Musings on Inheritance for Our Children as a Means of Stewardship

By Rudy Barnes, Jr., September 7, 2024

I practiced law for 50 years and advised many clients on wills that transfer their wealth to their children as a means of stewardship; and I have witnessed many family conflicts among children over their inheritances.  I have mixed feelings about the virtue of leaving large sums to children, although most parents make that a primary objective in their estate planning.

My advice to couples who prefer simple wills is to leave everything to their surviving spouse for lifetime contingencies, with the surviving spouse leaving everything to their surviving children in equal shares.  That may be problematic where real estate defies equal distribution or where there are other reasons to vary what each child receives.

The simplest way to avoid conflict in probate is to convert estate assets into cash and divide the proceeds.  Most estates don’t have enough assets to justify a dispute, but the more assets in an estate, the more likely there will be a dispute among heirs; and unequal transfers of wealth within a family often create jealousy and animosity.

One way to prevent a dispute among your children is to leave them modest cash gifts and make them board members of a 501(c)(3) family foundation to continue family stewardship.  That limits the assets of the family foundation to charitable purposes and minimizes disputes, greed and wasteful spending, and it can be an excellent form of stewardship.

I have never seen a large inheritance make the person receiving it any better, and I know a large inheritance can change a person for the worse.  It’s only natural that parents want to leave their children something that will make their lives better, and my observations are that a large inheritance can do more harm than good.

Large wealth transfers have exacerbated unhealthy disparities in America’s wealth.  Private family foundations do not increase wealth disparities between the rich and poor, but promote stewardship by contributing to a wide variety of charitable causes chosen by the donors; and most attorneys can advise on how to establish a family foundation.      

Funding a private foundation through a will enables individuals to continue their stewardship for charitable purposes through their children, and minimizes the wasteful spending of children with a large inheritance.  An altruistic estate plan enables people to continue to promote their stewardship as a legacy of love after their death through their children.

Transfers of personal wealth through inheritance can be an extension of our altruistic faith to love others as we love ourselves when it provides the means and inspiration for our children to follow our example.  It can inspire those in the next generation to share their wealth and love for “the least of those” among us. (See Matthew 25:31-40).   

         

Notes: 

According to USA Today, “Millions of young Americans are counting on an inheritance to deliver them into prosperity. In the study, 54% of Generation Z said an inheritance is critical to achieving financial security and retiring in comfort. They might want to check in with their parents. Only 11% of boomers said leaving something for the kids is their top financial goal. Another 35% said it’s “very important.” This  data comes from Northwestern Mutual’s 2024 Planning & Progress Study, an annual research report based on a poll of 4,588 adults and released in August. 

The notion of an “inheritance gap” separating boomer parents and their Gen-Z children evokes a raft of generational clichés. One suggests that retirees of the “Me” generation have done plenty for their children, thank you, and want to spend their remaining years enjoying their money. “A lot of older people are basically saying, ‘I’ve done my due,’” said Melissa Cox, a certified financial planner in Dallas. “They had to work their tuchus off for what they have. I’ve heard people basically saying, ‘I don’t want your financial plan to be my death.’”

Gen-Z children, meanwhile, might resent their parents for having it easy, for growing up at a time when houses were cheap and a dollar went further. “There’s this group of younger people who are sort of aggravated with the boomers -- about how easy the boomers had it,” said Monica Dwyer, a certified financial planner in West Chester, Ohio. The full story, of course, is more nuanced. 

The typical senior with a retirement account has about $200,000 saved, according to data from the 2022 Survey of Consumer Finances for households in the 65-74 age range.  But only about half of those households report having retirement accounts at all. The other half might fear there will be nothing left after their death. Indeed, retirement experts say much of the Great Wealth Transfer may go to hospitals and long-term care facilities, as boomers confront the perils of old age.    

Even affluent boomers tend to go into retirement fearing they might run out of cash, financial planners say.   “Nobody knows when they are going to die, and the idea of running out of money is rightfully terrifying to most people,” said Jonathan Swanburg, a certified financial planner in Houston.  Swanburg said many of his clients don’t set out to leave specific sums to their children, because they fear they might need the money for themselves. In the end, though, there’s usually something left over for the heirs.  “I see this on a regular basis. People leave behind more than they planned to, or more than they think they’re going to have,” he said. 

Many boomer retirees fully expect to pass wealth to their children but balk at divulging their plans, experts say. In some cases, they fear their kids will pin their hopes on the inheritance. “Leaving an inheritance to your children can absolutely screw them up, if they know it’s coming,” said Blake Harris, a Miami attorney who specializes in asset protection.  

In other families, no one gets around to having a serious generational talk about what will happen when the parents die.Many aging boomers lack a proper retirement plan. Two-fifths of boomers have no will, according to the Northwestern Mutual report. Half of boomers said they don’t know how much money they will need for a comfortable retirement.”  See  https://www.usatoday.com/story/money/2024/08/31/gen-z-boomers-inheritance/74908414007/