When Do We Give the Kids the Money?
By Christopher J. Eckrich, Ph.D.
If you are fortunate enough to be the owner of a cash-producing business and the parent of children, you will need to make some critical estate planning decisions about when to begin transferring wealth to the next generation. Ask your friends what they do, and responses will range from “We want to preserve wealth; they will get it when they are 50” to “Wealth is to enjoy! We let them have access to their stock when they reach their 18th birthdays.” So, what is the best approach?
We find that families who take time to answer some basic questions about their beliefs in life find greater security in their answer to the question of when to pass on wealth.
First, families consider what their greatest hopes and aspirations are for the qualities and values they hope the next generation will adopt. Rather then focusing on what to give, they focus on whom they want the next generation to be.
While each family is different, some common hopes we hear include,
“We want our children to:
Know the self-worth and self-respect that comes from making one’s own path.”
Use their lives to make the world a better place.”
Take responsibility for their actions.”
Pursue their dreams with courage and passion.”
Know what it is like to work hard for a living.”
Have the opportunity to pursue their individual passions.”
Develop a broad worldview, through exposure to different cultures and belief systems.”
This process reveals clues as to our deeper beliefs regarding wealth and the timing of exposure to wealth. The process can be done by a single set of parents or by an entire adult family group.
We can then explore how our gifts and transfers may impact our children. For example, if we want our children to experience carving their own paths and appreciating hard work, we may want to delay giving liquid assets to them until they are in their mid 30s or beyond, after they have had enough time to do so. Or if we place a very high value on entrepreneurial endeavors, we may want to release some percentage of their wealth when they are in their late 20s and early 30s, when entrepreneurial zeal and life experience begin to culminate. A side benefit of this exploration process occurs when a family assesses how its current behaviors fit with its intended vision. This allows the family to make adjustments in its norms and efforts to achieve its collective purposes.
Our experience has shown that while no rule of thumb is true all the time, when adult children get to experience the pride that comes from making one’s way early in life, they are more likely to have higher self-worth and be contributing members of society in later adulthood. Many families seek a middle ground by holding off transfers of substantial wealth until mid-adulthood (i.e., 35–45) but will gift some amount annually (e.g., $12,000) just to help the young adults “enjoy” the developing years. This decision should always be made with respect to the junior generation’s progress toward the identified “life hopes.” If a young adult is using the gifting to live a life inconsistent with stated dreams (e.g., drug use, no pursuits), parents can always redirect these gifts to trusts for later use or forgo the gift. Parents can also set up trusts that are restricted based on established expectations that provide access to funds if acceptable behaviors are demonstrated.
Of course, none of these decisions occurs in a vacuum. A process will be needed to articulate the senior generation’s vision and values, encourage the next generation to understand and embrace them and also to integrate the unique hopes and dreams of the junior generation. Vision and values are a common topic on family meeting agendas. Crafting a vision and values statement as part of a family constitution can be a wonderful cross-generational project. However, you choose to discuss vision and values, families who endeavor to establish these processes are often amazed at their power.
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