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Intergenerational Wealth Transfer
Old 05-04-2010, 10:52 PM   #1
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Intergenerational Wealth Transfer

There is a recent thread with a poll asking how much people are expecting to leave in their estate. The majority answers "More than $500K". This was also my answer. I also jokingly elaborated that although I wanted to spend it all, but being chicken, barring some catastrophes, we most likely will underspend and have money left behind. The truth is that it is not so simple, nor are we so selfish.

We have two children. I don't know how many grandchildren we will have, if any. And we like to leave them something. Yes, money can buy some temporary happiness, e.g. travel, RVs, toys, etc..., but there is also the joy of giving that may be longer lasting. The problem is how to do it.

Yes, giving right is a difficult thing to do. We never leave our children wanting, but do not want to spoil them either. For example, we delayed their driving as late as possible, then gave them a clunker first before getting them something nicer. We want to make them work a bit for their money, but also do not want them to go into debt for their schooling. I do not believe parents should go into debt for their children's education. But I also don't think it is right for well-to-do parents to not pay for their children's schooling, yet leave them with a big inheritance.

So, one of my children has graduated, got a decent job in her field of study, and her employer will pay for her graduate studies. I hope my second one will follow suit in a couple of years. Both get a nice start, with no debt. I myself got out of school with only minimal debt, and that really helped.

We encouraged our daughter to buy her small first home. We would have given her a substantial amount of at least a 20% down payment if we felt she could handle the payment and the household expenses. But she said she was not ready and was more comfortable in an rental apartment. So, we did not push it.

The point is that it would (could?) be a joy to give to your offsprings. And if you are child-free, perhaps you have some close relatives like a niece or nephew that you love and would want to share the fruit of your labor and savings with. On the other hand, we do not want to spoil them, to condition them to expect free handouts as if it were their birthright. We know that pitfall very well, having seen plenty of examples.

Now, on the other direction of wealth transfer, I have posted here that my inlaws are broke and need our support, but my mother owns two houses and has some money. Being frugal, she is not likely to spend much of that although we encourage her to. Another fact is that the inheritance, when divided among my offsprings and myself, would be 5 to 10% of my current networth. So, I am indifferent to it, but perhaps would be edgy if we had not built up our own stash and saw my mother go into big spending mode. :-)

We are lucky and happy to be self-sufficient as we have been. Of course, we want our children to be the same. But what if they cannot, due to economic circumstances beyond their control, or due to their vocation not paying as well as mine did? In fact, my daughter trained vocation is not likely to pay as well as mine has (but of course if she can get herself into a CFO position, well, the sky's the limit:-) ).

So, we will play it by ear, and if we feel our children need that "inheritance" before we actually croak, we will help them as we feel appropriate. Even though we prefer that they do so well that they do not care about our money, we also will not let them wait until our death if the converse is true.

I will now hear your opinion and story.

"Old age is the most unexpected of all things that can happen to a man" -- Leo Tolstoy
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Old 05-05-2010, 12:23 AM   #2
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On the giving side, we have no kids but my niece will probably be the beneficiary of some of our estate. I have been setting some money aside for her since her birth and she will receive that money when she turns 18. Hopefully she will use the money to pay for college (her parents may not be in a position to help her financially). She will probably have to wait until we crook to get the rest of the money (unless we have a very large surplus in which case we might give her some money to help pay for such things as a wedding or a house).

On the receiving side, DW will probably get little inheritance while I am looking at something more substantial (my dad is quite wealthy and an absolute cheapskate, so I am pretty sure that there will be plenty left to be passed on to my sister and me). When planning for FIRE though, I always ignore potential inheritances even if I am conscious of the fact that I might inherit a nice sum of money (which could be a life saver should our FIRE plans start failing later in life). My dad, however, didn't help us financially when we bought our first home, or when I bought my first car. He didn't help much with my schooling or our wedding either. Everything DW and I have today, we earned and saved. On our own. I am proud of that fact.

Now compare that to the kind of help my cousins have received from their parents: 3 of them were gifted houses at a young age and never had a mortgage or rent payment in their life. The others received generous down payments. Some have been gifted cars as well. My dad was in a position to help too but never offered. My sister in particular could use the help and, although he does more for her than he does for me, he still shows little inclination to help in any significant way at this point. When he drew up his will earlier this year, he asked for our inputs as to which assets we each wanted to inherit. During the ensuing conversation it became very clear that he has no intention to share his wealth with us prematurely.

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Old 05-05-2010, 12:41 AM   #3
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The main financial asset DW & I have are our pensions which expire with us. Our plan right now is to build up our Roth IRAs and leave $50K each to our two sons. That leaves our 401k/IRAs & investment account to spend down. I expect we will liquidate the house some time and probably spend that too.
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Old 05-05-2010, 03:14 AM   #4
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This is a fascinating issue for me. I have one daughter whose mother I divorced almost 20 years ago. My daughter and I are very close and she has a very good relationship with my current wife. I have paid for private schooling and post secondary education to the masters level. Have also given her very nice wheels since 2004. She has recently started her career at a major bank in Toronto and her future looks bright. She has investments in her own name (about $40K) which she got by saving her allowance over the years. She has set her goal to purchase a condo in downtown Toronto within the next few years by saving most of her salary (currently lives rent free with her mother). She has never asked for anything but is very grateful for what she has received. My DW and I have never counted on receiving inheritances although DW may get one in the low 7 figures. I have encouraged my mother to spend everything down. Again, the issue is how much to give my daughter without causing dependency. It is highly unlikely we will spend all our assets and even the real estate alone would be worth several millions. I would like to help my daughter with a nice downpayment for her condo but don't want to destroy her ultimate sense of accomplishment when she buys her own place. I personally think it is much less fulfilling to hold back giving until death. Much better I think to see the results of generosity and participate in the happiness it can bring. So will play it by ear but when she finds out how expensive condos are in Toronto, I think she might accept some help.
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Old 05-05-2010, 05:48 AM   #5
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DW and I have not received substantial inheritances. My parents essentially reached the holy grail of some ERers - they went out near zero. Mom went last and left just enough for the kids to splurge on something transitory - I went with a jet ski. DWs father is still alive but set to go out with near zero as well. We hope to reverse that trend and leave a pile to the kids. They are both LBYMers and don't count on inheritances. But i worry that they will have to work longer than we did to reach FI. If the market follows normal to a somewhat low trajectory (i.e., not awful) we should leave quite a bit. If things are looking good in our late 70s we will probably start gifting within the gift tax limits. On the other hand, we don't plan to crimp our ER style to do so.
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Old 05-05-2010, 06:46 AM   #6
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Receiving: My parents paid for college for my sister and I, thanks to a monetary gift when we were kids from my mother's mother. They never bought us a car, never gave us money toward houses or anything else. They gave us each a little spending money when they inherited from my dad's mother, which we promptly both put in the bank.

I have a small family. My sister and I are the beneficiaries of my parents and one of my aunts. We are all LBYMers. My parents and aunt FIRED in their 50s and I will do the same. Although I don't count on getting anything, and tell them to spend it all (my aunt has actually started traveling the world a bit - so she is trying ), realistically I will probably get mid-six figures from both sides. I hope that doesn't happen until long after I FIRE. We also have a history of one grandmother who spent 13 years in a nursing home with Alzheimer's, so the extra money they have could go toward that, God-forbid (it was a huge strain on my parents, emotionally).

Giving: I also answered "over $500K". Being conservative as well, I just wouldn't like the idea of seeing very little money in my bank accounts! What if I live to be 110?

I do not have kids. I have two nieces. They'll be through college before I FIRE. At some point I will make them my beneficiaries, I am sure. Will I help them out before I die? Maybe. Their parents are doing quite fine and can help them themselves if the need arises. I don't think any of us would just give them money or cars. It's not in our nature - we believe in a strong work ethic and self-sufficiency. But I could see us helping if an unforseen circumstance arises and we have the means.

I suppose if/when my nieces start having kids, I could see myself being a generous grand-aunt! Maybe set up a college fund for those kids, so that my nieces don't have to worry about that. Also, if I get to my 80s or something and still have plenty of money, I could see inviting the family on trips at my expense or otherwise doing some things that would let me see the joy of my family in that way...
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Old 05-05-2010, 07:33 AM   #7
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Several thoughtful/insightful posts. I think the idea of taking family/friends on trips with you is a good way to "spread the wealth around". We have done this quite a few times over last 5 years. Taking my brother/daughter/her boyfriend/another good friend on a trip to Turkey to celebrate my birthday this summer. I think it's as much or more fun for us to do this kind of thing.
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Old 05-05-2010, 07:42 AM   #8
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inheritances are likes tips (at least in the US) - they aren't necessary, but are always appreciated. at least that's what i told people who asked if tipping was customary in my job of changing their tires...i digress.

being young, i have found great joy in being self sufficient. i left the full ride college education in my home state to go to some little school in colorado that cost a fortune, with my parents supporting me. well, into the first semester, my dad lost his job. loans were issued. and while my parents helped me out in smaller role (couple of hundred bucks here and there) than the 1st semester, i think i appreciated the experience more (paid off the loans in just under 4 years). i also find great joy in saying (almost like bragging), that since college graduation, I have never asked my parents (or anyone besides a bank) for money or a loan. of course, slap some money in my lap i'll only ask, "you sure?" once.

striving to be financially independent, i don't bank on large gifts or inheritances. i've seen families that do (e.g. my dad's family) and it tears them apart. people asking for "their" money early, arguing over who gets what, etc.

my FIL was a couple of months into retirement and was mountain biking when he had an accident that resulted in a spinal cord injury. he has a couple of pensions and a lot of money (and nothing to spend it on), but i don't sit and wonder what i will ever get. in fact, since the VA decided to cut off his physical therapy, i am more than happy to see him spend his money on physical therapy and i hope he can walk some day, even if he has to spend every penny he has trying to do it.

as far as my children, they will get 4 years at an in-state institution of higher education. how they spend it is up to them. i hope to have a sizeable nest egg, and i plan to enjoy life after work. of course, as mentioned by others, i hope to be able to pass something along, but hopefully my children, or whomever i pass my pennies along to, are not dependent on me and my wife kicking the bucket--as far as i know (and i'm young), this is the best way of preserving wealth throughout generations.
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Old 05-05-2010, 04:33 PM   #9
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Received: food shelter et al when young
no car, college: mostly scholarship (parents moved out of state when I was 20 & I had to officially declare financial independence & take out a federal loan)
Borrowed (& paid back) several hundred dollars when I started first after college job.

Inheritance: ~$2000 from an account Mother set up. Don't expect anything from Father. Would like to get hold of some pictures/yearbooks but that would require communicating with relatives.

Anything left over when I die is going to local charities (& maybe some younger 'net friends).
"Knowin' no one nowhere's gonna miss us when we're gone..."
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Old 05-05-2010, 05:12 PM   #10
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While it may be noble of the OP to leave something behind to his children and grandchildren, By far the big intergenerational wealth transfer is the other way.

For Gen X & Y they can expect to pay far higher taxes and live a lower standard of living to fund the benefits (SS and Medicare) promised to the boomers.

While many have discussed this issue, A good discussion of the problem is given by Scott Burns and Laurence Kottlikoff who outline the big issues in their book "The Coming Generational Storm". It's not a pretty picture.

So really what we are leaving to our children , and our childrens children are piles of debt and the obligation to fund such.
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Old 05-05-2010, 05:19 PM   #11
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I received a car and a college education (plus room and board and food and clothing etc for the first 18 years of my existence). We plan on doing college tuition when we have kids.

It is reasonable to expect a sizable inheritance way down the line, but I don't plan on it. My parents are in the process of semi ER. I don't think I will plan on giving an inheritance. Whatever is left is left.
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Old 05-05-2010, 05:51 PM   #12
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We're kid free - the nieces & nephews that are close have been offered a pretty decent amount/term if they get a C or B average. The niece has some good features, but intellect is not among them. She lasted a term. The nephew, a smart and handsome lad, was tasked with getting a B average - he noted there was no minimum in credit hours required and opted for a massive 6 credit hour load. Got the grades the first term but not the second. Instead he doctored his grade sheet, but was too lazy to do a good job. Uncle Softy may not write an agreement to cover all exigencies, but does check when something smells bad. Per agreement, he needs to get a B average this term on his own dime, if so we'll start re-funding. Not what I would do if I were the only one making the decision...
I don't see leaving them much when we kick it - will probably have our sibs in line, as their retirement planning seems pretty absent - if they feel the need to fund their kids so be it.
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Old 05-05-2010, 08:18 PM   #13
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Received: university education (no debts on graduation), two very small inheritances from grandparents and a contribution towards the cost of our wedding. Paid my parents rent for a brief period while I was working and still living with them.

Possible future inheritance: It's likely that my parents will eventually leave behind a meaningful estate since they are (as far as I am aware) spending less than they earn from their investmets but I am not assuming anything.

Given: I have already transferred some assets to my wife. We are planning to pay for our children's education up to a first degree. I suspect we will provide other support after that. Given that we hope to maintain the real value of our assets through retirement, there is at least the potential for our children to receive a substantial inheritance....but hopefully not too soon. Absent a change in tax laws, there is no intention of handing over money early - we do not want them to be financially independent as adults.
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Old 05-06-2010, 07:08 AM   #14
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Couple of further points. There are no tax issues around giving money to adult children in Canada. So early giving makes more sense. That story about a nephew doctoring his grade report reminds me of a similar issue I had as executor of my late sister's estate. She left her money to her son-to be paid when he is 28. Early payment for post secondary education costs at my discretion. I encouraged him in this regard but the best he could come up with was Hospitalty School at a local community college. Needless to say this "Einstein" flunked out second term then lied about it for several more terms. He also falsified records (crude cut and paste job). Very disappointing and a great example of squandering a significant opportunity. This behaviour was shared with my daughter who was aghast. No more contact until he turns 28. I have no doubt he will run through his inheritance in rapid order at that point.
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Old 05-06-2010, 07:59 AM   #15
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Neither my wife nor I got much ($35-$40k) when our parents died. I've never felt the need to do more for our kids. We paid the full cost of undergrad college for all of them.

If I felt strongly that I wanted to leave them something, I'm sure that I would prefer to give it while we are alive. One thought is telling them that their SS taxes are paying for our SS benefit. If we don't really need it, we could split the benefit into three parts and send one part to each kid.

This was my plan. Unfortunately, one of our kids ran into major medical problems while in grad school and is currently unemployed. That may force some adjustments.
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Old 05-06-2010, 10:15 AM   #16
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This is an interesting question. Our situation is made more difficult by not having children of our own.

On the receiving side, there has and will be nothing to come on my side. DH did receive $50k from a beloved uncle years ago, which he has always been grateful for. He may receive something when his mother dies, however I figure she will outlast us and I will just be grateful that the money we spend on her is over. If anyone think that sounds harsh, the story is far to long and complex to go into here.

Depends on when we go as to who gets the money and how much there is. Obviously if our time to depart was now, we would prefer our siblings of choice to have access to the funds. In 20 years time, we would be looking to the nieces and nephews. How we are going to do it is not sure, if the siblings we will probably create a family trust, chosen 3 siblings will get the income from that fund as long as they are alive. Chosen nieces and nephews will likely get a lump sum of say $50k. Not enough to change their life or to ruin them, but enough to give them a start on their chosen path. At the moment of the 6 nieces and nephews we have, 4 will be included. The eldest two have been a big disappointment, however it appears that is due to bad parenting on my sister's behalf. One of them is getting his act together, so he may be included as well.

If we do the family trust, it will pay a set percentage each year. When the named person pops their clogs, their share will go to charity. On the death of them all, the remaining funds will all go to charity. We have a couple of organisations in Cambodia and Vietnam that we currently donate to. They are orphanages that work at giving the children life skills and a stable environment. We really support the concept of giving these kids the opportunity to be successful in their own countries. I know $50k given in that direction can have a significant impact.


I be a girl, he's a boy. Think I maybe FIRED since July 08. Mid 40s, no kidlets. Actually am totally clueless as to what is going on with DH.
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