How Much Should You Leave to Your Kids?
How Much Should You Leave to Your Kids?
By Darrow Kirkpatrick
How do you feel about legacy giving? Chances are, you see the issue differently from your own parents. We’re experiencing a generational change in views on inherited wealth.
Parents of today’s baby boomers, having lived through a World War and less prosperous times, were usually excellent savers. In their retirement years, their investment assets are a side-show to their guaranteed, defined-benefit pensions.
But that model they hand down of stockpiling investments until death, at which time their children receive a large inheritance, is looking increasingly dated to the next generation.
It’s different for baby boomers: According to MarketWatch, “23% of pre-retirees would ideally like to spend all of their savings and let their children fend for themselves. In contrast, a mere 9% say they want to save as much money as possible to pass on to the next generation.”
Is that selfishness, or just common sense? How much will you leave to your kids? How much should you leave?
Many boomers have endured careers in a damaged economy. Others have lived inflated, debt-ridden lifestyles. Still others have spent heavily to educate and launch adult kids. All these factors have severely eroded the average boomer’s net worth. What wealth they have available for retirement will be targeted at essential living expenses, with little earmarked for legacy giving.
Entitlement
Those boomers with enough to leave substantial wealth behind, may direct it to charity instead of family: The majority of affluent boomers made their own money, and feel their kids are best off doing the same. But a few feel differently: Ink is spilled, fees are paid, and tax strategies are employed in an effort to maximize family wealth passed down to the next generation.
Why do people instinctively want to preserve a large legacy as they age? Some of it is probably natural self-preservation — keeping a rainy-day fund against an unknown lifespan. Some of it could be a subconscious desire to remain relevant to heirs later in life — easier to do when you’re net worth is substantial. Finally, some believe that legacy giving has the potential to transform death, by making a statement about who they were and what they valued.
But, if we aren’t careful, legacy giving plans may backfire. Sacrificing while raising your kids so they can enjoy a better life is a time-honored and natural parental role. But what is the point of denying yourself in retirement so that your grown children can enjoy an extravagant lifestyle, after you die?
If they’re in the middle of careers, a large inheritance could be downright destructive, undermining their motivation in life. The sense of entitlement that comes from unearned wealth can stunt growth, subvert meaning, and contribute to depression and destructive behavior.
On the other hand, if children are much older, post career, they probably don’t need a large inheritance. Given today’s life spans, by the time you die, any children will likely be in their 60’s and 70’s, having already established a retirement lifestyle.
How much difference will an inheritance make to their quality of life at that point? Sure a splurge or two might be nice. But, besides serving as worst-case insurance, and more investment dollars to play with, what’s a large bequest going to buy that is essential to happiness?
Expecting an Inheritance
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