Billionaire Warren Buffett – who is giving most of his fortune to charity – has famously said about the rich leaving money to their children: “Give them enough to do anything, but not enough to do nothing.”
Wealthy parents today have varying opinions about when, how much and if they should leave their money to their children, according to a new report by the nation’s oldest trust company, U.S. Trust, 2013 Insights on Wealth and Worth. Over 700 Americans whose assets totaled more than $3 million, not including their primary home, were included in the survey.
Most wealthy parents (58 percent) aren’t confident their kids can handle an inheritance – especially if their children are under the age of 30. Half of parents over the age of 68 believe the next generation isn’t mature enough to handle their inheritance until they’re over 40, the report found.
The study also found that three-fourths of those surveyed don’t have a comprehensive estate plan in place and are underutilizing trusts. While most have wills (74 percent), only one-third have ever established a trust.
One-third of high net worth parents don’t think it’s important to leave an inheritance at all.
Not surprisingly, those who have received, or expect to receive, an inheritance see leaving an inheritance as considerably more important than those who have not received an inheritance (72 percent to 57 percent, respectively).
One in five of the households in the survey receiving an inheritance got more than $1 million, and the average inheritance by others was $526,263. Adults younger than 49 are most likely to have received more than $1 million.
Most of those with wealth came from the middle class and earned their money through employment, business ownership or investing, the survey found. Just one-fourth gained their wealth through inheritance.
Approximately three out of four of the youngest (age 18-32) as well as the oldest (68+) respondents are more inclined to think it is important to leave an inheritance to the next generation, while fewer than two-thirds of Baby Boomers and Gen Xer’s saw the importance of leaving an inheritance. Only one-third of Baby Boomers expect to receive an inheritance themselves.
Over half of wealthy parents haven’t fully disclosed the extent of their wealth to their adult children. Parents in older age groups were less likely to have discussed their wealth with their children.
- “I was taught never to discuss wealth.”
- “I am concerned it will negatively affect child/children’s work ethic.”
- “I never thought about it.”
Almost all parents saw themselves as positive role models to their children, but about half were concerned that their children “feel entitled to the lifestyle I worked hard for.” They also felt their children are not as likely to achieve the financial success they did because their children “have never known what it’s like to go without.”
High net worth individuals who have not already talked to their children about their wealth and their children’s future inheritance should consider setting up a family meeting with a financial advisor to discuss the responsibilities that come with substantial wealth, the study recommended.
Those without an estate plan should meet with a financial advisor to determine their most important goals and structure a plan that fits their needs and the needs of their family members.