our children when they are in their 30s and up, we shouldn't worry. They have already experienced the hardships of life. Further, they've already developed a lot of their financial habits already.
Giving Our Children Money After Death
Hopefully, for most of us, by the time we die, our children will already be wise adults who have figured out how to live independently.
Receiving an inheritance when you're 50+-years-old is probably not going to change your money principles, no matter the amount. Your children will likely stick to their same old habits.
Think about Warren Buffet still living in his same old house from decades ago. Think about how your parents are still going to their favorite early bird special buffet, despite amassing a nice nest egg after decades of investing.
Therefore, I think it's OK to give each child up to the estate tax threshold upon death. In your will or revocable trust, make sure you share your views on how you wish the money to be spent. Then realize whatever they do with their inheritance is really up to them. If you raised them right, they'll make you proud.
If you find yourself fortunate enough to have way more than the estate tax threshold, then actively try and spend more money on a better life. Feel free to also identify charitable institutions that could use your support.
Of course, if you find your estate to be large and the estate tax threshold to be too low to give to any one individual, it'll be up to you to figure out how to divide your estate between individuals and institutions.
Your child could end up being a multi-millionaire on her own. Therefore, you may not need to give anything to her when you die.
Creating Charitable Trusts
Once we have ensured that our children will always have a home, a good education, and not starve, we shouldn't feel obligated to give them any more money.
Let us not rob them of the glorious feeling of making something of themselves. If they are planning on having children, we can then make further estate plans when the time comes.
There are plenty of people who need way more help after we've provided the basics for our children. Creating trusts for charities seems like the much wiser use of our estate.
Let's use my example of donating $1,000 a month to a couple charities forever. I care about a foster youth center and a disability rehabilitation center in my district. The innocent are those who I'd like to help the most.
Therefore, to provide $12,000 a year each in annual income using the 4% return would require me to earmark $300,000 to each organization.
However, just eyeballing the $300,000 figure doesn't provide me much confidence that it will be properly managed and invested to last 25 years. I can envision the $300,000 running out within 10 years.
Therefore, I will likely allocate at least $600,000 to each institution, which would be equivalent to having a 2% withdrawal rate. This means I'll probably have to save and invest for another 10 years.
So you see, another way to use the Financial Samurai Safe Withdrawal Rule is as a smell test. The Rule helps you decide whether the amount of money you are thinking of giving will achieve its intended results.
Have Children And The Money Will Come
What I've learned so far about parenthood and money is that if you have children, the money will come. Even though children are expensive, once you have children, you will spend more energy trying to save and make more money.
Because you love your children so much, you will do everything you can to ensure they are loved and taken care of financially.
Eventually, you'll get to the point where you may start wondering how much love and money is too much. You may also wonder when is it time to let them fall and learn from difficult experiences.
I hope this article has given you a better idea of what is the right amount of money to give our children while alive and leave after death.
Only we as parents know our children best and must make our decisions accordingly. Personally, I'm building a rental property portfolio and an online business to provide for my children.
My hope is that when they grow older, they will find some appreciation in one of these businesses and take one or both over.
Diversify Your Investments Into Real Estate
Instead of giving your money physical real estate, considering leaving your children passive real estate investments instead. Further, if you want to dampen volatility, diversify your investments, and build wealth at the same time, invest in real estate. Real estate is my favorite asset class to build wealth.
My favorite real estate investing platform is Fundrise. With over $2.5 billion in assets under management and over 210,000 investors, Fundrise is the leading, vertically integrated real estate platform today. Investors can invest in their diversified real estate funds with as little as $10.
Fundrise primarily focuses on single-family, multi-family, and build-to-rent properties in the Sunbelt. With lower valuations, higher yields, and strong demographic shifts, Fundrise investments are in the sweet spot of a positive long-term trend. Come check out what they have to offer.
Track Your Estate Carefully
If you want to leave your children and charities some of your wealth, then you need to carefully track your estate. Do so by signing up with Personal Capital, the web's #1 free financial tool.
Personal Capital enables you to track your net worth, analyze your investments, and help you plan for retirement. There is no better free financial product offering on the web today. I've used Personal Capital since 2012 and have seen my net worth grow tremendously since.
Related posts regarding leaving money to children:
Inheritance Tips So You Don't Spoil Your Children
How To Get Your Parents To Buy You Everything As An Adult Child
Three White Tenants, One Asian Landlord
Readers, what do you think is the right amount of money to give your children while you are alive and after you die?
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Concerned about the impact of a “gift?” Do what my uncle did for me. He helped me buy my first rental property by saying he would put up 1/2 the money if I put up the other half AND did all the leg work. Yep, he was there for advice, but I had to form the LLC, research properties, estimate acquisition costs (including hunting down loans and paying for pre-move-in repairs), and “convince” him that a property was worth buying. He even made me find a management company and do a pro-forma tax return and income projection. When we bought the rental, I did all the painting / landscaping, etc. I did 100% of the work and learned a ton. We bought a rental and kept it for 20 years. From the experience I gained, I bought several more. Retired at 48 with more money than I can possibly spend. So consider ways to “match” your kid’s investment and use it as an opportunity to teach them real skills.
Nice supportive uncle and good skin in the game! Good you did a lot of the work.
This was a great write up. This is the question we have asked each other for a while. How much is too much? We love them but don’t want to rob them of their own goals. If we give too much a loss of potential and opportunity in their lives?
I rather have them have it then the IRS… If I hold back the government will get it !
What does a HNWI family do?
Very informative article. It is very important to teach kids about money. To do something good in the future, it is important to keep knowledge about money from childhood. After learning financial knowledge they will be able to properly use money, how to invest, and how to save money.
Thanks for sharing the valuable article.
Family fortune comes and go. What stays with your kids for life are the values and life skills you taught them when they were young.
I think a good inheritance include: teach kids to live below their means, teach them how to make money, pay for their college (but do not pay for grad school), support them buying an average starter home, support them at crucial life stages (e.g. child birth, divorce/widow, starting business, prolonged unemployment, disability). If you educate your kids well, having enough financial support will encourage them to take more risks to accomplish their dreams. They won’t be limited by finances.
My great grandparents were very wealthy. They owned family farm land and built their business. They split family wealth when they were around 60 yrs old, all kids were over 30 and mature enough to handle inheritance. As per Chinese tradition at that time, eldest son got 51% of the business shares and farmland. The rest is divided equally between other kids. The other kids had to choose to keep their shares and receive dividends or sell shares within family and get paid in instalment. My maternal grandparents got enough to build a house on 2 acres of land, start a birthing centre, start a small high-end bedding workshop, hire in-house helps and nannies. They had enough money to do nothing in the eyes of average people, but they were educated to work hard and contribute to society. So both my grandpas had a day-job and a business on the side. Both my grandmas worked. My maternal grandma was the first western medical obstetrician in her town. She opened a birthing centre to promote mother-child safety. She offered free service to lower class women while charging wealthy families high price. She gave free lectures on preventive cares. She saved lives by offering guidances to women seeking abortion. She donated money to all her patients who needed better nutrition within a year after childbirth. My grandpa worked during the day to build roads and bridges for the government. He worked in the evening and weekends in his workshop. They were well-respected contributing members of society until the Chinese culture revolution. They lost their fortune and were sent to re-education camp in the countryside for 8 years. My paternal grandparents also come from wealthy family and received their inheritance years before their parents passed away. My grandpa was a colonel, he fought the Japanese invasion. Meanwhile he also built a factory with a friend to manufacture steel products. My paternal grandma worked school teacher, stage actress, singer, accountant, store clerk. They also lost everything in 1970’s and were re-educated. Their siblings also were in similar situations. None has done nothing just because they were born wealthy. They were taught to keep and create wealth to help communities and make their country better for future generations. They got some money back in mid-80s from the government to compensate for what they lost, they invested well and paid grandkids’ airplane tickets to American/Japanese/Australian colleges and first year cost of living abroad. No one expected an inheritance after their death, but they still left some cash they saved for medical cost. Their primary residence is equally divided among the kids.
My parents went from heaven to hell when they were teenagers. The change in family fortune beyond individual’s control had taught them life is unpredictable and cannot be well planned. My parents believed more in changing their fate with good education and work ethics. They also immigrated to Canada for better safety to keep individual wealth. They taught me to live below my means, setting lifetime goals and financial planning when I was a kid. They gave me $50K CAD when I got into the college. I used this money to pay for my 4-year undergraduate program. I also worked and had good paying internship. I still had 30K left when I started working full-time. I always knew I can get money from my parents if I had a good cause to ask for it. So I was not focused on finding the highest paying job or save as much as I can in my 20’s. I was encouraged by my parents to find my own life goals beyond buying a house or save for retirement. So I took low pay job to find myself, and only broke 6-figure in salary at 30. Looking back, I don’t regret it. Now in mid-30s, I have a 150K stable job that I love, a loving husband, two young kids and a comfortable middle-class lifestyle. My parents gave me 100k CAD cash gift when I got married. They matched $ for $ the down payment my husband and I saved for our house. My in-laws matched 0.5 for every $ we saved in down payment. We did not buy a larger house with parental subsidy. We just bought enough house so we can live in it forever and pay a very small mortgage. We maximize all our RPP, RRSP, TFSA, RESP, company shares savings. My parents and my in-laws also gave us $40,000 in total per each year of maternity leave I took. I was making 120K per-tax before birth, but government only paid 48k pre-tax a year for maternity leave. Without money gifts, I might chose accelerated 6-9 months maternity leave instead of the full year. I am very grateful of the money I get from my parents and in-laws. I am working full-time and saving enough to retire comfortably at 55. My family has longevity genes. So I do hope my parents live until 90’s. I want to retire at 55 so I can spend more time with my parents and take good care of their final years.
My parents now plan to sell an investment property they bought 17 years ago. The property has appreciated by more than 300%. My parents want to give me half of investment gain on the condition that I use this money to buy 2 rental units. My 2 kids will get these rentals when they grow up. This is the money my parents wish to pass to future generations. So I don’t view it as mine. I am just an administrator for 20-30 years.
I’m in a different position and would appreciate comments. I’m a 71 year old widow polishing my will/trust. I have no children only cousins of whom 3 were like sisters to me, and other cousins more distant. I’m fretting over how much to leave my close cousins when they are my age and the money will soon pass to their kids and grandkids. I feel I don’t want to enrich their dynasties which are already educated and doing well but one cousin does have a handicapped child and I’d like to help her family.
I am thinking about leaving small $100,000 amounts to many cousins and friends just for the heck of it but I’m hesitating to leave $1 million+ amounts to my close cousins especially the ones already doing very well. Then how much to charity, 30%, 50%, I’m having trouble deciding?
Remember one thing any estate plan you do now can be changed! You have small children and want to make sure they have enough money to get a good education and to give them financially secure life. Your children as they get older will give you signals on if they can handle the estate they might inherit. If they show a lack of drive and waiting around for the money there are many techniques that can be used. I am optimistic that you will share with your kids your knowledge of finance and independence that will make them productive citizens.
Over the years I have received gifts from my parents that were sizable, but I never asked them for anything. The best gift they recently gave was renting a very large house for the whole family for the week in the mountains. Getting to see the whole family together for a week was way move valuable then a check.
As a dividend investor, I plan on living off the dividends myself and putting my portfolio in a trust where the future dividends can only be accessed for education and testing business ideas.
Maybe a wierd plan, but I like it. =P
-Andrew
I dont’ see any harm in gifting your children the exclusion amount each year (if you can afford to do so) provided they are working and productive. Let’s say you have a kid who is a teacher or journalist where they really enjoy what they do but maybe struggle to live in a high cost area (which may be close to where you live). Doesn’t seem harmful to them to gift them some money each year. Even then, it’s unlikely they’d need any extra money unless they have kids. By the time they have a career and kids, extra money from their parents isn’t likely to change their values or motivation.
Sam,
Interesting post, and interesting question. So many variables are at play as to what would be appropriate given the individual situation. Certainly, the balance is to provide a big enough safety net to not just survive, but have financial confidence to be able to take some reasonable risk, lose, learn from the loss, and adapt and thrive vs. providing so many resources that the incentive to become the best person one can be is squelched in guaranteed security, never having learned the need to thrive to individually succeed.
Potentially the biggest blow we’ve had in planning for our daughter’s financial acumen and independence is the recent change in having to distribute qualified assets (IRAs, 401ks) within 10 years of the decedent’s death. If my wife and I live to a ripe old age this is not a concern, but if we perish before our daughter has fully established her own financial habits, she could receive and mismanage a great deal of her inheritance. To help protect against this to some degree, the non-qualified assets will be in a Revocable Trust that we are actively working to finalize and structure decision making authority to a small advisory committee that includes our daughter as a member. Decision making of the advisory committee is at first out of her control and with time advances to her shared control, and finally her control, up through age 40.
Two other ways we are distributing assets while we are “young” and healthy — One of the absolute best things I learned about a decade ago is the Donor Advised Fund for charitable contributions. Much less complicated than a family trust, and has the benefit of separating timing of the taxable donation event of a charitable contribution from the actual distribution to a charity. We have funded our Donor Advised Fund from appreciated stock so to also have further reduction of capital gains taxes.
The second way we are distributing assets early is to gift to family and friends that may be in need in a given year, or that we just want to share with. We have set up this targeted funding as a percentage of our net worth gains year over year. Committing to this thinking has allowed us to easily gift what are meaningful and appreciated “random” gifts to several family and friends over the years. This is much more personal than the charities that we contribute to through the Donor Advised Fund.
Thanks for continuing to do what you do
“Potentially the biggest blow we’ve had in planning for our daughter’s financial acumen and independence is the recent change in having to distribute qualified assets (IRAs, 401ks) within 10 years of the decedent’s death”
good reminder on the need to distribute within 10 years after death! We’v also set up a a revocable living trust with all instructions and various people on the trustee list. Fingers crossed.
Good call on the DAF too. Sounds like you guys are very charitable. Awesome!
Best,
Sam
This might be a bit off topic but it seems to be a good place to start a conversation. With US debt continuing to spiral and no end in sight, I find tax deductions for charitable contributions to be nothing more than a government subsidy to said charities, which then force those of us with less wealth and lower incomes to subsequently pay the difference in lost taxes. I am all for giving to charities but not at the expense of the taxpayer. I’ll use a simple example – Hillary Clinton’s tax return during her presidential run showed a one million dollar contribution to the Clinton Foundation. Based upon the highest tax rate, she saved well over $350,000 with this donation and thereby shorted the treasury by that same amount. Now when we consider the Gates, Buffets, Waltons, etc of this country, the amount lost is easily in the billions. Someone has to pay for this as those ultra wealthy certainly are not.
This is quite simple, you provide opportunities for your kids to grow and succeed. Parents, if they have the means, should provide for college and educational opportunities. The goal is for your children to be productive members of society (yes, loving, rule following….). Profession and lifestyle is up to your children dreams and desires. Parents should not fund children’s lifestyles. For those that have not yet read the Millionaire next door, I recommend it. It is an older book but the message is timeless.
The other thing I forgot to mention in above comment was I am aware of the flip side…wealth tends to be stem from a multi generational family pool.
There was a lady in my city who used to give workshops on how to ask your parents to unclench. The idea was they should be giving money to their family and you were encouraged to bring them along. Some sort of hippie crystal new age vibe thing was a part of it. Maybe because those people are the ones likely to need the money. Being divorced from capitalism requires a lot of capital! I found the whole thing repulsive and entitled.
I don’t know how to solve the issue. Maybe I’m conservative, but it seems wrong to leave money to a charity so someone else can have a house but say no to your kids. But the inheritors I am surrounded by are pathetic people living out their lives counting other people’s money. You think 30 is bad to be living in your parents house. 50 and your main source of income is your parents but still holding out the illusion to the world you’re supporting your family and having kids with a 30 year old you have zero ability to support is even more pathetic. I don’t know how a person lives with themselves when your parents have purchased your house and car. It’s embarassing.
I’ll tell you that I have several examples of rich parents around me. They give their kids 24k a year and it’s spent immediately. They fix up their house for 500k and the kid won’t even mow the lawn. Education money spent on useless pursuits like massage where they have no hope of making a living. Everyone surrounding these people just has their hand out. Even saw a daughter say “this will all be mine” when she was trying to seduce some dude. She also showed him her family’s collection of Tesla’s.
I don’t know the answer to this. You can plan all you want, but history is full of families whose wealth was gone in four generations. I’m like you and will give money to “the innocent”. Don’t feel the particular need to give money that help people who are completely irresponsible with their life or have directors making outsized crazy salaries. I set up UTMA accounts and bought stocks for nieces and nephews. One has turned into a total nightmare and I totally regret it. I may never tell her the money is there and just let it lapse into unclaimed property status. I despise her and what she did to her family that much.
I totally disagree with “have kids and money will come”. The majority of people living in poverty are those that have kids and did zero planning. Unfortunately they keep having more. The extra couple of hundred bucks they get from government for another child feels like it will be the answer to their problems. They are unlikely to be those that read this blog though so maybe that is okay advice for this audience. Don’t know.
This just reminded me of a comment my 7 year old made at a thrift store the other day “Mommy, I wish we were rich ”
Granted we are completely debt free, paid off house, fully funded retirements, take great vacations etc.
I’m a 35 yr old immigrant, oldest of 5 kids who has had to work for everything I have. My plan is to make sure my 3 kids invest fully in ROTH IRAs once they get their first jobs. Instilling work ethic is the most important financial tool we can teach our kids.
When kids expect good inheritances they might slack off a bit more. Great example is my Brother in law, his wife is an only child so they will get her parents inheritance, and then split his parents inheritance with his brother (my husband)
They live above their means, always in debt, always buying something useless. They have a “get out of jail” card just waiting for them. Best part is they get free child care from all of the grandparents for their 3 kids!
We get 0 help from anyone and are much better off because we don’t expect free $ to come to us.
You sound rich to me!
I like the part about opening up a Roth IRA and contributing as soon as your kid makes money.
It makes me very sad to read this comment. Just wow. Kids don’t know what wealth is. I work with people that lease a BMW and can’t afford to pay down their debt or contribute to a 401k.
Hello Sam
All you can do is make a plan and then see what happens. I think the key is helping your children get a good education and ideally some help for their first house or condo.
My gramma is over 100 and spending her money to live in a nurturing environment. Who knew she would have been spending money at this rate at this age. But her children are fine and don’t need money, they are all well into their 70/80s. I’m sure some of my aunts and uncles thought they’d receive a inheritance by this point, but no.
So, I’m going to focus on helping my kids pre 30 and ideally living nearby to help with any grandkids. But I’m not sure why I’d plan to help adult kids. I’d rather help grandkids pay for college if my kids can’t figure it out by then.
Sam, this article is the very reason I look forward to seeing the articles show up in my in box. Even at 61 my husband and I struggle with what’s appropriate for our college educated (paid by us but at in state college) son and daughter. My own parents were generous when my husband and I were starting out and I always felt it really got us off to a good start especially in the early years. We’re in our 3rd year of retirement and life is amazing. We just never want our adult kids to think the $15k should be a part of their annual income like you mentioned.
My parents helped with college and helped with a down payment on my first house.
Since then, they’ve told me: “if you ever lose your job or whatever and need money, just ask. We’d be happy to help.”
I wouldn’t underestimate the value of that sort of assistance. Not active annual gifts or anything, just the knowledge that you have a support system behind you.
When my parents were alive they would give me the annual exclusion amount each. Back then it was around $12,000 per year x 2 = $24,000. My parents (particularly my father) were afraid they would run out of money in retirement. After their deaths (when I settled their estate), I realized that fear was irrational. Perhaps they were worried I would spend the money frivolously although that would be out of character for me.
The compromise we reached was that I opened a bank account under my SSN and with JTWROS (Joint Tenancy with Rights of Survivorship). After a few years, the balance was large enough that they felt comfortable in moving some of it into CDs with the same JTWROS registration. For me that was an inefficient investment since interest rates were so low and I could have invested it in the stock market and bought at the bottom of the Great Recession Bear Market.
My mother predeceased my father. My father had Alzheimer’s at the end of his life. I handled his finances for the final year or 18 months of his life. He would ask me to transfer the annual exclusion limit to that bank account. I told him that I did but I did not. I thought his mental capacity was diminished and didn’t want to be accused of elder abuse if some third party saw that I was moving money from his estate to mine.
That was a strange time. I was the sole heir and I was handling his finances. I started moving his investments into slightly more aggressive investments. He had dumped most of his money in a MMF that invested in US Treasury securities. It was paying 0.02% APY. Just by moving him to a on-line savings account I was able increase his yield by 50X. That was an easy choice but I moved a small portion of his net worth into some variable price investments that were yielding 100X to 300X more. When I discussed it with him, he was against it but I chalked it up to the dementia and did it without his knowledge.
Thanks for sharing. In retrospect, what do you think they should have done wrt giving money? And how did regularly receiving $24,000 a year as an adult make you feel? Did it change your attitude or work ethic about money at all? Thanks!
To a certain extent it didn’t matter if they gave me the money in annual increments because the alternative would have been that I inherited it after their deaths. I would have preferred that they spent it on themselves but they had a hard time spending money on themselves.
I didn’t really think about the money much. Per our agreement, the money sat untouched in bank accounts earning between 0% and 1% interest. It was essentially our shared emergency cash and none of us ever needed to tap it. It was out of sight, out of mind. I don’t think it affected my attitude or work ethic.
I think you have raised a very important issue. However, even the generalized advice can be extremely different, depending on the country of residence … For the United States, I agree with you. However, in the context of developing countries, I fundamentally disagree)) For example, for most countries of the former USSR, where, for example, I live, many can achieve success only with the support of their parents. Until a certain time, of course. The general situation is that you will work for your home all your life if you are not well helped at the start. In this regard, I think it would be more correct to say: we should leave enough for the children so that they can do what they like. And in each case and the family, of course, it will be a different amount. Depending on the position, worldview, and so on …
I don’t know. I think that at the end of the day, we all want the best of our children. However, leaving them lots of money can disrupt their motivation and life on so many levels as many readers have highlighted.
I remember in college having friends that had super wealthy parents. At one party in the suburbs of Georgetown in Washington, D.C. we would have a blast at a mansion that was so hidden and private you wold not even know it was there. My friend’s parents were out of town but you can see how she just did not care about money and would just spend it like there was no tomorrow. Now, I wonder how she is doing and if she is still burning that money.
That is my concern. Having my two kids just burn the money and not learning anything about finances. All my hard work gone.
Personally, I think we should not worry much about leaving lots of money to our kids. Why have all that stress. If there is anything left, great. But us parents should enjoy it. Just leave enough to cover educational expenses and perhaps a house for each child. I may leave my kids extra money because I don’t think me and my wife will be able to spend it all. But I still think we should not worry too much about leaving money to children. We should be worry about us, parents, living life and enjoying life. If there is anything left, fine. If nothing is left, that is fine too.
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I think I’ll develop a clearer picture of the amount when my kids are in middle or high school.
If I see that they’ve established a good foundation of working hard, delaying gratification, and showing gratitude vs feeling entitled, I would feel comfortable helping them with their college tuition, their first home, my future grandkids 529 and/or daycare.
The onus is 50% on me though since I will have to work hard(er) to be more present for my kids, to provide them opportunities to grow as a person, and to show them that they are fully loved and appreciated. The other 50% will be on them.
I hope to be in a position to help them in the future. $ is great, but $ feels even better when it’s used with purpose and towards the ones you love.
I think that’s right. By high school or end of high school, we should certainly know our children’s personalities, views about money, and work ethic.
I started an investment club with all my children – they were in college when we started. I seeded the initial capital, every voting share is $500, with an annual requirement of at least 1 share per year – forced investing. The family votes on investment decisions based on owned shares. We actually bought Tesla at $350 – i voted against it as ‘way overpriced. Good thing I lost that vote. Now I have to convince them to sell.
We have just started looking at investment properties. Nothing bought yet.
It has been a joyful experience sharing the limited investment knowledge I have and watching them research and grow on their own.
Excellent post Sam!
I too flip flop on my views of leaving money to my daughter. After reading articles about how generational wealth is typically squandered away by the 3rd generation and even in some cases the 2nd generation, I am less inclined to deprive myself to try and set my daughter up for life.
I always thought it was strange for billionaires like Bill Gates to say that they will leave only a small percentage of their wealth to their kids (I believe it was around $10M) but it makes more sense now.
I think if possible $2-5M in today’s money would be max I would leave so that she doesn’t feel entitled and not contribute to society.
The risk of making your heirs unmotivated should not be taken lightly. Sam, I love your idea of charitable trusts. This is a lovely way to leave a mark in this world. I am the son of immigrants who never had the luxury of having wealthy parents or being wealthy parents. They were both motivated and raised three children while becoming medical professionals. My siblings and I are also doctors. I don’t expect nor do I desire an inheritance. I would trade all the money I have now or in the future just to keep my parents alive forever. I also would not stop working if I had all the money I wanted now. In short, I agree with you that children should not starve but should also not be shackled by golden handcuffs in life.
I tend to agree with those who say that it is less about the amount and more about the timing. If those kids are raised without a want or care in the world, I think there is danger in leaving them a large sum of money.
But if those kids were raised to respect the value of money, by getting all of what they need, and only some of what they want, and embrace things like allowances (in exchange for doing work) and summer or part-time jobs, then those kids are likely to develop a relationship to money that puts them at less risk of suddenly turning into a couch potato upon receipt of an inheritance.
I don’t (and won’t) have kids, so perhaps I am the least qualified person to comment on this topic, but I think that if the parent can accumulate a sizable estate to pass on without subjecting the parent to many additional years of work that they don’t love, and they can teach their kids to appreciate the value of work and a dollar, then there’s little risk in leaving them a whole bunch of money.
On the other hand, if the only way to pass on a sizable estate is to keep working a job you don’t like, or one that turns you into an absentee parent, there’s almost no amount of estate transfer that I would consider to be worth it.