People
Raising Children:
Passing on the Fruits of Your Labour
THE EXPERTS, THE WALL STREET JOURNAL
Embedded in the Punjabi work ethic, Sikhs -- no matter where they live -- tend to be affluent and always in a higher income bracket than the national average. There are certain challenges that come with this affluence, not the least of them being how to let your children enjoy the benefits of wealth without being debilitated by it in any manner. Thus, for example, how do you keep heirs from losing their work ethic if they know they stand to inherit a lot of money?
The Wall Street Journal put this question to The Experts, an exclusive group of industry and thought leaders.
Rafael Pardo: Consider a Testamentary Trust
Individuals, for the most part, fall into one of two categories regarding their attitudes toward work: Either they live to work, or they work to live.
If your heir falls squarely in the former category, a dramatic change in wealth is not likely to affect his or her motivation to work. Because your heir thrives off the work he or she does, the job is an end in itself rather than the means to an end. While your heir's consumption habits may increase, the desire to work is unlikely to be blunted by a large inheritance.
On the other hand, if your heir dreads working, the loss of work ethic upon inheritance is a serious concern that could likely materialize.
The key, of course, is to ration the flow of money to such an heir after you have passed. One mechanism to achieve this is a testamentary trust, which will be created through your will and which will take effect upon your death.
Through careful selection of a trustee to manage the trust for the benefit of your heir and by specifying instructions for distributions from the trust under a set of conditions that will maintain the incentive for your heir to continue to work, you will be able to exercise control over the situation long after you are gone.
Eleanor Blayney: The Simple Sentence That Says It All
I once ran a workshop for wealthy parents on how to raise financially responsible children. The group shared many good ideas on how they tried to instill solid values and a sense of financial integrity in kids who lived in McMansions and were driven to school every day in a Lexus SUV.
Many were teaching their kids about philanthropic responsibility and getting them into volunteer activities to help others in the community. Some cited the value of traveling with their children to countries where people struggle to get by, but nevertheless live proud and dignified lives.
But as the discussion was winding down, one mother in the back of the room stood up and shared her unique approach. She told about the time her preteen son came to her and asked, "Mommy, are we rich?"
To which she replied, "Your father and I are. But you are not."
I now believe this is the conversation that all wealthy parents need to have with their kids.
Greg McBride: Make Sure They Have Passions
Warren Buffett famously said he wants to give his kids "enough that they can do anything, but not so much they can do nothing."
Striking that balance isn't easy, but ultimately, if your heirs still have something that gets them out of bed in the morning, they're likely to retain their passion for work, new ventures, philanthropy or volunteering -- whatever it is they've always wanted to pursue.
Michelle Perry Higgins: Show How Tough It Is to Make Money
I believe that in order for children to appreciate the value of the dollar, they first need to understand how hard it was to make that dollar in the first place.
I advise my clients on two ways to make this happen. First, never give out money for free, as in an allowance. They need to earn it in order for it to have value for them. If you have your children start doing chores as young as possible they understand how hard it is to earn money.
Second, teach your children about giving back to the community, the nation, the world. If you lead by example, their work ethic will mirror yours and produce a hard working, gracious, and generous individual.
One of my favorite quotes on giving is by Franklin D. Roosevelt in his second inaugural address: "The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little."
I think that sums it up well.
Sheryl Garrett: Spell It All Out in a Trust
Everybody needs rules and boundaries.
First of all, don't allow for a lump sum windfall. I've heard of too many occasions where that has ruined the recipient.
There's also no requirement, nor do I believe it would be healthy, to make a transfer of assets without some stipulation about your expectation or requirements for the heir.
If you want your heirs to follow in the family business, complete a certain level of education, participate in family activities, and so on, you have the opportunity to spell this out in your trust, stating exactly the terms required for your heirs to receive their inheritance.
In my book, it would definitely come over time and with required expectations being met. Of course, I would be gone by then, but I would want to make certain that the assets are held in trust and the trustee makes certain that my heirs live up to my expectations or the money goes directly to charity.
Rick Ferri: Education Can Be an Inheritance
We don't have this problem in our family, unfortunately. But I do like what Warren Buffett has to say about the subject. Give your children enough money so they feel they can do anything but not so much that they could do nothing.
I told my three children long ago that their education was their inheritance, so don't squander it. I am happy to report that all three completed a bachelor's degree in four years and are gainfully employed in their chosen careers.
Scott Adams: The Benefits of Lazy Heirs
I want my heirs to be as lazy as possible because they've already figured out that the sooner I die, the sooner they can buy nicer things. The last thing I want is for them to get proactive.
Charles Rotblut: Involve Heirs in Family Wealth Management
Talk to them and, if possible, involve them in the management of the family's finances and businesses. If they feel they have invested time and effort into handling the family's wealth, they are going to be more likely to want to preserve and grow it.
[Courtesy: The Wall Street Journal]
April 29, 2013