'Tis The Season For Legacy Planning (And Giving)
Generational wealth bothers some people, from politicians who want to seize and redistribute it to the super wealthy who don’t see the point of leaving everything to their kids.
Warren Buffett and Bill Gates are on record stating their kids aren’t going to inherit the majority of their respective accumulated wealth. They plan to give most of what they’ve amassed to charity.
Still, Buffett’s children will receive US$2 billion apiece… or about 2.4% of his current net worth per child.
Many super-rich and famous decide not to risk spoiling their kids with mega-inheritances. I understand. Why would a parent want to contribute to making it easy for his children to be useless members of society?
As I await the birth of my first grandchild, these concerns are much on my mind.
I grew up relatively poor, the son of a single mother. We never went without dinner on the table, but we were definitely lower middle class. I saved long to be able to pay for my first car, and I worked two jobs to cover college tuition… then grad school.
I don’t resent it. It gave me a real appreciation for the value of a dollar… and made me who I am.
The prejudice is that kids of wealthy parents don’t do anything with or for themselves, and I’ve seen it. Kids of upper-class families do sometimes grow up to be ne’er-do-wells.
Of course, there’s no guarantee either way. Children of wealthy parents can turn out to be hard workers, while kids of poor hard-working parents can grow up to be lazy gits.
Generational Wealth Goals
In the face of it all, how should you approach your generational wealth aspirations?
Giving money to your kids without first thinking through a big-picture strategy can create big problems… for you and for them.
Take, for example, the proud father who gave his daughter a big house in a nice neighborhood as a wedding present. He had the best intentions but didn’t think through the consequences of the gift. While the son-in-law made a good living, the young man couldn’t afford the property taxes or the maintenance. So, even though they lived in a paid-for house, the daughter and son-in-law struggled to keep up financially.
One asset-planning attorney I work with tells the story of a client who tried to address the risks of giving a child more than he or she could handle. He set up a trust that allowed his children to withdraw an amount up to the income they generated personally each year.
His son, a teacher earning US$50,000 a year, could take out US$50,000 a year. His daughter, a Wall Street banker earning US$500,000 annually, could withdraw US$500,000 a year. They could each double their income.
The thinking is that the banker would, in theory, know how to manage that kind of income and wealth, while the teacher would struggle to manage 10 times the amount of his annual salary. Maybe he’d figure it out… or maybe he’d squander it.
Perhaps he’d even be tempted to quit his teaching job and live off the trust money.
For a long time, my financial objective associated with my children was to be able to pay for college for them. With my youngest child in his second year of university, that goal is nearly met.
Now I’m looking ahead and thinking bigger and longer term.
Now I’m beginning to think legacy planning.
I’m looking at which investments I own that could perhaps be transferred now to my children.
And I’m considering new investments giving priority to their estate-planning implications and upsides.
Specifically, one investment I’m looking to make within the next month is in a newly planted teak plantation. I’d be buying for my granddaughter, due in February.
The teak is to be harvested at 25 years old. My granddaughter should be graduated from college by that time, and the proceeds from the teak would give her options for launching her life and could help to secure her financial future.
As she’s not yet born, I’ll need to gift the investment to her mother, to avail of the U.S. gift tax exemption for 2019.
Then her mother can gift it to her in 2020, before title has been issued.
If this kind of legacy investing is an agenda for you right now, as well, you can find out more about this teak opportunity here.