Should You Leave an Inheritance to Your Children?

by Joe Plemon on February 19, 2010

Inherit a large sum of money
Creative Commons License photo credit: quinn.anya

The late Larry Burkett wrote, “If I had to identify the area of Christian finances that is least understood, it would be inheritance. Not only do people wreck their lives by hoarding, but they also wreck the lives of their children and grandchildren with abundant inheritance.”

I have to admit that Burkett got my attention. I simply assumed that we go through life doing the best we can and if there is anything left, it goes to one’s heirs. But we all know of families that have been destroyed by the distribution of an inheritance. Have I simply been wrong with my assumptions? Maybe, but I know this: I need to rethink this issue. Follow along with me to see what we can learn.

What does the Bible say?

The Old Testament law required (Deut 21:17) that the first born son should get 2/3 of the father’s estate. Normally the inheritance was distributed after the death of the father, but the father sometimes decided to divide the inheritance while still living. When the Prodigal Son (Luke 15:12) asked for his share of the property due him, although he was demonstrating great arrogance toward his father’s authority, his request was one the listeners of the parable would have understood.

The biblical principle, therefore, seems to be that inheritances are expected. How does this fit with Burkett’s statement? Burkett did not say NO inheritance, but warned about the dangers of too much inheritance. He further wrote, “Large amounts of money given to children will usually be squandered to their disservice, and large amounts of money stored up for children in trust can be used to buffer them from God’s will.”

The challenge now becomes this: what guidelines could help us determine how much is too much?

Some questions we should be asking ourselves:

Am I hoarding resources?

Great question. And it is all about attitude. If we truly believe that we are God’s property managers, then our attitude is to use His resources to honor Him. This means that we have a plan for every dollar that crosses our paths; a plan to give, save and spend in ways that please God.

Now the biggie: What is the difference between saving and hoarding? Here is a quick and imperfect answer. “Saving” should always be for a defined purpose while “hoarding” is building a bigger and bigger nest egg simply for the sake of having a bigger nest egg.    How much does one need to save for an appropriately sized estate?   Tough call, but in order to prevent hoarding, one needs to establish an upper limit, save that amount, and then use additional windfalls and profits for other purposes.

What amount will be a blessing to my kids?

Burkett warned that large amounts given to children will be squandered. The integrity and money handling skill of the children is a bigger factor than the actual dollar amount of the inheritance, but what safeguards can parents put in place to ensure that this money will be a blessing and not a curse?

I like the idea of sharing it now. Possible advantages are:

 

  • The parents are forced to have a clear handle on their finances.

On the one hand, they shouldn’t give up assets that they might need in later years. But on the other hand, sharing it now will prevent hoarding.

 

  • The parents can watch and learn how the kids handle the money.

If the children are wise with it, mom and dad can feel good about future distributions.  ”Wise” means that the money is helping them earn their own way, not allowing them to become lazy, dependent or wasteful.

 

  • The kids often need the money while still raising their own children.

Waiting for the parents to die often puts the children at retirement age before receiving an inheritance. Reality is that they probably could use the money at a much earlier age. Occasional infusions can help with debt reduction, emergency fund or college expenses.

 

  • The kids are young enough to learn from mistakes.

While we don’t want more “Prodigal Sons”, at least we can say that he learned from his mistakes. Likewise, even if mistakes are made (and they will be), the children have time on their side to learn from those mistakes.

 

  • The kids will not be spending their lives waiting for their ship to come in.

If they are receiving their inheritance incrementally during their lifetime, they won’t be putting their lives on hold in hopes that some future windfall is coming their way. It isn’t.

 

  • It allows the parents to give to other needy causes.

All the money should not necessarily go to the kids. This will vary greatly from family to family, but as property managers for God, parents need to be ever mindful of the best uses for God’s kingdom.

Possible downsides of early distribution:

 

  • Parents could put themselves in a financial pinch.

Giving too much too early could some day leave the parents without the retirement revenues they need. This shouldn’t happen if parents plan carefully by paying off all debt, purchasing good health insurance and long term care insurance, and simply thinking things through

 

  • Relationships with children could be damaged if parents try to micromanage the distributions.

A gift is a gift, and well meaning parents need to remember that there are no strings attached.

Concluding thoughts

Larry Burkett said that the issue of inheritance is the least understood area of Christian finance. From the lack of teaching and discussion I hear on this topic, I tend to agree. Because the bible endorses the giving of inheritances, we do too. The real issue, according to Burkett, is the giving of huge inheritances. Such a practice can bring about hoarding for the parents and squandering for the children. The challenge thus becomes this: how can parents best plan to give inheritances that will bring blessings and not curses on their children? One thought is to share the estate incrementally while the parents are still alive. Doing so can help not only prevent hoarding, but monitor the blessing/curse effects of the money.

What are your thoughts on giving an inheritance?  What has worked in your family?  What nightmares have inheritances caused you and why?

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{ 24 comments… read them below or add one }

JoeTaxpayer February 19, 2010 at 11:11 am

I love articles like this that get one thinking. This discussion affects a couple with a tiny sum to leave as well as a 7 figure estate. It’s all relative.

As I read this, and reflected back on some of the “how much is enough?” posts, I wonder how much the recent volatility (the 55% S&P drop to be specific) impacts one’s approach to giving away money while they are alive.
Do they look at what they have which may be more than enough, but mentally say “half of this will make things tight”?

For those who wish to gift while alive, I love to point out that $13,000 per year per recipient into a grandchild’s 529 account (with Grandparent or Parent as owner) is a great way to transfer funds out of their estate yet not worry about reckless spending. The $13k multiplies up fast if both spouses are living, and have many grandchildren. Of course, for any kids in college now, paying the bill is not subject to gift tax regardless of amount.

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joeplemon February 19, 2010 at 2:00 pm

@GS … I imagine you DO see some micromanaging, not limited to finances, as you help parents set up guardianships in UK.

@Joe T…Yes, the purpose of this post was not so much to give answers but to get people to think. The volatility of the market is a huge factor for parents to consider if they are going to start giving out distributions while still living. They should definitely leave a buffer amount.

I appreciate your explaining the gift tax and the 529 option. I was assuming that most parents could transfer a lot of assets through either or both of these methods. Tax free of course! :)

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Deacon Bradley February 19, 2010 at 4:02 pm

Very interesting post Joe!

God calls us who have been blessed with riches to live a life of generosity, and it’s when you’re unwilling to be generous that you cross the line to ‘hoarding.’ If you can be a generous middle-class citizen then I think God would LOVE to have you become a generous millionaire! And if you raise you kids to have a healthy, biblical view of God’s wealth then I think He would love to see those blessings compound in your children’s work through inheritance. That being said, I think the amount that would be a blessing to your children depends on their attitude toward money.

Blessing your kids along the way with financial gifts is awesome, but I also think the majority of your estate should pass at your death (all estate planning considerations aside, by all means make the least of your taxes! hah). In this way your wealth can grow considerably larger which will enable you to give even more than if you had passed it on early.

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joeplemon February 19, 2010 at 5:17 pm

Thanks Deacon,

I struggled with my definition of “hoarding” and I think your thought that lack of generosity can lead to hoarding is certainly part of the equation. The parable of the “rich fool” (Luke 12:16-21) tells of a man who was a fool because he laid up treasure for himself and was not rich toward God. This guy was definitely hoarding.

I am very grateful that all four of my kids (all adults) have a biblical view of money, so when the time comes, my wife and I will be glad to share financial blessings with them.

Thanks again for reading and sharing your thoughts!

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FinancialBondage.org February 19, 2010 at 6:50 pm

Back in 1981 or so at the age of 17, I inherited about $16,000 from my grandmother that died. Well I knew nothing about money back then and thought I hit the lotto! That is a lot of money (even today). What did I do with this money as soon as I was able to get my hands on it? I spent it. Every last dime. Not right away, it took me a few years but not too many. The thought of saving any of it never entered the conversation.

If we get a lump sum of money without knowing how to handle it, it can be a curse and not a blessing. And the money will disappear.

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joeplemon February 19, 2010 at 10:24 pm

FB,
I am sure your story is very typical for a 17 year old…or many 71 year olds. But reading between the lines, I am sure that you learned from the experience.

This being said, it may be one more reason to share the inheritance incrementally instead of all at once…it gives the recipients more than one chance to learn from their mistakes.

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FinancialBondage.org February 20, 2010 at 11:19 am

Yep, I’m sure my behavior was normal. But I did learn. Sure wish I had that $16,000 in the bank today. :)

I like the idea of sharing the inheritance incrementally.

If I were leaving money to kids or my niece/nephew today, I would put one BUT in the mix… before getting the money you have to take Dave Ramsey’s FPU course first.

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LeanLifeCoach February 20, 2010 at 5:26 pm

I’m sure I have the quote wrong; Buffett once said “enough money so that they would feel they could do anything, but not so much that they could do nothing.”

I’m not saying that I won’t leave my kids anything. I figure if I raise them right and educate them about finance they simply won’t need it. My dream is to leave my estate in the form of a scholarship of sorts designed first to help my decedents but also requiring that they in turn help others to merit the assistance.

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joeplemon February 20, 2010 at 10:13 pm

FB,
I said “no strings attached” but I am thinking that taking FPU wouldn’t be a bad string.

LLC,
I have heard that Warren Buffet quote and you got the gist of it even if your wording isn’t perfect. I don’t think I will ever have to worry about leaving an estate so large that they could do nothing (especially with four children). :)

But I like the idea of leaving some sort of a scholarship that requires the recipients help others…something well thought out and planned. On the other hand, I would like to be able to bless others spontaneously too, like buying a car for a struggling single mom.

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Megan February 21, 2010 at 8:50 am

Great article. I have just finished reading Stanley and Danko’s “The Millionaire Next Door.” They come to an opposite conclusion from your post. Based on surveys they have done, inheritance given early to adult children has the effect of discouraging children from living within their means in anticipation of the next handout, discouraging long term savings because there is an expectation that their needs will be provided later by their parents, discouraging taking risks in entrepreneurship and business building, and encouraging “keeping up with the Joneses” because the children never learn the value of a dollar.

I am interested to hear what you think about this perspective, Joe.

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joeplemon February 21, 2010 at 3:56 pm

Megan,
It has been several years since I read “The Millionaire Next
Door.” I consider it a classic; one of those rare books that really impacted my views of wealth. While I confess that I don’t recall the section about giving inheritance, I will readily acknowledge the dangers of early distribution of an inheritance. I stated in my post that incremental giving can help parents observe and learn how the children handle money. To quote myself: “If the children are wise with it, mom and dad can feel good about future distributions. “Wise” means that the money is helping them earn their own way, not allowing them to become lazy, dependent or wasteful.” I think lazy, dependent and wasteful are representative of the potential problems Stanley and Danko pointed out.

Now…this being said, it sounds good on paper, but could bring on other issues. All children are different, and if one is not wise, do the parents stop all incremental gifts to all children? If not, how do parents decide how to divvy up future gifts? But will not giving any inheritance until death only delay the inevitable misuse by some recipients?

The goal, whether giving an inheritance while living or upon death, is to bless and not curse the children. Unless the children have learned to handle money through the filter of scripture (believing that they are property managers for God), too much money could very well be a curse. If they know how to handle money God’s way, it should be a blessing.

This post was not intended to give answers; only to promote thought and discussion. As you can tell, I am being pretty transparent about my thoughts…and my own kids (four children ages 30-36) read this blog. :)

I appreciate the thought you put into your comment. I would like to re-read the section of The Millionaire Next Door that you alluded to. Could you guide me to that part of the book? Thanks!

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Megan February 21, 2010 at 5:16 pm

Hi Joe.
Chapter 6 “Affirmative Action: Family Style” is the chapter in Stanley and Danko. Out of the entire book it stuck with me most clearly, but for an opposite reason. My husband’s parents are both divorced and bankrupt. Neither is good with money. His mom cashed out her 401K early. Both are unemployed.
My husband and I are financially comfortable and becoming good with our money (in many ways thanks to blogs like yours.) However, we are looking at a future of almost certainly having to give handouts to his parents, particularly his mom, who has made many catastrophic financial decisions. I want to do it in a way that is not going to increase MIL and FIL dependence on us. We haven’t come up with any solutions so far. Stanley and Danko helped me see that repeated gifts were definitely a bad idea. So I guess that’s a step in the direction of figuring out what to do. Your post took an opposite viewpoint, but it hinges on the responsibility of the giftee, and in this case, we already know that the responsibility level is low. Sorry. Just musing on why your blog piece caught my eye.

I love your blog. I get daily updates and have learned a lot.

Megan

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Evan February 21, 2010 at 5:27 pm

I don’t have a biblical opinion on the subject, but I can tell you what we tell our clients on a daily basis.

“Money can do Good things, Money can do Bad things”

Using that statement we explain there are estate planning techniques that can protect the money/assets from the children. So leave as much as you want but stagger out the payments to the children.

I recently wrote a Will where the each Child’s share goes into a trust and the trustee is allowed to invade the principal if need be, but there isn’t a distribution until the kid is 40 (then another couple at 5 year intervals)

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joeplemon February 21, 2010 at 6:24 pm

@ Megan,
Thanks for the chapter reference. I just read it and remembered why I liked the book so much in the first place.
You do have a dilemma…how do you honor your husband’s parents without enabling them? Hmmm. Sounds like you are considering tough love. Real life is messy, but I hope you can come up with a plan that is best for them you also for you and your husband.

@Evan,
Great quote about money can do Good things or Bad things. How true. I like the idea of no distribution until age 40. By that time, the child has formed his or her financial foundation…hopefully a good one.

I suppose the purpose of staggering the payouts will allow the child to learn how to handle money and not make a HUGE mistake like could happen if all was received at once. Right?

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Steven and Debra February 21, 2010 at 11:18 pm

Joe:

Great post and great discussion! You referenced Luke 12:16-21 and made the observation that really gives balance to the rest of the discussion when noting that the rich man NOT being rich toward God was a critical aspect of the parable. There were a number of rich guys in the Bible who found favor with God because they were first and foremost rich toward God. They understood the true source of their wealth and were grateful.

So, in our view, instead of putting a cap on our savings, retirement, or inheritance or forming complicated trust instruments that serve to piecemeal gifts of inheritance out to our children, after our death and as if we don’t trust them, the challenge we want to focus on, instead, is ensuring that we pass an additional and more important legacy to them, via example, of having spiritual wealth toward God.

Would not an admirable goal be to pass untold financial wealth to our children to be only superseded by an even greater legacy of spiritual wealth? If we are seeking first the kingdom of God, should we not have faith that everything else will follow in a natural order? Will not our children be much less likely to squander their inheritance if we give them a legacy (spiritual and material) that is mutually supportive? There are no guarantees, however, as we see that Esau didn’t value his birthright and sold it for a morsel of meat. Was Isaac condemned for being careless with his estate or was Esau condemned for despising his birthright?

We’ve seen estate planning that attempted to control assets long after the death of the parents and which attempted to vary the distribution according to how the parents perceived their children would handle the money. This creates a lot of envy, jealousy, division, and strife among the surviving siblings. Is this a desirable legacy to leave our children?

We tend to favor gift giving without strings attached and complicated trust structures that attempt to control potential wasteful spending, by our children, seem to go counter to that. If we give them gifts with strings attached, is that really giving or are we attempting to control the behavior of our children after we’re gone?

Theoretically, if there is no cap on our spiritual wealth toward God, how could there be a cap on our material wealth we accumulate for savings, retirement, or inheritance? Is it possible that God gives the increase as he sees fit? And, who are we to place a cap on the blessings that God gives us?

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joeplemon February 23, 2010 at 12:37 pm

Steven and Debra,
Yes, I too have enjoyed the discussion. I agree that the greatest legacy we can leave our children is the ability to be wealthy spiritually. On a personal note, my wife and I have raised four children who, as adults, are all quite wealthy in that respect. By your assessment, therefore, ensuing financial wealth should be a blessing and not a curse.

As always, thanks for stopping by and becoming part of this discussion.

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joeplemon February 24, 2010 at 11:06 am

Rat,
Right you are! None of us will take it with us. I agree that the best inheritance you can leave your kids is what you teach them and role model for them. Any monetary gifts are secondary.

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Tina February 28, 2010 at 9:24 pm

This is a topic that invokes a lot of thought. If possible, I think that dispersing some of your inheritance during your lifetime is a great way to help your kids learn how to manage their money. Trust funds are also a great means to insure that money isn’t squandered when the time comes. Money doesn’t ensure happiness but being financial responsibility is incredibly important.

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joeplemon March 1, 2010 at 9:36 am

Tina,
Yes, it does require a lot of thought. My wife and I would like to do what you said: disperse some inheritance during our lifetimes. How much and when is something that takes a lot of discernment. With four kids, do we do equal amounts or more to the ones who have the most needs?

I keep coming back to this principle: What can we do that will be a blessing and not a curse? Like you said, it invokes lots of thought.

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joeplemon March 31, 2010 at 8:14 am

Diana,
I appreciate they “cycle” philosophy and the order…start with the tithe, invest in ourselves and give to others. Many would charitably reverse steps two and three, but reality is we have to have something before we can give to others. Good thoughts!

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joeplemon May 20, 2010 at 1:47 pm

Deer hunter,
Glad to have you back. I am glad this article helps your assignment. Don’t be a stranger!

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Bart J. Leger July 10, 2010 at 8:41 pm

Great Post! It does make one think about what we are doing for our children. Good biblical perspective.

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joeplemon July 11, 2010 at 4:06 pm

Bart,
Thanks. I obviously don’t have all of the answers, but if the post makes you think about what you are doing for your children, it has succeeded.

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clive smith February 3, 2012 at 7:32 am

Interesting article, although there is a good bit of “man’s advice” in there, rather than good scriptual basis. What I find interesting, and perhaps a bit cynical, is that often “religious leaders” tend to want to promote a system where you should also include “estate planning” for churches, ministries, etc. There is absolutely no mention of this philosophy or instruction or requirement in Scripture. Rather just the opposite. Scripture is full of verses that require a believer to provide for his family, etc., not the church or ministries. The time to do that is with resources while one is still alive. I also do not agree with his thoughts on a subjective amount to leave, based on how one would plan to spend the money. Again, no basis of scripture. In fact, we are commanded to “tithe” to the church and leave the final “spending” to the church leadership. We ought not to limit God’s plan and use of an inheritance this way. I can tell you in my own life I’ve had lots of money and a little money and God has been effective in my life both ways

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