Written by: Lee Sherman
There’s nothing wrong with giving money to your kids. That’s how dynasties are made. This can come in the form of an allowance, where you control the exact amount you are giving on an ongoing basis, a one-off gift (to help them start a business or buy a house for example) or an inheritance.
It’s also, according to investigative journalists, how former President Donald Trump became a billionaire. Despite his claiming to be a self-made man, Trump came from a wealthy family and had a huge head start. According to The New York Times who investigated this in October 2018 he was a millionaire by age 8. Trump and his four siblings also were the beneficiaries of trust funds of $1 million each, which equates to $4.5 million in today’s money. From a purely financial perspective, he was able to greatly increase his wealth through his real estate deals, licensing of the Trump name, the Miss Universe pageant and the reality show, The Apprentice which he co-produced and hosted from 2004-2015. On the other hand, the Trump Organization is currently under investigation and has been charged with crimes related to his business by the Manhattan district attorney’s office. We’ll leave it to you dear reader to decide whether or not he misused his father’s fortune.
While many wealthy people plan to give their kids a sizable inheritance, other billionaires, notably Bill Gates, Mark Zuckerberg, Sting, and Elton John have decided not to. Their reasons include wanting to use their money for good while they are still around to see it, to expecting their kids to learn life lessons on their own, or to avoid the many issues that can arise when someone inherits a lot of money before they have grasped its real value.
It’s all too common for younger people who acquire wealth early in life to squander it before they’ve reached retirement age. This is also true of celebrities who get caught up in the temptations of fame and blow their wealth on frivolities such as drugs, designer clothes, or luxury automobiles, long before their metaphorical 15 minutes have elapsed.
Teach your children well
One thing all too common to the newly rich is a lack of understanding of basic financial principles. Instead of concentrating on how best to provide your kids with a big inheritance, financial advisors suggest you look at ways to make sure they know how to maintain and even grow they money you’ve left to them. Otherwise, all of the hard work you’ve done on your estate plan will be for nothing.
It’s tempting to want to give your kids what you didn’t have. But what you don’t want is for your kids to become financially dependent on the family fortune. It’s far better for them to become active participants in carrying it forward for the next generation. This means not only indoctrinating them with sound financial principles like not spending beyond their means, the importance of saving, and always paying your credit card debt off on time, but also teaching them the the value of honesty, hard work, charity, creativity and passion. If you have a trust or family office, it’s a good idea to get your kids involved now, long before they’ve inherited the money, to make sure they have a role in shaping it.
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Lee Sherman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Lee is an experienced journalist and editor with over 30 years of expertise with a significant history of writing in the personal finance and technology arenas.