As someone who spent her 20s earning a small salary, filling her gas tank $5 at a time, and digging quarters out of couch cushions, the notion of not giving my two children an inheritance is unthinkable.
While I’m not likely to inherit money, I am determined to help my
children as much as possible so they have a stable foundation to “make it” in
But, it turns out, the best inheritance for your kids may be industry and compassion with an optional cash gift on the side.
If you’re considering leaving the kids some money, you’re doing better financially than most. But here are 15 thought-provoking reasons not to give an inheritance.
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You want your kids to have a good work ethic
Poverty is hard, but prosperity has its pitfalls too. Self-made rich people want their children to acquire the work ethic needed to amass wealth.
As one famous example, actor Jackie Chan has willed half his fortune to charities and said his son gets nothing. “If he is capable, he can make his own money,” said Mr. Chan. “If not, he will just be wasting my money.”
No one wants their children to struggle through life. But the ability to earn money and learn to manage it may be a better inheritance than the money itself.
No attitude of entitlement
No one wants to raise a bad nut like Roald Dahl’s Veruca Salt. Or young Texan Ethan Couch, whose lawyers successfully used his family’s wealth as the “affluenza” defense at his trial for killing four people while driving drunk.
While Veruca Salt and Ethan Couch are extreme cases, curtailing a child’s inheritance sets limits.
That’s one reason actor parents Mila Kunis and Ashton Kutcher intend to leave their $265 million fortune to charities, not their kids. Says Kutcher, “My kids are living a really privileged life, and they don’t even know it.”
He and his wife insist on raising non-spoiled children and limit their kids to one Christmas gift per year to cultivate gratitude over entitlement.
Most inherited wealth gets squandered
If your adult children do a poor job of managing their money now, giving them a fistful of cash in the future won't magically solve their problems.
One in three Americans who receive an inheritance blows it. Within two years, most inheritors have negative savings and are worse off than before.
And research shows that 90% of families inheriting wealth lose their money by the time it reaches the third generation.
Inheritance taxes can take 40% of your money before it ever reaches your children. But there are measures you can take to preserve those assets.
Gifting children money now to avoid estate taxes later is common practice for wealthy people. You can gift your children up to $17,000 a year tax-free or $34,000 yearly if they’re married.
People can also reduce tax liability by creating donor-advised funds (DAFs), life insurance, family LLCs, or generation-skipping trusts (GSTs).
But gifting money every year to kids now is the biggest trend financial advisors are seeing. They don’t want to wait until they’re dead to give their children money.
You child’s future ex
If you’re on the fence about giving your adult child an inheritance, you probably don’t want to leave a gift for an ex-spouse. Yet that possibility is a coin-flip away.
Forty-three percent of Americans will wind up divorced at some point, and property is usually evenly split. So if you leave your 35-year-old son money and he divorces eight years later, half of those funds are going to the ex.
Not giving your child an inheritance is one way to avoid this 43% likelihood.
Vulnerability to gold diggers
People who get sued are worth suing, and a large inheritance makes your child ripe pickings. You don’t want inheritance money to put a bullseye on your children.
There are many examples of a lawsuit wiping out someone’s inheritance because of frivolous claims or the person’s accidental negligence — think dog bites, car accidents, or swimming pools.
Possibility of bankruptcy
Your child’s future misfortunes may be another reason to think twice. Roughly 400,000 personal bankruptcies are filed every year in the United States. The majority (66.5%) are due to medical bills or job loss.
And whether the bankruptcy is due to forces beyond your child’s control, or poor choices on the part of your child, you don’t want your money going to federal bankruptcy courts.
An inheritance may be subject to the volatility of the market. A $500,000 inheritance today may be whittled down to $250,000 if the S&P 500 crashes.
That’s how the Vanderbilts, once one of America’s wealthiest dynasties, went bust. The entire fortune was gone within 50 years of Cornelius Vanderbilt’s death.
The grandson’s 10 palatial residences in Manhattan didn’t help, but the Vanderbilts essentially lost their fortune due to poor investments.
Your money is subject to market conditions at any time, and you need to protect your future before taking care of your heirs.
Sacrificing your future
Parents feel honor-bound to leave something, or at the least avoid sticking
their children with a funeral bill.
But parents should secure their own housing, health, and general well-being before they can think of leaving a monetary gift to others. And many wealthy people are doing just that.
Parents give their children all kinds of opportunities to succeed, and it’s up to them to work hard and develop their sense of worth and accomplishment.
Warm money is better than cold money
Warm money is money you give your children from their intended inheritance while
you are still alive. Cold money is the money inherited after you have passed.
Some parents may find the practice insensitive and distasteful. But other parents, like Kim Opitz of Minneapolis, Minnesota, have a more pragmatic outlook.
Opitz, a business owner and mother of three, isn’t opposed to leaving an after-death legacy, but right now, she and her husband aren’t thinking that far ahead.
“Inheritance right now isn’t the priority,” says Opitz. “My priorities are helping them graduate [college] or obtain an education with the least amount of debt.”
While Opitz hopes to be in a position one day to offer cash gifts and a traditional inheritance, work ethic and employability are what she and her husband primarily strive to pass down.
Guardrails breed resentment
Many well-meaning parents establish trusts prioritizing upright behavior, such as marriage, children, and gainful employment.
For example, there are income match trusts where beneficiaries withdraw funds that match their earnings. But if one sibling is a surgeon and the other is a teacher, there are going to be hard feelings.
Additionally, it may thrust your children into a lucrative line of work — like investment banking — instead of a lower-paid calling like social work or nursing. And beyond all the resentment bred, these guardrails don’t always work.
Do you want your adult kids to fight with their stepmother and never talk to her again? Or for your eldest daughter, appointed trustee, to be sued by her siblings? Then, by all means, throw piles of cash at your family after you die.
These in-family inheritance disputes happen every day, and your family may be as vulnerable as the next. Some experts say that inheritance destroys a family more than half the time.
When inheritances don’t go as the heirs expect, it creates feelings of distrust. To avoid this, advisors suggest that the parents write a “letter of intention” to the heirs so that they understand who gets what and why.
This can lessen the anger that comes with an inheritance but may not eliminate it.
Charities may be better served
Increasingly, wealthy people are choosing to donate their wealth to charities. Mark Zuckerberg, Bill and Melinda French Gates, and Warren Buffett are three noted examples.
In fact, Buffett and the Gateses created the Giving Pledge to encourage the ultra-wealthy to donate their money to charities.
Society overall may be better served by helping broader swaths of people. And on a practical note, it eliminates the politics, in-fighting, and sometimes curse of inherited wealth.
It’s bad for the country
There’s a growing group of Americans who want to pay more taxes and leave their children with a slim if any, inheritance.
The group is called “Patriotic Millionaires.” They’re concerned that wealth concentrated in a tiny percentage of the population is bad for the country. The group contends it’s destabilizing and propagates continual inequity.
One noted member is Scott Nash, founder of East Coast grocery chain MOM’s Organic Market. Nash has shared his intent to leave his children very little — enough to cover the “basics” but “never so much that they don’t have to work.”
A legacy of helping others
Many super-rich parents, including Simon Cowell and Bill Gates, would rather leave their children a legacy of helping others instead of the curse of wealth.
The inherited money, said Gates, would “distort anything they might do” with his fortune instead “dedicated to helping the poorest.”
Cowell is also against “passing on [wealth] from one generation to another” but favors helping people and providing “an opportunity so that they could do well.”
Over the next two decades, over $80 trillion in wealth is estimated to be passed down from baby boomers to their heirs.
But there are many thoughtful reasons to consider leaving no inheritance or capping your share of the $80 trillion pie at a sensible sum.
Curtailing an after-death inheritance to a reasonable amount — enough to keep your child housed, fed, and out of poverty — may be the best approach.
to draw the line between “just enough” and “too much” is the perennial,