How Much Inheritance Will Ruin Your Kid?

When my family lived near the Cavalier Country Club in Virginia Beach, we were the token middle-class family in the neighborhood. Many of the houses had hedged bushes, carefully carved into eccentric geometric shapes, and sports cars sitting unashamed in their driveway, announcing their owner’s achievements to all.

And despite this clear class divide, I got along great with the boys around me. Some were only 10, but had fathers that were entirely grey haired, and mothers who looked barely out of high school. I noticed the peculiarity of it but never connected the dots on what these unions meant.

Some of these boys were well-adjusted and great. Others were quite spoiled, and I often wonder what came of them. They were agitated and disobedient in school, often getting into fights on the playground.

Had wealth bestowed a sense of privilege upon them? Did they already feel exempt from the rules and any acts of discipline?

Per the Global Health Report for 2023, the United States has 22.7 million millionaires (38.2% of the global total, with China in second at 10.2%). Many of these people are well past one million and cruising into eight and nine figures of net worth. And it leaves us with an interesting predicament: Many scions of vast fortunes are quite young.

And while this might not be a problem many of you sympathize with, it should nevertheless invoke thought about how your worldly assets should be addressed with your children, or the lack thereof.

How should we think about our inheritance?

Lynn Chen-Zhang’s 8-year-old son came home from school one day and said a student asked him, “Why do you study so hard?”

Classmates were saying his parents were rich, so there was no need to work so hard. Her son was on to something. Their father, Charles Chen-Zhang, owns one of the largest financial advisory firms in the country and was already a known philanthropist.

Realizing these questions were continuing, as classmates knew of their family (mainly through gossiping parents), the Chen-Zhangs decided to sit their children down and have the money talk.

They told their two boys, “We’ll support you both in getting as much education as you’d like, but from then on, you are on your own.” Which translated to zero inheritance.

Whether this was a scare tactic or a true threat, they worked. Both sons are now thriving in their finance careers, independent of their father’s company.

This trend is common. I spoke with a peer, Matthew, who is 49 and runs a successful medium-sized business which he just sold for a substantial sum. He told me, “My children don’t even know how much money I just made. Nor do I intend to let them know.” Of note, he lives a humble life and does not flash his wealth by any means.

But most parents don’t face this severe of a dilemma. The average inheritance in the US is “only” $46,200 per census data, with 85% of inheritances being below $250,000. Which isn’t nothing.

The game changes with the ultra-wealthy

Indeed, the Bill Gates and Mark Zuckerbergs of the world, often give away their billions with the aim of bettering society. Their children are an afterthought by intention.

Per Rachel Sherman, sociologist and author of Uneasy Street: The Anxieties of Affluence, the broader category of wealthy families (who don’t have dozens of billions) think more about what’s best for their children rather than society. Their immediate concern remains the radioactive effects endowments have on a person’s potential. Anderson Cooper’s mother, Gloria Vanderbilt famously told him he was getting no money and Anderson was glad for it, saying, “Large inheritances are an initiative killer.”

The challenge remains that there isn’t a magic number for anyone regarding a healthy inheritance. I knew this when I worked in finance, and the “magic number” concept applied on nearly every front of investing. Deciding how much, when, and where to allocate money is a complex and personal decision that should be given deep thought and consideration.

Parents who inherited their money tend to be more accepting of the idea of passing huge sums down to their children. They saw themselves more as stewards of the family fortune.

Conversely, as we saw with the Chen-Zhangs, those who earned their money from the ground up tend to be quite strict with their desires for the family fortune. The calculus changes as the estate becomes more enormous.

Thinking outside of ourselves

We should consider the broader impact this has on society if we just keep passing down increasingly large fortunes to each generation. Does it undermine meritocracy, and allow further generations to coast on the success of their predecessors?

Wealth inequality remains a growing problem, with the top 5% of earners having increased their share of total wealth for three straight decades. Are we undermining the betterment of society by contributing to this trend? Or do we owe it to our children to pass down the benefits of our hard work? It’s a tricky question.

And just because I hate hypocrisy, I’ll put my cards on the table: my parents own a vineyard. This may or may not equate to an inheritance for me — and I mean “may or may not” in its most literal sense. It’s as the saying goes, “The quickest way to become a millionaire with a vineyard, is to start out as a billionaire.” Which my family wasn’t.

My preference is that my parents stay healthy and live a long happy life. I was fortunate to grow up middle class before they became successful and endured a rather strict upbringing. So I suspect this has insulated me from the spoiling effects that the anticipation of wealth can have on a child.

But what about those of you who are successful already, and have small children? What’s the path forward?

A few strategies to deploy

Per author and president of Pacifica Wealth Advisors, one strategy is to give your adult kids a financial test. Give them $10,000 or $20,000 — whatever you see fit. Then, sit back and watch what happens.

Do they take the money and invest it? Or do they go buy a pair of jet skis and travel to Vegas for a long bender? Your answer will generally make itself available in due time.

I’d caution you to carefully weigh the child’s age and not judge them harshly if they were young at the time. My grandfather left me a bit of money when I was 23 and it largely went to me partying and chasing girls, which I’m not proud of — but understand that was where my head was at during the time.

Another strategy is to just bluff. Tell your kids they are getting little to nothing. But, pending time and their hard work — if they earn the inheritance — leave them some of it.

This can be more formally deployed through an incentive trust. It unlocks inheritances based on achievements, such as education, or holding down a full-time job for certain periods. Some incentive trusts will match the salary of the recipient. So if your kid is earning $50,000 as an accountant, they’ll get that same amount matched.

These trusts can be designed in a number of creative ways using an estate attorney. You can have partial payouts based on the person’s age. And allow for emergency releases of funds if something unforeseen happens, like a child getting very ill, etc.

Remember: there is no specific dollar amount of inheritance that ruins a child. It is the promise of huge sums being handed down without reason that does.

I would encourage those of you who are quickly approaching owning your second sixty-foot yacht, to think carefully about the impact of these decisions — on society, and your children. I’ve seen a few kids, with enormous potential, circle the drain of mediocrity because they knew they had a get-out-of-work free card.

We need purpose in this world, and to fulfill our potential as best we can. And beyond that, I believe we should try to give back in some capacity, help the downtrodden, and not just live for our own aims.