I have two articles in front of me that I find fascinating. The first one discusses and challenges the thought process of bequeathing cash to their children and the question asked is “Are parents doing their children a favour by bequeathing their cash?”

The article talks about some wealthy artists, one being Sting, who has declared that he will not be leaving any of his estate, worth an estimated $300 million, to his six children because he didn’t want it to be an ‘albatross’ around their necks.

In Canada, and I am sure more in the US (more people), Canadian Baby Boomers stand to inherit about $1 trillion during the next 20 years.

Sting isn’t the only one to make this decision, Warren Buffet has already earmarked 99% of his enormous wealth to charity, rather than his children saying, “I want to give my kids just enough so that they would feel that they could anything, but no so much that they would feel like doing nothing.” Michael Bloomberg has promised the same for “nearly all my net worth,” as has Bill Gates and Home Depot co-founder Bernard Marcus. Kiss’s Gene Simons said he wants his kids “taken care of” just comfortably enough that they’re still “forced to get out of bed.”

Some agree with this line of thinking and some not. The concern from the aging parents’ perspective is that leaving their kids money will cause the kids to lose ambition. Some parents also worry about their children’s ability to handle money. A financially irresponsible child, young or old, is still an irresponsible child.

In the article a Calgary-based wealth coach, Tom Sorge, said that many people leave money based solely on tax considerations when they should take into account broader issues. For instance “It’s not how much you leave but how you leave it.” Mr. Sorge says it’s important to prepare your heirs that “Successful families set up heirs from a very young age.”

He suggests two concepts:

1. Family Bank – which is set up so children can apply for money or a loan. You will likely have rules for instance let’s say a child wants to start a business the he/she needs to have a business plan, some education in the area you want to get involved in.

Structures can be created so you can even have a board with outsiders who vet decisions about disbursements of the inheritance.

2. Trial balloons – You give the child a little bit of money and see what they do with it. Test them.

The other article I read was about considering giving your adult kids an allowance.

A BMO report recently said that the typical senior is nine times richer than the typical Millennial. I am sure that is very distressing to the younger generation who are looking to pay off their student debt and potentially begin to build their adult life: get married, buy a home, and maybe a car. These actions are often being delayed due to the fact many Gen Y cannot afford to do so. Helping kids out when they are younger rather than waiting until the person dies to transfer their wealth will give the younger generation (30’s, 40’s and even 50’s) an opportunity to put the money to good use when they need it.

How can this help?? An ‘adult’ allowance can provide some new source of regular income to a child, that will allow them to enjoy special treats or to live more comfortably.

Rather than simply buying things for the child, a more modest, regular allowance will teach the child to save up for something that they really want. Ideally a portion of this allowance can be saved to build up your emergency fund or some very long range but important goal.

Some might question the idea of an adult allowance stating, “When will my children ever learn to stand on their own two feet.”

As the author points out, there are not many options for wealthier older parents when it comes to ideas on what to do with their money.

Again one of the biggest concerns is that the funds will go to the adult beneficiaries in one large lump sum that may not be managed appropriately by the beneficiaries.

One of the benefits of doing this is that parents maintain a greater degree of financial control. It’s not one big cheque and the child receiving can budget this amount into their family budgeting. It may not allow for a down payment on a home however speaking from experience knowing you have a constant flow of money reduces stress.

There is no right answer, each family is different and even those within are different. For the child that is financially responsible and astute this is less of an issue. This may be a solution for the child who is less responsible.

This is some food for thought. I wanted to share these articles and let you decide.

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