Two Perspectives on One Hot Topic: Inheritance
To the struggling parent, the word inheritance can bring thoughts of inadequacy. To the wealthy titan, fears of being used. And to the lucky child, one of two starkly contrasting realities: having opportunity granted in a flash, or independence erased from your future.
Whether to pass wealth on to your your children is more than simply a question of means. Even those with ample resources to pass down must ask difficult questions and make careful plans before deciding whether--and how much--to grant to your heirs.
The Argument Against Inheritance
When the 2003 documentary Born Rich chronicled the opulent lifestyles of the heirs to some of America’s greatest fortunes, reaction was swift. Viewers showed little sympathy to the woes of Real Estate heiress Ivanka Trump, Johnson & Johnson heir Jamie Johnson, and media heiress Georgina Bloomberg, a few of the dozen participants who cited the less enviable aspects of carrying a glamorous name.
But the documentary’s insights are invaluable to the 1% of the world’s population faced with the dilemma. Inheriting large sums of money isn’t the golden ticket many assume it would be. With the blessing comes a set of challenges: the authenticity of friendships can come into question, the and the satisfaction of earning a living can be erased.
The Argument For Inheritance
The adage has rung true for centuries: the rich get richer, while the poor get poorer. The reason for that is two-fold. First, without a cushion of money, unexpected financial struggles can snowball. A car repair turns into mounting credit card bills, which are turned over to collections, which ding credit scores, which prevent future investment. Oh, what a difference a thousand dollars would have made.
But perhaps more significant than preventing financial calamity is the power of inheritance to make a way for more wealth and opportunity. In a phrase, seed money. While most agree that money can’t buy happiness, it can provide the initial funds required to turn an idea into reality. Building a prototype, filing a patent, or ordering supplies is a whole lot easier with a few dollars in the bank.
A Healthy Middle Ground
So what’s a generous parent to do? Perhaps take a page from the Warren Buffett playbook. His strategy: give “enough money so that they would feel they could do anything, but not so much that they could do nothing.” Here are a few practical methods used by some of the world’s wealthiest (and wisest.)
Warren Buffett paid educational expenses for all grandkids. But that futon? They had to pay for it out of pocket.
A retired Navy career man refused to shy away from the elephant in the living room, instead coaching his family in investing and philanthropy before granting his inheritance.
A wealth “transition coach” recommends that families collaborate on a family mission statement to guide the future use of wealth.
Looking for more resources on the topic of inheritance? Check out the Biz Kid$ episode, What to Do with a Windfall. Here's a clip from the episode: a profile of WNBA star Candace Parker: