By: Alan Orlowsky, Orlowsky & Wilson, Ltd.
â€œOne thing is for sure,â€ said Bill Gates in Forbes Magazine, â€œI wonâ€™t leave a lot of money to my heirs because I donâ€™t think it would be good for them.â€ He stated that he would leave each of his children $10 million.
â€œThe perfect amount to leave children,â€ said Warren Buffet, â€œis enough so they would feel they could do anything, but not so much that they could do nothing.â€
Over the last few years, we have noticed more and more of our clients focusing on this idea of how much is enough.
Of course there is no right or wrong answer. Each family must decide for themselves how and how much to leave to their children and grandchildren. And what to do with any amounts left over. For example, Bill Gates has set his goal at $10 million per child. What will he do with the remaining billions? The answer for him is that he will leave his money to charity. By now it is well known that Bill and his wife Melinda have already dedicated a sizable portion of their net worth to the Bill and Melinda Gates foundation.
How do you determine How Much is Enough for your family?
We usually spend a fair amount of time counseling our clients on these issues.
Here are a few examples of questions you may want to consider when thinking about this issue:
1. What are your financial goals for your heirs?
Do you want them to be independent? Would you like to fund education, help with the purchase of a first home or invest in a startup business? Do you want them to have access to capital for investments or lifestyle improvements? Do you want them to be able to retire early if they desire?
2. What are your non-financial goals for your heirs?
How do you want to pass on values and lifetime experience to your heirs? How much do you want them to learn life lessons on their own? How will leaving an inheritance help or hinder these non-financial goals? Do you want your family to work together through the generations? Is there a way to help teach life skills such as leadership, collaborative decision making, accountability, and conflict resolution?
Surprisingly, many wealthy families do not spend a significant amount of time on defining these goals and so their estate plans are not reflective of their true wishes. Estate plans can be drafted to meet most any personal family goal.
3. What is the best structure to provide your heirs with appropriate assets?
Many clients use incentive trusts and family bank trust structures to accomplish their family goals. The first step is to define your goals around family values and then design a plan that will help achieve the desired results.
4. Are your heirs prepared to act responsibly with the assets you leave them?
This can be a major issue as most families have not put to the test what will happen when their children receive a large amount of money. If this is the first time children or grandchildren have dealt with a large sum, will they have the experience to manage it and the discipline to control the urge to spend? Again, documents can help to promote and protect wealth as it passes from generation to generation.
5. Will your planning bring family members closer together or pull them apart?
Sometimes a certain plan will cause disharmony among family members, such as when children are treated differently. One of our clients needed to provide more security around assets passing to one child who had proven to be a less than capable money manager. While this was a good idea for many reasons, the reasons where not communicated to the child. As a result, when the other siblings received their inheritances without strings, it made one child feel inferior.
The solution is not necessarily to treat everyone the same. Rather, to make sure that the reasons for certain decisions are communicated in a clear and thoughtful manner.
6. Have you made provisions for your community legacy?
It is interesting that while many of our clients have thoughts on how much is enough, they have less clarity on the issue of what to do with the balance of their wealth. We can help work through these issues by helping you identify the things in life you are passionate about and then helping to design structures that will allow you to support those passions.
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