The decision to leave an inheritance for your children is something that I think about quite a bit. After all, what are we saving all of this money up for anyway? A few years ago I’d say one reason for saving so much money is to be able to provide an inheritance for our children later in life when their mother and I pass away. However, the more I think about it the more I wonder if leaving an inheritance, or at least the promise of an inheritance, does more harm than good. My thoughts on this topic have shifted based on a few experiences I’ve seen in others.
When Expecting an Inheritance Goes Wrong
In my early 20s, I lived in a duplex with three other guys. One of the guys, we’ll call him Brad, was the first example that came to mind when thinking about if an inheritance can have a positive or negative effect. Brad was in his late-20s and coasting through life. He was working at a job that was well below his potential because he didn’t have the drive to find something better despite being fully capable.
He would sometimes talk about how his grandfather, who wasn’t in great health, had a lot of money. Money that he fully expected to be shared with him once his grandfather passed away. When his grandfather eventually did pass away, to his surprise he didn’t end up getting any money. I remember the shock and anger when this happened. It shattered an already shaky relationship with his dad. I won’t go into all the details of why he didn’t end up getting an inheritance, but what happened after the initial shock wore off was most interesting.
Knowing he didn’t have a large sum of money coming his way completely changed his mindset. It made Brad accept that if he wanted to be successful he had to do it on his own. Over the next several years Brad’s level of motivation to succeed kicked in. After transitioning to a corporate recruiting position for a couple of years, he eventually quit and started his own business. After only a few years he was making five to ten times more than his previous job. I know that a job isn’t all about the money, but his satisfaction with his work also took off. Eventually, he was doing it working fewer hours than before. He went from having shame in the job he was working to being a proud “CEO” of his own business.
I am convinced that if Brad would have received that inheritance that he would have never started his own business. While also convinced that the promise of an inheritance killed his motivation early in life. If his grandfather lived another 10 years he may have never gotten started.
Brad’s example isn’t the only time I’ve seen a similar situation play out in the lives of friends and family. It’s a pattern that I’ve observed enough to believe there is something to it. I don’t think the actual inheritance is a problem, but more the promise of an inheritance when a family member passes away. In general, it is gross when subliminally someone is counting on a family member passing away in the hopes of financial gain.
There are plenty of studies out there that show how generational wealth is squandered. Often times the money you’ve worked for won’t make it past your children. It’s the same philosophy with lottery winners and professional athletes that quickly come into money. Over and over again we see that people that receive large sums of money don’t know how to properly handle it.
Ensuring our children are financially literate increases the chances they could effectively manage an inheritance. However, I think there’s something to going out and making it on your own. The child that takes over the family business will never have the same appreciation as their parents that had to build that business from the ground up. Likewise, the sacrifice and dedication that goes with building your own wealth make you more connected to it.
So What Do We Plan to Do With Our Money?
As we know in life, nothing is guaranteed. Just because we are on track to have a nice nest egg later in life doesn’t mean that will actually happen. Most of us are a big medical event away from bankruptcy if that also occurs with a loss of health insurance. So let me start by saying that much of this comes from a place of privilege and hard work to be able to consider these options.
Let’s say my wife and/or I live into our mid-80s. Based on our family history, it’s likely that at least one of us will make it that far. At that time, our kids will be in their late 40s or 50s. Maybe with a family of their own. They’ll be set in their careers and hopefully leading a happy and fulfilling life.
If we share a large sum of money with them at that point in their life what will that actually accomplish? In the best case scenario, maybe they are involved in a charitable effort that is changing the world. A more likely case, they aren’t as motivated earlier in life since they think they’ll be getting a large sum of money later in life and never live up to their potential.
At some point, I will have a conversation with each of our kids. When we pass away, don’t expect a dime of inheritance from us.
Now, this all goes completely out the window if we die earlier in life. That’s a different story. It also gives us space to change our minds. The key for us is ensuring that our kids don’t expect anything.
So what do we plan to do instead?
Set Their Financial Foundation Early in Life
Instead of saving all of our money for later in life, our goal will be to do everything we can to ensure they are set up for a successful life. This will include sending them to good schools as children and young adults, paying for their college, and providing money to start their lives. This may involve a down payment on a first home or seed money to start a business. It may also involve helping with other life events such as a wedding.
My view is if they aren’t able to make it in life with that kind of head start, then the promise of more money later in life will likely do more harm than good. At some point, they have to go out and make it on their own. And if they can’t make it on their own in their 20s without any consumer debt, a college education, and a downpayment on a first home then there are deeper issues there.
As parents, we all think that we are doing what’s best in raising our kids. At the same time, they are their own people, and sometimes things don’t always turn out the way we hope. I hope all of the conversations we’re already having with them about money and financial literacy pay off. I plan to share with my children all of the keys to building wealth. They will have the roadmap and the tools to have very successful lives, and it will be in their hands to take action.
Other Considerations for Not Leaving an Inheritance
Unknown Health Expenses
Another reason for never promising an inheritance is due to the unknown costs associated with health care later in life. Assisted living facilities and nursing homes are incredibly expensive. I don’t want there to be a conflict of interest between money and getting the best care for me or my wife. Maybe that sounds selfish, but there are situations where kids are put in a tough situation deciding between giving their parents the best care and not burning through all of their future inheritance. It’s sad that we have to think about things like this but money has a way of influencing decisions, even for those that have great relationships with their parents.
Money Can Tear Families Apart
You all know a family that has been torn apart by an inheritance gone wrong. Hopefully, that hasn’t been in your family. No matter how you plan to split the money among your kids, there will likely be someone that isn’t happy about it. If not the kids, maybe the grandkids. While it’s not incredibly common that siblings fight as adults when they do it’s mostly about one thing. You guessed it, money. Eliminating the expectation of an inheritance can reduce fights among siblings. They may end up being mad at us but hopefully not at each other.
There are so many causes in the world more important than ensuring my kids get their second vacation home with the money we leave behind. An ideal situation would be when my kids are older they are involved with charitable causes that we can work together to give to after we pass. I can think of no better way to spend our money after passing than to give it to a cause we are all passionate about.
What Might Change Our Mind About Leaving an Inheritance?
As we all know, life can change. Maybe at the end of the day, we’ll give our kids money after we pass away. However, it will never be promised. I believe that’s where issues with an inheritance come into play for all the reasons shared earlier. When you know there’s going to be a pot of gold at the end of the rainbow it reduces the incentive to build your own pot of gold. If they can’t make it in life with the head start we plan to give them, then an inheritance later in life won’t help either. In fact, it may do more harm than good if they are expecting it.
One thing that would certainly change things is if me and their mother die early in life. If we were to pass away in the next 15 years or so then our kids would get everything. We would want to make sure they have money to take care of themselves. We also won’t rule out giving money to grandkids to give them the same head start. However, with hopefully being at least 15 years away from the possibility of grandkids we have a lot to think about before then.
For now, our financial plans will not include leaving an inheritance to our kids. They will instead receive money for college along with a nice gift to start their lives. I guess you could call that an early inheritance, and if that’s the case I’m all for it to ensure they get off to a good start in life. Like with most things in parenting, we want to provide them with the best life but they have to go and work for some things on their own. Raising spoiled children or children that expect everything to be given to them isn’t the answer either. I’ll check in on this post in 10 years or so to see where our heads are at. Thanks for reading!
Financial Pilgrimage is a blog dedicated to helping young families pay down debt and live financially free by sharing our personal stories, the stories of others, and financial tips to improve your family’s finances. Mark is a husband of one and father of two and calls St. Louis, MO, home. He also loves playing in old man baseball leagues, working out, and being anywhere near the water.