Leaving kids money“It is not only fine feathers that make fine birds.” – Aesop

Back in January, there was a captivating profile in Fortune Magazine about Melinda Gates, power philanthropist and wife of Bill. The article noted their plan to give away 95% of their wealth in their lifetimes and when asked how much they will leave their children, Melinda indicated they will follow Warren Buffett’s philosophy: “A very rich person should leave his kids enough to do anything, but not enough to do nothing.”

Fortune has written about this at least once before. Back in 1986 to be precise. I’m surprised they even had this one online instead of in the library basement where articles of old can only be found on microfiche. But here it is in living link color.

Buffett does not believe that it is wise to bequeath great wealth and plans to give most of his money to his charitable foundation. Having put his two sons and a daughter through college, the Omaha investor contents himself with giving them several thousand dollars each at Christmas. Beyond that, says daughter Susan, 33, “If I write my dad a check for $20, he cashes it.”

Buffett is not cutting his children out of his fortune because they are wastrels or wantons or refuse to go into the family business — the traditional reasons rich parents withhold money. Says he: “My kids are going to carve out their own place in this world, and they know I’m for them whatever they want to do.” But he believes that setting up his heirs with “a lifetime supply of food stamps just because they came out of the right womb” can be “harmful” for them and is “an antisocial act.”

So what’s the right amount to leave them? He went on to say that for a college graduate, Buffett reckons ‘”a few hundred thousand dollars” sounds about right.

Others use what’s called an incentive trust. This blogger at the Wall Street Journal explains:

Inheritances that have strings attached are known as incentive trusts. They might stipulate that a kid can’t have access to his $10 million until he graduates from college or gets a job. Or they might say that the heir gets cut off if he or she is caught with drugs or abuses alcohol. Some are values-based, saying that an heir has to live up to the broader values of the patriarch in order to get the money.

But should money become a shaper of character? He continues:

To my mind, however, incentive trusts are something of an oxymoron: You leave your kid a fortune, but attach conditions designed to mitigate the impacts of that fortune. It’s a bit like giving someone a lifetime supply of Haggen Dazs, but saying that they can only eat it if they agree to diet and lose weight. And if the conditions are values-based, then the parents are using money to impose their views and principles on their kids — another effective way of robbing them of their own identity.

So here’s my advice: If you really want to mitigate the effects of large fortunes on your kids, don’t leave them a large fortune. Let them find their own careers and success, rather than using money to dictate from the grave.

Character aside, Dayana Yochim at The Motley Fool argues that a dollar spends the same unless it’s inherited and gives these tips to ready yourself for a windfall:

1. Do not put your life on hold, waiting for the windfall.
2. Chill out, but don’t freeze in your tracks.
3. Treat it like you would any other money.
4. Don’t invest like your parents.
5. Carefully consider your options.

So what do you think? Are you relying on an inheritance as part of your financial plan? Do you expect a windfall from your mom and dad? Do you receive trust payments now and if so, what stipulations are attached to them? Would you choose to pass on great wealth to your kids? What is the difference between money gained and money earned? We’d love to hear your thoughts below.