If your dad is Bill Gates, you can forget about getting a big fat trust fund when he dies. Okay, Bill Gates has reportedly set aside $10 million each for his kids, but that’s a paltry portion of his $76 billion fortune. Sting’s kids will get nothing, and he says that he expects all of them to work. “All my kids know that and they rarely ask me for anything, which I really respect and appreciate,” he told The Washington Post.
The old saying “shirtsleeves to shirtsleeves in three generations” implies that the first generation amasses wealth, and second generation spends most of it, and the third generation loses the rest. The family ends right back where it started within three generations, with a bunch of insufferable behavior in between.
Should you leave all of your hard-earned wealth to your kids and create a trust fund for them, or should you donate your money to charity? Base your judgments on your kids’ ages, the content of their character, and the amount of wealth you’ve earned.
You’ve Already Given Them a Lot
You’ve probably furnished your kids with access to a great education. You might have purchased them assets that other kids have to earn, such as their first cars or their first family homes. When you feel guilty about giving your fortune away, remember that you’ve already given them advantages that most other children don’t have. They don’t necessarily need to get your fortune to have a great start in life.
Gloria Vanderbilt inherited a $5 million trust fund from her father, Reginald Vanderbilt, after Reginald had blown through a big portion of his own father’s shipping and railroad fortune. Although Gloria is hardly in shirtsleeves, having amassed a $200 million fortune as a fashion designer, her son, Anderson Cooper, knows he’s getting nothing. Cooper isn’t sweating it. He says that having to earn his own money made him work harder. “Who’s inherited a lot of money,” Cooper asked, “that has gone on to do things in their own life?”
A Question of Character
Cooper isn’t necessarily right; not every wealthy kid goes on to become the next Paris Hilton. Ivanka Trump, daughter of Donald Trump, attended the Wharton School of Business and now oversees a chunk of her father’s real estate empire. She’s also launched her own line of clothing for young professionals, which she sells in Nordstrom and other upper-crust department stores, as well as her own line of jewelry.
Donald credits Ivanka’s success to her warmth and her solid head for business. “She was a very successful model, and she just gave it up and went to Wharton,” he told Vogue. Ivanka works hard as a steward of the family fortune, and she demonstrates the character to handle the wealth. She’d make an excellent trust fund recipient, but with all of the projects she has going on, she probably won’t need the money.
Many wealthy parents allow kids to withdraw from their trust funds too early. The human brain doesn’t completely mature until people hit their mid-20s, which means executive functions like self-evaluation, emotion regulation, long-term planning, and risk-reward analysis remain incomplete. Although different trust fund recipients display differing levels of maturity, this lack of maturity in the brain’s pre-frontal cortex suggests a propensity toward lacking impulse control.
To offset these limitations, smart parents create trusts that only dole out money for certain expenses, such as education, health care, home purchases, or funding a business. Recipients then control all of the money after the age of 35, when the money becomes a safety net that they can invest toward retirement. The later kids receive their money, the more likely they are to manage it successfully. They’ve already had to learn to balance their own budgets, and they’ve already had to make their own money.
Making the Right Call
After they reach a certain maturity level, ask yourself whether you’d trust your kids to invest your money. If you know in your guts that they’ll blow through your fortune, give them a good education and then give the rest of your money to charity. Alternatively, if you know that they’ll take your inheritance and use it for great endeavors, don’t hesitate to turn them into trust fund babies.
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