The Psychology of Inheritance
SECURING YOUR LEGACY
by Gary W. Buffone, Ph.D.
"We've put it off long enough. Nancy and I have to sit down
and make some tough decisions about what to do with our estate,"
moaned Chuck Drysdale, a personal injury attorney who had amassed
quite a fortune over the course of his long career. "Being
a lawyer, you'd think I would have taken care of this years ago.
It's facing the gut-wrenching decisions about the kids that makes
this so difficult."
Many affluent parents identify with Chuck and Nancy's hesitation.
Prosperous parents typically approach estate planning with a mixture
of fear, dread and confusion. Not only can they can relate to
the hard work and difficult emotional decisions stirred up in
the process, they've also heard the horror stories of families
destroyed by their wealth. Arthur Vanderbilt tells one such story
in Fortune's Children, where he recounts the decadence and decline
one of the nation's most conspicuous millionaire families.
You don't have to be a Vanderbilt or a Rockefeller to be anxious
about handling the delicate issues of leaving money to your kids.
These are some of the most challenging decisions parents will
make in their lives. I would rank these decisions as just as important
as getting married, having children or choosing a career. Let
me offer a word of advice before you get started: get some good
Questions of the Heart: Talking With Your Financial Advisors
Many affluent parents make the mistake of trying to handle all
of the aspects of wealth transfer on their own. Refusing to consult
professionals, sooner or later, they make foolish mistakes that
prove costly, both financially and psychologically, resulting
in bitter family legacies. Financial professionals can help you
to avoid this heartbreak. With their assistance, you will be able
to navigate around the traps that so often hurt those you've spent
your life trying to help.
I've personally witnessed, a long parade of horrible, and often
preventable, estate planning blunders. I've seen fortunes earned
over lifetimes squandered in a few short years: the daughter who
magnanimously bestowed her entire inheritance to a cult, the son
who overdosed on the cocaine purchased out of his sudden windfall,
the sibling who walked away with the money he received to care
for his disabled brother. I've also observed nasty legal battles
between the "good" kids and their "good for nothing"
disinherited sibling. The bigger the fortune involved, the nastier
Whether you're dealing with matters of the head or the heart,
begin by seeking the advice of trusted professionals. Your first
team of advisors should involve a tax or probate attorney and
in most cases your accountant or financial planner. Be sure your
attorney and accountant specialize in estate planning, or at least
work in a firm that employs such a specialist. You'll likely need
to consult with your broker, insurance agent, banker, and an appraiser
as well. The size of the team depends largely on the size and
complexity of your assets.
Start building your estate planning team by meeting with a financial
professional you already know and trust, then ask them to guide
you in picking other team members. Set meetings to interview any
prospective professional candidates to make sure you're comfortable
with their style and competence. Don't be shy. These are some
of the most important decisions you'll make in your lifetime.
Don't hesitate to ask questions about their experience with issues
that concern you, whether they're members of professional associations
like the Council on Estate Planners, and how many estate plans
they've done over their careers. If the professional won't or
can't answer your questions, keep looking.
As a rule of thumb, families with more complex situations - business
owners and people with substantial assets - should be prepared
to work with a formidable team of professionals. Whatever the
eventual make-up of your team, it is absolutely essential that
your advisors communicate and coordinate with each other on your
various plan components.
Your team of advisors will be particularly helpful in dealing
with many of the legal and financial aspects of estate planning.
But they're not likely to be able to help much with the more emotional
facets of estate planning, the decisions of the heart. These aspects
are every bit as important as the income statements and the legal
forms. For guidance on these issues, seek the advice of a trusted
priest, minister, family counselor, close friend or family member.
These individuals can help you to better understand your own feelings,
values, and needs throughout the estate planning process. They
can also help in sorting out the messy family dynamics, like sibling
rivalries or divided loyalties, that are often exacerbated when
moneys involved. Try to locate a professional counselor who's
also experienced and trained in the issues of family wealth counseling.
Conversely, when it's hardcore financial advice you need, trust
your team to give you the straight scoop. Friends and relatives
are there for emotional support, not expert advice. That favorite
uncle who knows you so well is best qualified to help you understand
some of the personal needs and beliefs embedded in major life
decisions. But beware the friend or cousin dispensing financial
advice. If you do listen, take what they offer with at least a
few grains of salt.
The true bottom line for parents is to strike a balance between
professional and personal advice when deciding what to do with
your estate. Finding the right answers takes time and careful
deliberation. Sometimes all the technical and friendly advice
in the world isn't enough. If, after digesting the advice of your
estate planning "dream team," you still find yourself
uncertain about what to do, call for a second opinion.
Let's look at the ways some parents have negotiated this passage.
Golden Giving: Smart Moves in the Transfer of Wealth
Warren and Susan Buffet and Bill and Melinda Gates have one thing
in common. No, it's not the fact that they are both multi-billionaires.
They've both announced that they are leaving their substantial
estates largely to charity.
Warren Buffet didn't disinherit his children because he disapproved
of their career choices or their character. In fact at the time
he made this announcement, his daughter was an administrative
assistant to the editor of US New and World Report and his son
a successful farmer. His desire was to "force them to carve
out their own place in the world." He was determined to leave
them "enough money so they could do anything, but not so
much that they could do nothing."
The Buffets' and the Gates' decisions reflect a broader trend:
affluent parents are becoming seriously concerned about the effects
of passing on large estates to their offspring. They recognize
that flooding their children with oceans of unearned income can
drown their psyches.
Andrew Carnegie, the wealthy steel magnate, wrote, "I would
as soon leave my son a curse as the almighty dollar." Mr.
Carnegie was not alone in his sentiment. This is an idea that
has gained increasing momentum over the last several years. Now,
more then ever, rich parents are more carefully considering the
potential negative fall-out of large gifts, and are becoming more
creative in these transfers of wealth.
I interviewed a number of estate attorneys, accountants, and
financial planners: specialists who work daily with affluent families,
helping them figure out how to best transfer wealth from one generation
to the next. Many of these financial professionals told their
own sad stories about clients whose wealth had become more of
a burden than a blessing. They also shared with me the keys to
avoiding this tragedy.
Their number one piece of advice: make sure you have a will.
Although most owners of substantial estates make a formal estate
plan, 60% of all estates in America transfer without a will or
trust. If you fail to make a will before you die, the courts refer
to you as having "died intestate," and then step in
to make one for you. They will decide how to disburse your property,
pick a guardian for your children and select an administrator.
Without a formal will, you will lose the chance to have your personal
wishes legally protected.
Act now. Look at the lessons you can teach your kids. It's a
great opportunity to practice some of what you've learned about
Getting the Estate Planning Ball Rolling
If you haven't yet developed your inheritance plan-and the majority
of you probably haven't-there are a few things you must do, preferably
in consultation with experts in the field. To begin, write a basic
statement of your wishes: who will inherit, what they will receive,
when the inheritance will occur, and any special conditions that
apply. If you have kids, name an executor who will carry out your
instructions. Many people automatically leave everything to their
spouse, and ultimately to their kids. But what if your present
mate isn't your first, or you have two sets of children? The dynamics
of giving become particularly tricky in blended families. Don't
trust the courts to dispose of your estate-you know your family
better than any judge could.
Besides the directives on distributions of assets, some parents
are drafting what are called ethical wills. Ethical wills focus
on passing on your most cherished values, with the hope that these
gifts of the heart, mind and spirit will be preserved and cherished.
Author Barry Baines offers guidance in this process in his book,
Ethical Wills: Putting Your Values on Paper.
If your children are not yet 18, you also need to specify a guardian
to care for your minor dependents. Your guardian, or trustee,
may be a trusted sibling, friend or a professional.
Name a back-up person for both the job of executor and the job
of trustee, and make sure they all know where your will is kept.
Most people maintain the original in a safe deposit box with a
copy in their attorney's office. Make sure the beneficiaries on
your brokerage and retirement accounts and insurance policies
conform to your will.
You should also draft what's called a standby guardianship proxy
for your children's guardian to be kept right next to your will.
This document authorizes the guardian to make decisions about
your child's health and finances until the court certifies guardianship.
The designated trustee, if different than your guardian, should
have a standby power of attorney. Additionally all parents, no
matter what their age or their kids' ages, should have a fully
executed health care proxy as well as a living will or medical
directive. These documents instruct the health-care provider whether
to take certain steps to prolong your life.
Do your kids a favor. If you lack any of this basic paperwork,
put it together now. You don't want to wait until you're incapacitated
and can't communicate, or even worse, dead. I've seen firsthand
how this kind of procrastination has caused devastating problems
for the surviving family members. Look at this as another great
opportunity, perhaps your last, to teach your kids some valuable
financial and life lessons.
When you have it all together, make sure your attorney has a
copy of your will, durable power of attorney, medical directives,
funeral and burial instructions and trust documents. Your safe
deposit box or home safe should contain deeds and titles, birth
certificates, military discharge papers, marriage licenses, home
inventory, divorce decrees, stock certificates, Social Security
cards, pension plans, insurance policies, wills, medical directives,
a list of brokerage and bank accounts, certificates of deposit,
seven years of tax returns, credit card accounts, and a list of
any other legal documents you've left with your attorney.
If this all sounds like a lot of work, it is. But do it anyway.
Protecting Your Money and Your Kids
While increasing numbers of parents are considering charitable
giving, others still wish to leave their assets to their kids,
but they want to be sure these gifts bring blessings instead of
curses. As the bulk of this book illustrates, their concern over
the impact of wealth is well founded.
Naturally, parents consult with advisors every day, searching
for strategies that will affect their children and grandchildren
in positive ways. What parent hasn't, at some time or another,
wanted to influence the behavior of their children? We've talked
about using allowances and other consequences to teach children
responsible behavior from age three. Even when we get to estate
planning, parenting's final frontier, the same principles still
apply. As our children get older, the tools we use to influence
them just become a bit more sophisticated.
Where once we encouraged responsible behavior through our children's
allowances, we will now do the same thing by establishing their
trusts, which can function like allowances for big kids. Trusts
are simply legal documents that spell out the conditions by which
assets will be distributed. They also protect the trustee who
is carrying out the donor's wishes from frivolous liability. Trusts
are for anyone with young children, older "problem children"
or aged parents for whom you wish to provide. Trusts can also
keep Uncle Sam's tax bite to a minimum.
Let me mention a few cautions about using trusts. First, don't
make the mistake of thinking trusts are only for the super-rich.
Trusts are for anyone with after-death assets of more than a few
thousand dollars. Don't forget that life insurance proceeds alone
can swell a modest nest egg into a sizeable chunk of cash. Second,
be realistic. No legal document, no matter how cleverly drafted,
can make up for years of lousy child rearing. At best, it may
keep the damage from going forward. As you work with your attorney
preparing these types of documents, be crystal clear about what
you want to accomplish, but don't expect miracles from a mere
piece of paper.
Your trust can help you promote certain behaviors, although it
is by no means a guarantee. If your intention is to encourage
entrepreneurship, state this clearly. If your want your children
to complete their college degree as a condition of inheritance,
It's better to figure out these objectives before you start the
meter with your lawyer. Also, make sure that the trustee you choose
to manage the trust, be it a family member, friend, or professional,
is strong, firm, fair and up to the job. It's also a good idea
to name a back-up trustee in the event your first pick becomes
unable, or unwilling, to serve.
Trust Funds for the Good, the Bad and the Ugly
What behaviors do most parents want to address in their children's
The Good: At the top of the list for most of
the parents I've dealt with is the pursuit of an education. Most
of these parents set up trusts to reimburse the child for all
educational expenses, from private secondary school straight through
to their post-graduate or professional degrees. Few would argue
against the value of a good education.
Many parents seek to encourage a positive work ethic by their
gifts. This goal is often attempted by the by the use of incentive
trusts, which reward hard work and accomplishment-or in other
words, prompt late-bloomers to "get a life." Incentive
trusts reward beneficiaries when they accomplish certain specific
objectively measurable criteria. For example, children may receive
a specified amount of money when they graduate from college, join
the family business, earn a graduate degree, overcome a drug or
alcohol problem or give something back to the community through
charitable volunteer work.
Many parents also wish to encourage altruism. I've seen this more
in established wealth, where the heads of the family want to communicate
the value of service to their offspring. In these cases the donors
provide special supplements for those children who become nurses,
teachers, college professors, artists, social workers and the
A common kin to altruism is philanthropy. Many well-off parents
with philanthropic tendencies feel the "noblesse oblige,"
the responsibility of the wealthy to create good. They want to
see these obligations carried on into the next generations. They
seek to accomplish this goal by involving their children early
and consistently in philanthropic activities such as family foundations,
donor advised funds, charitable trusts and the like.
These parents gently guide the younger generation's experience
in their work as trustees, general partners or asset managers.
In this way, kids learn the value of stewardship while being exposed
to the practical process of building and preserving assets for
future generations. Some families make this a tradition, and pass
it down from one generation to the next.
The Bad: On the other side of the coin, estate
planning sometimes forces parents to take a stand against certain
problematic behaviors in their adult kids. Interestingly, one
of the biggest problems affluent parents try to discourage is
reckless consumption. This is ironic, since many of these same
parents are themselves prodigious consumers, and have often promoted
that very behavior in their children. Sometimes these anti-squander
plans will hold up an immature child's inheritance until the risk
of dissipation is gone-or at least minimized. If the situation
justifies delay until your children are in their forties, fifties
or sixties, then so be it. By delaying allocation until then,
you have protected the family money from your child and for your
Many parents also want to discourage sloth and laziness. Typically,
their kids don't really intend to join the work-a-day world and
would rather subsist on whatever they can wheedle out of their
parents, grandparents, and trustees. These loafers are usually
good candidates for incentive trusts.
One father I counseled set up an incentive trust to support his
son's working. In this "earn a dollar, get a dollar"
arrangement the trustee was authorized to pay the exact amount
annually equal to the sons "wages, tips, salaries as indicated
on line seven of his U.S. tax return for the previous year."
Another set of parents established a trust that distributed the
sum of $10,000 on the 15th of each month only if their son was
gainfully employed during the whole of the preceding month. Gainful
employment was verified when the child presented a valid pay stub
that indicated he had been paid for at least 80 hours the prior
month. I've seen many variations on this same theme.
The Ugly: Just as the wild spender and chronic
loafer present challenges to parents, so also does the child or
grandchild with obvious self-destructive behavior. This most often
takes the form of alcohol or drug abuse, criminal behavior, or
frank mental illness. In these situations the planning and drafting
of economic incentives is focused primarily on discouraging destructive
behavior while supporting more positive alternative choices. Parents
want to avoid, at all costs, "enabling" their child's
destruction. Incentive trusts were designed for just this type
I often advise parents to align their influence with their deepest
concerns. In these scenarios the donor parent needs to replace
handouts, often motivated by guilt, pity or fear, with well-thought-out
standards for distributions from the trust. The goal is to remove
subjective factors and feelings that work against the best interest
of the child. Similarly, the parent, trustee and donor need to
eliminate sympathy and manipulation as a basis for discretionary
Incentive trusts aren't a panacea for such problems, but they
have their advantages. They can eliminate the emotional blackmail
beneficiaries often inflict upon their parents and trustees. By
introducing objectivity, the incentive trust creates a clear contract
and restores the adult child's dignity. Now they can decide for
themselves, of their own free will, whether they want to go along
with their parent's wishes or not.
Again I think it's important for parents to be reasonable in
their goals. I discourage parents from using incentive trusts
to attempt to control a child's choice of spouse, faith, occupation
or school. Wisdom dictates that we not try to coerce compliance
when compliance is unlikely.
Incentive trusts come with a few inherent disadvantages. By design,
they aren't as flexible as discretionary trusts. Additionally,
incentive trusts often require some measurement on the part of
the trustee. Whether it's checking pay stubs, drug tests, or transcripts,
somebody has to monitor behavior and make decisions about consequences.
Naturally, some kids resent having to report in. They may decide
they'd rather forgo the economic benefits than subject themselves
to a monthly urinalysis. That's their prerogative. But what if
they try to cheat? Your trustee could be in for endless headaches,
trying to determine whether the lab tests were altered, or whether
the beneficiary really worked the hours. It's not possible to
plan for every contingency.
In my consultation with families I've seen incentive trusts work
best in truly desperate situations-usually as a last resort. If
a parent is preparing to disinherit a child for his dysfunctional
behavior, an incentive trust gives the child one last opportunity
to change in order to avoid disinheritance.
Discretionary trusts are usually preferable to incentive trusts
because they afford trustees greater flexibility in their decisions.
However, you do need to spell out clear guidelines as to the exercise
of discretion. As a rule of thumb, the healthier the family, the
better chance they can afford the greater flexibility of a discretionary
trust. In these more flexible arrangements, some parents let their
children have access to their money for specific purposes such
as education, buying a house, or to supplement healthcare costs.
Other parents dole out inheritances in installments, say one-third
at age 25, another third at 30, and the remainder at 35.
Incentive and discretionary trusts are just a few examples of
the dozens of wealth transfer options open to you. There are a
myriad of tricky family situations-disabled children, multiple
marriages, surviving spouses, taxes and so forth-that are well
beyond the scope of this book. Fortunately there are some excellent
resources available. Do some research, ask what your friends are
doing, talk to an attorney, and then consider which legal vehicle
best suits your particular family circumstances.
Once you've made your decision and put it all down on paper, you're
ready for the next big hurdle: what to tell the kids.
Avoiding Inheritance Battles: Clearly Communicating What's
As a parent, you know how important it is to talk to
your children about sex, drugs, alcohol and other uncomfortable
topics. But as we age, we seem to become more reluctant to talk
about such subjects as money and the distribution of our belongings.
As uncomfortable as it may be, these discussions are some of the
most important talks we'll ever have with our children.
We've talked about the importance of openly discussing finances
with children from an early age. Kids feel more secure when their
parents encourage questions about money, and answer them frankly.
Unfortunately, many parents keep their children in the dark about
their inheritances. Some do it to control their behavior; more
parents withhold this information trying to protect them from
what they believe is a burdensome responsibility. Overly protective,
they subscribe to the "what they don't know won't hurt them"
school or parenting.
The truth is, what they don't know can hurt them.
Kids need to know what they can expect, even if it's bad news.
If you don't discuss the stipulations of the wills or trusts before
your death, your inheritors will be left with the difficult task
of interpreting your meaning and intent on their own. This will
only add confusion to the grief and loss they're already experiencing.
You can only save them this pain by openly discussing your estate
plans with your heirs. If you're favoring one beneficiary over
another, it's important that they know why. With time and luck,
they will understand and accept your decisions. In some instances,
these confrontations trigger healthy change. Try to resolve any
conflicts and differences, and make peace before it's too late.
I believe a parent's job, and often their last great gift, as
tough as it may be, is to make decisions about the distribution
of their assets and communicate those decisions to their loved
Tips on Holding The Family Money Meeting
Take the bull by the horns. Arrange a meeting with your family
to talk about your estate. Be sure to have a complete understanding
of your net worth. If you haven't totted up everything you own,
the chore is probably overdue. Once you fully understand your
estate, sit down with your kids and cover all of the relevant
financial information at one time. If you expect things to be
particularly difficult or unpleasant, think about bringing in
an objective third party to serve as a mediator. You could invite
your attorney or financial professional, or if you're fearful
of your child's reaction, you may wish to bring in a family psychologist.
Sometimes an experienced family wealth counselor can help you
present this type of delicate information, and can head off problems
before they develop. Even in extremely sticky situations, a counselor
can minimize the squabbles that often arise. The key is to anticipate
the conflict. Get this help before you have the actual discussion
of your estate. Once you've announced your estate, the damage
is done. It then becomes impossible to get the proverbial horse
back into the barn.
Before you hold your meeting, decide precisely what it is you
wish to accomplish. Be sure you and your spouse are on the same
page. If you disagree on key points, iron this out between yourselves
before you involve the children or make any public statements.
Create a list of the people who should be there. Choose what you
wish to say, and think of how best to say it. You may even want
to rehearse your talk beforehand. Anticipate problems. Create
a fallback plan. Do whatever you need to do to prepare yourself
emotionally for what could happen. Be prepared for the worst,
but hope for the best.
Go over as much detail as you think is necessary. We've all heard
tales of heirs raiding the parent's home after the funeral. It's
often the smallest items, particularly if they hold strong sentimental
value, that cause the longest-lasting emotional reaction and potential
When it comes to dividing up the antiques, silver, jewelry, and
photos, people never forget it if they didn't get what they thought
they had coming to them. If you've promised a certain item to
a certain child, keep your promise.
Most parents prefer to divide their assets equally among their
kids for a number of reasons. They don't want to show favoritism;
they love them equally; or they don't want there to be bad blood
among the kids once they're gone. The Gediman study noted that,
"you can treat your children unequally while you're alive,
but after you die it becomes 'official,' a kind of immortal black
"I don't want to be cussed from my grave," one client
If you do decide to make unequal distributions, such as with
a handicapped child, think it through and discuss it with your
Clarify all of these decisions and document them in your will
or living trust. If you want to keep this information about your
possessions private, put it in a side letter. Some parents tag
or photograph possessions to keep track of them. However you go
about this process, just be sure you've talked openly about the
division of property.
Head off the obvious problems wherever possible. If you can visualize
your kids wrestling over the Jaguar keys in the driveway of the
funeral home, sell it and decide how to split the proceeds.
If you care about maintaining family harmony, leave your money
and property to your kids equally, regardless of their economic
circumstances. To fail to do so can leave deep emotional wounds
that never heal. I've heard siblings complain bitterly about their
favored sister getting an extra piece of jewelry twenty years
after their mother's death. This kind of perceived "parental
favoritism" can lead to family breakups, lawsuits, and in
some cases, violence. This becomes particularly dicey when there
are children from a second marriage involved.
This equal economic treatment should have begun well before your
kids receive their inheritance. It should apply to all the gifts
you give to your kids over their lifetime. If you paid for one
son's college, or gave him a down payment for a first home, then
do something equivalent for the other kids. If you leave the family
business to our oldest, work out something comparable for the
Of course, use common sense. You don't have to leave your unemployed
alcoholic a lump of cash just because you gave his physician sister
a medical school education. Don't reward failure and punish success.
Tailor your gifts carefully, in the best interest of each child.
Don't get stuck trying to make sure everyone's perfectly happy.
Lay it out for them from the beginning: "It may not be what
each of you thinks is fair, but it's the way I feel most comfortable
dealing with the situation." If they don't like it, too bad.
Tell your kids, "We love you and respect the choices you're
making in your life, but it's our money, we made it, and this
is what we've decided to do with it. At some point you will receive
something from us but it won't be enough to live on easy street
so you'll have to continue to work hard and build your own fortune."
Whatever you have to tell them, I'd advise parents to serve it
up straight. Be frank with your kids about what they stand to
inherit. Gather your children and tell them, "The fact that
we have $3 million doesn't mean that you can quit your jobs tomorrow.
There will be taxes, we have some charities we're giving to, and
the rest will be split and placed in trusts to provide for certain
needs. So don't sit around and wait for the big check. Go on with
If parents don't have that kind of dialogue, some kids hang out
waiting for the big jackpot. It's a parental duty to deal directly
with these issues. I think kids are ready for these talks at the
youngest in their mid-teens-and at the latest, when they hit college
This kind of open, direct communication becomes especially important
when one parent becomes ill, incapacitated, or may need to change
their circumstances, such as when one parent is dying or requires
placement in a long-term care facility. In such unfortunate circumstances,
it's nearly impossible to pull this off without considerable hardship
for all involved.
As I've said, don't wait until then. Do it now.
Excerpted from Choking on the Silver Spoon by
Gary W. Buffone, Ph.D. Copyright © 2003 by Gary Buffone.
Excerpted by arrangement with Gary W. Buffone, Ph.D. All rights
reserved. $19.95. Available in local bookstores or call 800-247-6553