The Case for an Inheritance

Many moons ago, I dined with a British partner of the consultancy I called home. This was supposed to be a reward of sorts – if you had done well on the engagement and/or he heard good things about you, he’d invite you to dinner. Just the two of you.

On the plus side, you’d be treated to one of the nicest restaurants in all of Zurich (where we were based). The catch was you had to actually dine with this guy. It was the kind of reward you don’t want but can’t refuse.

He was brilliant but also eccentric, even for an Englishman. I had to always be on my toes around him because he’d ask really random questions and base your entire value as a human on the answer.

Not one for smalltalk, he started our lovely dinner with, “Are you a self-made man?”

I paused, because I knew he liked to ask weird questions like that to us Americans – he really enjoyed it when we responded with a clueless, “Huh?”

I thought I knew what he was after, so I looked thoughtful for a second and offered, “I owe much to many, but as defined by an Englishman, yes, I am a self-made man” (this dude liked it when I talked like that – I play to the crowd).

He smiled and pushed his fingertips together thoughtfully, so I went to my Chitchat 101 rule book (“what about you?”) and respectfully asked if he, too, was a self-made man.

He answered in the negative, or, more accurately, “No, nonooo, nonoo, no, no, nonoo, nonoo. No. No!” (I like it when the English do that.)

Amazingly, the conversation was the best part of the dinner (and the food was awesome)! We had hit on a topic of great interest to me.

He shared his background and spoke at length about inherited wealth: why it was so historically important in Europe, why it was still relevant today, why it DID make sense, and why Americans did so poorly with it. I kept my responses to a minimum and just focused on confirming how wise and awesome he was.

He finished his lesson with a question. Did I know the most important rule for inherited wealth?

“Don’t blow it?” (Slipping into American vernacular earned me a contemptuous eye roll.)

He followed with, “Yes, but said more properly: Preserve the Inheritance.” That is the ONLY rule that matters, and teaching that rule is the heavy obligation borne by each generation.

Americans, you see, were such trainwrecks at passing on generational wealth because they focused on earning and giving away the inheritance. They didn’t focus on training the next generation to maintain it and pass it on. Your kids would blow it, or feel ashamed by it, or let it sap their ambition, or view it as their birthright (no need to pass on), or all of the above. I imagine that’s true of all countries and cultures, but this Englishman wanted to pick on us Yanks.

The key was to view an inheritance not as money to blow but as funds held in trust for future generations. It was a heavy obligation and burden, not a windfall to spend. I liked the sound of that.

The Case for an Inheritance

As defined by an American, I am most definitely not a self-made man. My parents gave me some enormous advantages, and they headed a huge team of people, which also included teachers, coaches, and other mentors, who paved a much easier path for me through life. The most valuable gifts were things like a wonderful childhood, a loving family, and a great set of values, but I also received significant financial benefits from them while growing up.

I’ve fully embraced my obligation to pass on these same gifts to my kids, but, like most, the idea of leaving them an inheritance gives me pause. I’m worried about the negative effects of inherited wealth, but I seem to be completely fine with other significant generational wealth transfers (like paying for college). It feels a bit arbitrary.

I like Warren Buffett’s thoughts on the ideal inheritance for kids: “enough money so that they would feel they could do anything, but not so much that they could do nothing.” But I think there’s more to it than that. Warren’s a pretty clever guy, but his quote is just focused on the amount. Without the right tools, any amount can be too much. With the right ones, perhaps no amount would be.

I think my English colleague’s message was that giving someone the tools to succeed with inherited wealth was far more important than the wealth itself. If you can’t do the former, don’t even try the latter. So when I think about leaving my boys an inheritance, I’m focused on two things:

  • Tools to handle the inheritance
    This is not just asset allocation and picking investments. This is being humble, and frugal, and hard-working, and nice. Any inheritance is not a gift, but an obligation they now hold to future generations.
  • The inheritance itself
    This is a much less important bequest and a tiny fraction of the total value. Without the right tools, the inheritance itself can end up worth less than nothing – it can ruin lives.

I certainly hope I have the ability to leave something to my children, but I know I’ll continue to wrestle with the right execution. The perils from getting it wrong severely outweigh the gains from getting it right (sorry kids), but much of that lies within my control.

To my boys – if you are so fortunate as to inherit something from mom and me, let this post stand immemorial as the reminder: “Don’t blow it!”

 

If you’ve managed to solve the riddle of what is the perfect inheritance, or just have your own concerns to share, please let me know in the comments.

Picture courtesy of Geralt

 

16 thoughts on “The Case for an Inheritance

  1. I inherited the importance of honesty, integrity, hard work, perseverance and kindness from my parents and have done my best to pass that inheritance to my children. With those traits, generations to come will have the “wealth” they need to thrive.

    • I think that’s it exactly. Those traits are a lot more important than money, and if you can make your kids similarly obliged to pass them on to their own the virtuous cycle continues.

      I do worry that all it takes is for one generation to screw things up and then you’re back to square one, but I’ll just worry about one generation at a time!

  2. It is eye-opening to read his description about how we handle inheritance so poorly in America. “Americans, you see, were such trainwrecks at passing on generational wealth because they focused on earning and giving away the inheritance.” Getting the training and the tools rights is the goal…but agree, not always a straight-forward formula that guarantees success. Hopefully someone will comment on their success formulas!

    • The devil is most certainly in the details! I wish I had a foolproof formula that would guarantee success, but it feels like there’s not even a culture of inherited wealth being a good thing here. Some people don’t even know their families are seriously wealthy until someone dies – like it was some shameful secret. I can make strong arguments both for and against inheritances, but there’s no defense for a “surprise” inheritance delivered to an untrained and unwise beneficiary.

  3. Most of the inheritances we see here in the States are blown almost immediately by irresponsible, drunk buffoons. Or maybe those are just the ones that we hear about. 😉
    I’m not sure what we would do with our FIRE funds when we pass away. I certainly don’t want our kids to not know the value of working for what you have, but at the same time I’d like to keep them from struggling. I think a modest inheritance and donating the rest to charity is the way to go for us.

    • I think the struggle you highlight is the issue – there are strong arguments against handing the next generation a windfall, esp. here in America, because there are so many cases of it doing harm.

      It was interesting to see this Englishman’s take – the problem wasn’t the money itself, but rather the lack of training provided. By declaring early on that he would be passing on a boatload of money, he could then focus the rest of his time with his kids on mitigating any ill effects.

      A modest inheritance sounds like it may be the best of all worlds, and when you’re in company with Warren Buffett, you must be doing something right!

      Thanks for the note!

  4. My dad helped with my down payment and said his parents had helped him, so he wanted to pay it forward. Not close to inheriting an English Manor house…but amazing and appreciated. My parents are divorced and yet independently came to the same amount they felt comfortable contributing and I had the same amount to put in. I decided it was time to buy for emotional reasons of wanting to feel rooted, but also to build equity. That my grandparents helped with that is pretty cool!

    • It sounds like your family has the beginnings of an enduring tradition – I really like the pay-it-forward philosophy. You could say your dad “had” (felt obliged) to come up with a down payment for a house, but it was not for his own but for the next generation. I think traditions of well-defined obligations from one generation to the next are a great way to avoid some of the darker aspects of inherited wealth.

      Congratulations on home ownership, and thanks very much for the note!

  5. This anecdote is hilarious. As a Scot, I have encountered these kinds of Old Money Englishmen before, and the narrative in my head may have been a bit unkind. But you unearthed a real positive lesson from the encounter, the importance of giving our children the tools to deal with whatever we leave for them, rather than just leaving something for them. My kids are very young so I have not had to grapple with this much but I intend on leaving them quite a bit of money and quite a bit of financial education as well!

    • This guy was such a caricature I think he would have been very familiar to you. Thankfully I haven’t had to encounter too many like him, so it was an interesting and new anthropological experience from which I had the chance to learn. All bets are off, though, if I had to spend much more time with his ilk!

      I think the fact that you intend to leave your kids a good bit is the key – knowing this when they’re so young allows you to think through what’ll be needed for it to work and them not suffer ill effects. The worst possible scenario seems to be when kids are unprepared for a big inheritance. That seems more common here in America – either we’re uncomfortable about broaching the issue altogether, or we screw around and only hit a home run late in life and suddenly have to face the issue. Less of a risk of that for a thrifty and industrious Scot 🙂

      Thanks for the note!

  6. It seems nobody has mentioned the obvious. The UK has free healthcare and free elder care. I could amass a small fortune for my daughter to inherit, but at $6000/month for the local nursing home we’d burn through her inheritance fast. And that’s for one person. If her dad and I were both in need of care that would be $144,000 a year!

    • Yes, that’s definitely worth calling out – we’re all assuming there’s an inheritance in play with our comments, but the market / country-specific dynamics will help dictate whether there is one to be passed on. To further complicate the analysis, the higher tax burden in the UK (that pays for the healthcare and elder care) might make for a much smaller pile as you enter your golden years – so perhaps the end point wouldn’t be as far off after all. In any event, incredibly high health & nursing home costs and outliving your assets are major concerns here in the U.S., and worthy of their own post in the future!

  7. This is a timely post as my husband and I are working on our wills and will have lawyer draft them. We are young (31) so the assets are few, but we like to be prepared. You are right, it is not about the amount of money, but teaching kids to preserve the wealth. I also was fortunate to have a great up bringing with parents that loved me and made sure that I had everything I needed.
    however, the topic of money was never discussed in our home. How can you one learn about managing wealth if they are not sure of how to manage money? It goes down to culture I guess, and maybe the English man are on to something, not sure,but something to think about.
    There a stat that says 90% wealthy families in America that come from ‘self-made’ humble beginnings will be broke within 3 generations. I thought that was interesting.
    Great post!

    • Thank you!

      There is something distinctively American about being self-made, but I do think that the newness of the wealth, and the fact that it was all “earned”, makes it an uncomfortable topic to discuss with kids. I think we all want the conflicting goals of letting them become “self-made” themselves while helping provide a net in case they get into trouble. Striking the right balance is indeed hard, but having those money conversations early in life has to be part of a solution.

      Thanks for the note!

      • We have a large amount to leave our children avaliable now. We are going to pay them 3 times what they earn from an employer. If they get a high paying job they get a lot from us and my wife and i know the money is in safe hands. If they don’t work the money stays with us. We openly say that we want to get the fortune to them asap

        • That sounds like a pretty clever plan – I really like how it ties the incentive to their own accomplishments. 3x is a nice hit, but the good job it incents them to get will pay dividends for their whole career. Which is of course the point! Thanks for a great idea.

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