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Estate Planning,Financial Planning,Kids

How Much of an Inheritance Should I Leave?

If you’re like most folks, this is a question you might not have thought about much.  It’s a bit morbid – no one wants to think about the reality of dying despite its slightly-more-than-remote possibility.  But in the off chance that you are one of those folks who won’t live forever, it’s probably a good idea to think through what you want to happen to your money and possessions when you’re gone.  In fact, this is the largest stewardship decision you will ever make, unless you can find a way to actually die broke.

The Default

Because we don’t like to think about it, and also because we want to express our love to our children, almost everyone I know has defaulted into leaving their entire estate split equally amongst their children (assuming their spouse is no longer alive).  Sometimes there is a layer of charitable giving or other small bequests to family or friends, but I almost exclusively see the lion’s share getting split among the children.

This isn’t necessarily bad, and “a good person leaves an inheritance for their children’s children, but a sinner’s wealth is stored up for the righteous” (Proverbs 13:22).  However leaving everything to your children isn’t necessarily the best thing to do either.  This is particularly true in two cases.

A Fool and his Money are Easily Separated

The first is that one or more of your children lack the wisdom and/or character to be faithful stewards.  If this is the case, then limiting the dollar amount you leave to that child may be the best thing for both the child as well as the money.  Luke 16:10 warns us that “Whoever can be trusted with very little can also be trusted with much, and whoever is dishonest with very little will also be dishonest with much.”  If your child has not demonstrated that he or she can make wise choices with $5,000, they are likely to make the same kinds of choices with $500,000.  Conversely, if your children have proven to be faithful and wise with small amounts, this might not be as big of a concern for you.

Some parents, having decided that one of their children would be unable to handle a large inheritance, would then decide to limit the inheritance for all of their children out of equality and fairness.  There is some validity to the fear of bitterness and resentment if all children aren’t treated equally, and I would always discourage parents from using money as a means to wound or show favoritism.  However, you can still treat your children uniquely while loving them equally, and leaving different amounts can be in each child’s best interest as well as your own.  If you go this route, I would encourage you to let your kids know before you pass away what your intentions are, why you are doing so, and to communicate your love for each of them.

Too Much of a Good Thing

The other case that I’ve seen be problematic is when the dollar amounts get large.  Not many folks think winning the lottery would change them significantly, but we’ve all heard countless tales of disaster that struck after receiving those large windfalls.   How much is too much in these situations?  While there is no “right amount”, it’s usually an amount that is between “enough that they could do anything with their lives” and “enough that they could do nothing with their lives”.  If the amount you leave would be so much that it would demotivate your children from working, providing for their families, or having some healthy struggle through life, you are leaving the door open for the possibility of harming them by leaving them too much.

I watched this play out in my own family through my grandmother’s estate.  She wanted to bless her children and grandchildren by leaving a large inheritance including a trust fund that sent me and my siblings to college (don’t hate me for being one of those kids!).  In the end, my mother and her two siblings squabbled over how the trust funds got distributed, and as a result she went over 20 years without speaking to her siblings.  It’s been painful to watch and a real reminder of the potential of harming my own children by leaving them too much.

The good news is that there are very few restrictions when it comes to estate planning.  There aren’t any rules over where your money needs to go, so long as you plan it before you die.  If you’re married, I strongly encourage you to have this conversation with your spouse.  If you’re not, then take some time to think through it either on your own or with a trusted friend or advisor.  Remember, there’s no right answers here.  But don’t just follow the cultural norm without thinking and praying through if it’s the best thing for your children and your money – too much is at stake.