Money parenting: How to teach kids about inheritance

Image: Shutterstock

In May 2017, the Wilmington Trust polled 57 people worth at least $20 million to compile a report titled 'Navigating the Wealth Transfer Landscape'. The report revealed that 67 percent of those polled were apprehensive about sharing inheritance details, with a mere 10 percent providing complete information to their heirs. Their reluctance stemmed from the following reasons:

» 29 percent were concerned that their heir would feel less motivated to work hard or follow their own life path

» 19 percent hadn’t decided what assets to leave their heir and how they would go about it

» 14 percent thought their heir needed to grow older to be given the talk

» 10 percent feared that their heirs would rely on the wealth that might not materialise

» Only 5 percent stated that their heir had no business knowing about inheritance details

These wealth holders have valid concerns. If their children are ignorant, spoilt rotten or reckless, wealth created over decades or even generations can get squandered in no time. The solution is to use parenting techniques to teach heirs about wealth.

Here are a few best practices that ultra high net worth individuals (UHNI) parents follow:

Many wealthy families adopt a similar approach to wealth. Children in these families learn that they cannot get anything they want, whenever they want. Instead, they learn delayed gratification. And sometimes, a request to buy a coveted item will be rejected outright.

Such micro-projects come handy when young adult heirs are eventually roped into the family business by giving them a small corpus, an equity stake and some responsibilities. I have witnessed many of my clients initiate their children in this manner, gradually, as per their skill sets.

4. Talk holistically about inheritance
In the Wilmington Trust poll cited above, some of the children kept in the dark about their inheritance are already in their 40s! That’s shocking. Heirs have the right to know and wealth holders have the responsibility to keep their heirs informed.

Wisely wealthy people have many age-appropriate conversations over many years.

» Feel gratitude for the privilege that wealth brings

» Focus, not on the quantum of wealth, but on the freedom that it brings; the freedom, for instance, to choose any career one desires

» Soak in the values and culture that the family used to create this wealth – the giver of wealth expects these to be sustained

Families that have passed wealth down many generations have supple systems in place. Neo-rich families need more help in this area.

5. Teach to invest
93 percent of respondents of the Wilmington Trust poll insisted on the importance of having a trusted advisor. One of the responsibilities of such an advisor is to coach the heir on investments. They will discuss sound financial practices in general and the specific financial commitments of the family. Having done that, the advisor helps the heir create their own wealth portfolio by choosing suitable investment options.

This initiates the heir in a lifelong endeavour to nurture and grow wealth responsibly.

In fact, in many wealthy families, young heirs are given small and big responsibilities in the family’s philanthropic projects much before they are given business responsibilities. This prepares them to better manage the wealth that will be bequeathed to them.

The author is a Co-founder and Managing Director of Entrust Family Office Investment Advisors.