Many were shocked when Gloria Vanderbilt passed away in June of 2019 – not because of her death (the fashion icon and socialite was ninety-five years old), but because she had not left a trust fund for her son, CNN news anchor Anderson Cooper. Of course we’ve heard this before, the most famous example being Warren Buffett, who has stated that his succession plan, is to give away the bulk of his $77 billion fortune rather than willing it to his kids.
For most people, the idea of disinheriting one’s children borders on cruelty. For some of the wealthiest, however, it is the ultimate act of love. They worry that kids who inherit fortunes tend to lack the drive, initiative and perseverance needed to succeed on their own. Gloria Vanderbilt was an exception – she inherited $5 million dollars but went on to build a fashion empire and died with a net worth of $200 million. She didn’t believe in inherited money, perhaps because she’d witnessed her own father, Reginald Claypoole Vanderbilt, lose most of his fortune gambling.
This brings up another concern with succession planning: the very real possibility that your children will go through the money, leaving future generations in the same position you were when you started out. This is the “shirtsleeves to shirtsleeves in three generations” phenomenon we’ve covered in previous posts.
So how can you ensure the survival of your wealth and make sure it is a help, not a hinderance, to your children?
First, understand there is a middle ground. You can teach your children how to enjoy the abundance you have created while understanding the responsibilities that come with it. If they are young enough, you can raise them in accordance with certain values – for example, requiring that they have a job and contribute some of their earnings to things they want. You can also let them know of your succession plan & expectations of them at school (in other words, they cannot slack off because they’re expecting to be handed a pot of gold after graduation).
But what if they are already young adults who have only known great wealth and assume it will always be there? If this is the case, it is time to have some serious conversations about what it means to be your heir.
- Give them a history lesson. Make sure your kids know about what life was like before you created your wealth, and the struggles you endured while building your fortune.
- Let them know this is not just about dollars and cents. Speak to your children about what you have created – whether it’s your company or philanthropic efforts – and what it means to you to have your legacy endure after you’re gone.
- Gather reinforcements: Bring your kids into meetings with your financial advisors, who can teach them about prudent investing and spending habits, and help them create a budget they must adhere to.
- Make it a dialogue, not a monologue. Ask your kids how they feel about being wealthy, and about inheriting. You may find that your “carefree” child has serious doubts about their self-worth, including their ability to achieve anything on their own.
- Make their inheritance conditional on reaching certain milestones, for example, a particular age. If they aren’t going to receive their trust until they are forty, they will have to find a way to support themselves in the meantime.
- Let them know that this is ultimately about family, and about ensuring that future generations can continue to live in prosperity and security.
Finally, keep in mind that your heirs may not just be your children, but your parents and/or siblings as well. In our next post we will cover the various ways of communicating with heirs of different generations.