A few celebrities have weighed in recently on inheritance and mentioned they would be leaving little or nothing to their children. These people included business Kevin O’Leary of Shark Tank fame as well as Daniel Craig, the star of the latest James Bond installments.
To qualify that a bit, O’Leary explains that when he first came into money he sat down with an estate planner and set up a trust for his entire family. He would provide them with money to care for them from birth to finishing college but after that there would be nothing. Daniel Craig is more extreme saying he will live his children little if nothing.
In contrast to these two, I see many well intentioned financial influencers who promote setting up a trust for children through the Uniform Transfer to Minors Act or UTMA. These will ensure that a child has a pot of money when they turn 18. They can then choose how they would like to use these funds whether it is for education, to start a business or to spend.
So who is right? I tend to side somewhere in the middle and am more of the Kevin O’Leary type. Yet what would lead people to come to the conclusions of Daniel Craig versus someone who wants to make sure their child is a multimillionaire by 18 through an UTMA?
There is an old saying in English: shirtsleeves to shirtsleeves in 3 generations. This is an ol-timey reference to the days when working class people wore shirtsleeves. It meant that much of the wealth built up by a family would likely be lost by the generation of the grandchildren. Funny enough this is not just an Anglo observation either, the Chinese have a similar saying: rice paddy to rice paddy in 3 generations. Despite the common knowledge of this social phenomenon, there has, to my knowledge, been little serious economic study of this topic.
Millionaire by 18
To want our kids to do well in life and be comfortable is something just about every responsible parent desires for their child. It’s a feeling born out of an innate parental concern to protect our children, which hasn’t changed since we were hunter gatherers.
When they are small children, we have to feed, clothe and pass on life lessons so they can become functioning adults. Many of us are keen to share our own experiences and hope that our children don’t have to experience the same traumas some of us had to endure as children ourselves. Many of us had trauma around money. Whether it was being made fun of by other kids for what we wore, not having enough to celebrate holidays, being evicted or not even having enough to eat, these types of traumas have a lasting effect on how we view the world and our own experiences. As providers and protectors, we do our best to keep these dangers at bay for our children if we have the means to.
So for many people the question of whether to give an inheritance isn’t even a question, it’s a necessity so that their child doesn’t have to go through what they went through. A quick Google search of “should I give my kids an inheritance” just skips over the question entirely and provides links on advice of when to give kids an inheritance. Given the challenges many millennials are facing in terms of buying ever more expensive homes, paying down student loans and paying for new children, many wealth advisors, websites and commentators have the ages of 26-35 emerging as a consensus decade to hand money over to adult children rather than leave it to them when parents die.
Currently, the peak for inherited wealth after death ends up falling somewhere around 60. By this time pundits argue, many don’t need the wealth being left to them. All valid points considering where many are when they are in their late 20’s and early 30’s. Many have been able to more responsibly handle money by this age, may be at the point of starting a family, still could face some sort of student loans and are likely looking for a larger place to live if they are starting that family.
An inheritance at this age will allow them to pay down any debt, get a home, save for their own retirement and even fund the education of their own children. Money at this time of life seems to hit on all cylinders: they use it responsibly, they need it and it goes far. Much of the foundations of wealth are built on home ownership and higher education. Just about every millionaire you meet will either own their own home, have a college degree or both. Money around this time could create the greatest impact on these factors.
Social media has a plethora of examples of how to set your kids up via a trust or UTMA structure to make sure they are prepared to take on life financially.
I’m fact, this isn’t a new idea based on recent home prices or the increasing cost of raising children. Many other cultures, such as some in Asia, pool family wealth across generations. Grandparents, parents and eventually adult grandchildren, all have access to the collective wealth earned by the older generations. Yet with this wealth often comes the responsibility to continue to grow as well as preserve the wealth and manage the aging of the elders as well. Decisions then involve more than just a married couple for these situations which can lead to tension and inter-family quarrels. I often met other students in college who felt trapped in a major that they hated because their family felt it was the best occupation to continue the collective wealth of the family. The struggle for these students was actually the burden of their family’s wealth.
A Different Kind of Struggle
Many people who didn’t grow up wealthy or didn’t grow up with everything they needed in a material sense scoff at a perceived “burden” of having money. They often brush it off by exclaiming that the well off’s struggles can’t be that bad because they can still have the comfortable lives that those with less money lack.
Yet this short sighted approach is devoid empathy. The well off struggle with many things too, it’s just that when people are raised without money, they either don’t know or don’t often hear about the struggles of the well healed. To start to understand where their struggles lie and how this plays into a discussion about inheritance, it helps to recount the story of the Buddha.
The Story of The Buddha
Who we now know as the Buddha was born a prince between the sixth and fourth century B.C. He was the son of a Himalayan King and was expected to either be a great king or a holy man. His father decided that he would experience no hardship and have every convenience in life. He isolated him in his palace with every known luxury: servants, decadent food, jewelry and beautiful women.
He was kept this way for 29 years and at 30 took a short excursion outside his palace. What he saw shocked him, he saw poverty for the first time, sickness and death. He realized these people represented normal and inevitable parts of the human condition that would one day touch him as well.
He began to take multiple trips outside the palace walls and on one of those, he managed to encounter a holy man who had learned to seek a spiritual life despite all the hardship around him. The prince decided then to dedicate himself to the same pursuit and left his wife and child in the palace and walked away for good.
The prince started a regimen which denied himself all the conveniences he previously had. He starved himself making himself sick yet he found this didn’t bring him the spiritual peace he sought.
One day he thought back to the time he was a small boy and saw grass getting cut in his palace. When this was done, the insects and their eggs were destroyed. He felt a sense of compassion for the insects. With this in mind, he decided to sit under a fig tree and meditate until he found the answers he was seeking. Legend has it that after 49 days he awoke enlightened having reached nirvana.
He concluded that all living beings are unified by suffering. Extreme luxury and extreme hardship weren’t the ideal way to approach suffering rather, moderation in all things or “the middle way” should be perused while focusing on cultivating compassion for others and seeking enlightenment. He described a path to transcending suffering which he called the four noble truths.
The first is that there is suffering and constant dissatisfaction in the world. The second is that suffering is caused by our desires and that attachment is the root of all suffering. The third is that we can transcend suffering by removing or managing these desires.
The fourth and final truth is that we can transcend suffering through what he termed the eightfold path. The eightfold path involves a series of aspects of behaving “right” and wisely: right view, right intention, right speech, right action, right livelihood, right effort, right mindfulness, and right concentration. In short, these provide an ethical guideline for life for all the Buddha’s adherents.
Great, so what does this have to do with inheritance? The viewpoint of those such as O’Leary and Craig aligns more with that of the Buddha as opposed to those of us who want our children to avoid suffering. That same suffering some people experienced also gave them the drive to work harder to focus and to break the chains of poverty.
Those who don’t have to face the same challenges don’t have to struggle for anything material. Their challenge may be in finding their purpose in life. With everything taken care of, what is there to work for? Maybe they struggle on what their purpose is. Is it any wonder that many rich children fill the void these pressing questions pose with drugs and alcohol rather than struggle with finding their own purpose?
In his explanation for his trust structure, O’Leary said “You curse your children when you de-risk their lives.” This is a nod to the unintended struggles that having a life devoid of any material struggles creates and lies at the heart of the philosophy that dictates leaving only the essentials or even nothing to their children.
How I Will Manage
For my own situation, I share much of the viewpoint of O’Leary. Western society nowadays almost necessitates a higher education to do well materially. Yet my children will have to make their own choices and have their own struggles. I can make things like paying for education easier but I firmly believe that much of what I have achieved and many of my own good habits, we’re born out of the struggles that I had to face. I knew from a young age that going back home after college wasn’t an option and if I didn’t go to college, staying at home wasn’t an option. This is why I only have a 529 fund for my son for his college expenses and not a trust ready for him for when he turns 18.
Denying him the struggle of hard work isn’t a gift but a curse. It’s an acknowledgement that he won’t face my struggles but his own struggles, which may be unique to him and his situation. If I were to deny him the hard work I had to do, I will only create struggle in an unintended form which I may not be able to save him from.
The people we can become by embracing struggle are often the same people we look up to. Those who overcome enormous odds or almost hopeless circumstances. Yet it’s not the outcome but the person you become in pursuit of the outcome that provides the inspiration to many. With that in mind, maybe parents like Craig and O’Leary don’t sound so cruel after all.
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