Leaving an Inheritance: Avoid the Pitfalls
It's wonderful to be in a position to leave your kids an inheritance. But with this benefit also comes a responsibility that many parents don't always consider. Avoid the unhappy circumstance of suppressing your children's own abilities and financial success by setting the expectation that they can bank on a sizable inheritance and won't need to provide fully for themselves.
The Psychology of Inheritance
The greatest legacy you can leave to your kids is the confidence and ability to earn a living and build wealth for themselves. Multiplied over their working lifetime, their earnings can amount to a huge nest egg, just as yours has. No one ever received a large inheritance and regretted that he had worked over his lifetime without having to. Unfortunately, too many have waited for their inheritance without fully applying themselves to work and career, only to be disappointed that their inheritance was too small to support them — or even nonexistent.
It doesn't take a huge nest egg to set up the expectation in your kids that they will inherit a lot of money. Remember that they will watch your behavior and make inferences from what they see in your behavior and attitudes. Talking to them early and getting them involved in money management are effective ways to pass on your values.
Bring your kids into a discussion about their inheritance as soon as you can. Time spent talking to them about your expectations and theirs will be time well spent and will give you the opportunity to gauge the psychological effects your wealth is having on your kids. If you think things are developing in a way that's different than what you hoped, don't hesitate to reach out to a family therapist with expertise in the area of inherited wealth.
How Much Is Too Much?
Your 40s or 50s is the perfect time to start gauging how much money to leave for your kids. This is also the perfect time to get kids involved in the business and investment decisions you are making and start teaching them your money values through example. No matter what their age — grade school, teens, or adults — they can be involved in what you're doing. You're young enough that your estate plan doesn't have to be set in stone yet, but can be set up in revocable trusts or still in your own name so that you can watch how they deal with their potential inheritance.