Can You Leave Your Kids Too Much Money?

by Darwin on October 21, 2012

Whitney Houston’s unexpected death has put a new subject into common financial discourse. She planned to leave her 19 year old daughter with $20 million. Houston’s mother and sister-in-law say that amount is simply too much; it won’t keep up with Houston’s “intent to provide long-term financial security and protection for her child.”

At first, I thought I misunderstood – I thought they saw $20 million as too little money. Now it seems they think $20 million is just too much to leave a 19 year old.

Leaving Kids with Generational Wealth

As someone who expects to inherit absolutely nothing from my parents, I find the topic that you can leave your children with too much money mind-boggling. Start with the sum of $20 million – an amount that might seem paltry for most “trust fund babies.”

A $20 million trust fund delivered now in risk-free 10-year US Treasuries would yield $360,000 in annual income – enough to be at or near the top 1% without any effort at all. A 50-50 split of high-yielding equities (the Dividend Aristocrats) and 10-year Treasuries provides $410,000 in mixed income with the possibility of appreciation in the value of the equity holdings. (These returns could be further juiced with dividend dogs or mortgage REIT ETFs.)

Is $410,000 per year too much to leave your kids?

Making Kids Lazy

Warren Buffett famously says that he wants to leave his kids with “enough money so they would feel they can do anything but not so much that they could do nothing.”

    1. Is there anything wrong with doing nothing? Think about this conceptually. Most of us will work for years and years, just to have the least valuable years free to do whatever we wish. Retirement is an incredible thing, but face the facts: not many of us are going to retire super young. Those who do retire young make large sacrifices in their 20s, arguably the best years of life. What’s wrong with leaving your kids enough to do absolutely nothing to enjoy all of their years on planet earth?
    2. Leaving beaucoup bucks requires responsibility! The only people who benefit from an oversized inheritance are the people who make smart decisions after inheriting it. Either way, that money won’t be yours after you pass – it has to go to someone. Why not let your kids have the shot to keep it if they make smart decisions? After all, the only way to make a huge inheritance last for life is to allocate it intelligently. It’s survival of the fittest. Bobbi Houston has reason to clean up her act; she’s set for life so long as she doesn’t do anything stupid.
    3. It’s easier to work down from the top than up from the bottom. Life gives zero guarantees. The odds are good that a well-educated person who picks a good career path will do quite well, but nothing is as guaranteed as an income stream from an inheritance. Is there anything wrong with starting with the advantage of working from the top rather than the bottom? Working up from the bottom might be harder, but if it takes you to the same place, who cares? Does hard work really justify extraordinary wealth in a way that inheriting it does not? Last I checked, money spends the same regardless of its source.
    4. There’s more than money; there’s power. Warren Buffett won’t leave his kids with much, just a few million each out of a billion-dollar stockpile that could reasonably hit $100 billion before his death. Outside of their direct inheritances, he’s given his children $1 billion charitable trusts which must distribute $50 million each year. Buffett might not leave his kids with immense wealth, but he has solidified their position as very powerful philanthropists for generations to come. Buffett’s sneaky like that – his kids will silently join the ranks of the Rockefellers while Warren publicly decries large inheritances.


Imagine you’re sitting on a cool $20 million and you’re on your death bed. Do you leave it all to the kids? Would you purposefully give some of it away so that your kids have less?

Rates are low and opportunity is thin. Does the economic outlook today change the way you look at inheritances compared to the boom years of 2004-2007?

{ 10 comments… read them below or add one }

Greg October 22, 2012 at 12:22 pm

I want to pass money on to my children as every parent does, nevertheless I want to level the playing field. I want my children to be comfortable, but they should work for a living like everybody else.

It is not fair that the top 1% pass on their wealth to the next generation and so on. We as a society do not need the aristocratic elite who live on money passed on from their great-great-great grandparents.


Darwin October 22, 2012 at 8:53 pm

The estate tax was enacted to prevent this sort of societal class effect. However, is it also “fair” to take half of someone’s estate? AFTER they already paid taxes on the income earned the first time around? I guess what’s fair will always be up for debate. Fortunately, the country doesn’t seem to be ruled by a few elite; most new money these days is first generation – vast majority of millionaires in the US earned it themselves.


Evan October 24, 2012 at 11:59 pm

“I want to pass money on to my children as every parent does, nevertheless I want to level the playing field. I want my children to be comfortable, but they should work for a living like everybody else.

It is not fair that the top 1% pass on their wealth to the next generation and so on.”

Greg am I reading your comment correctly – that because you can’t no high net worth individuals should either? Why not get a permanent policy and leave them an inheritance that way for pennies on the dollar?


krantcents October 22, 2012 at 4:47 pm

Years ago, we prepared our wills. Our children were still teenagers and we were concerned about them blowing through an inheritance if both of us died suddenly. We appointed a guardian and released funds that were appropriate for their age. Enough for their education and then a portion at 25, 30 and 35 years old. The theory was that you are more mature at those ages to avoid wasting the inheritance.


Darwin October 22, 2012 at 8:54 pm

Wow, we did the same thing – 25, 30, 35. We know how kids are. I want to make sure they got through college first (or started a business or whatever) before coming into substantial sums of money. Virtually EVERY young person I’ve ever known or known of second-hand that came into an inheritance has pissed through it in no time flat.


W at Off-Road Finance October 23, 2012 at 2:11 pm

I think it depends on the kid. Adult kids who have proven themselves competent can just have the money as far as I’m concerned. A minor, or an adult who hadn’t yet proven they could manage money? No. It would have to go into some sort of trust.


Darwin October 25, 2012 at 9:10 pm

Yeah, the other thing to consider is that by the time most people come into money, they don’t really need it any more (if they played their cards right) because people are living into their 80s, so heirs are usually 50s or 60s.


Evan October 25, 2012 at 11:57 pm

W & D,

What if you aren’t a particular fan of your child’s spouse? Or if you want to make sure that money is left to the 2nd generation past you?


101 Centavos October 28, 2012 at 4:24 pm

Well, I’ll be. That little tidbit I didn’t know about Buffett — not that I regularly keep up on all things Buffett.

Our wills also leave our estate in the care of a trustee, until set years.


Brick By Brick Investing | Marvin October 29, 2012 at 9:03 pm

I personally don’t believe in such a thing as leaving too much inheritance. You worked hard to earn that money and you should be able to do with it however you choose. Nobody tells a millionaire or billionaire what kind of house, car, or boat they can buy. But when it comes to leaving money to relatives people are chomping at the bit to tell them not to. In my opinion it is the responsibility of the parent to teach the child about money. We’ve all read or heard stories about wealthy people who cut their children out of their inheritance, while I’m sure there are the occasional other reasons, I’d like to assume the main reason is because they don’t want their life long hard work squandered on night clubs and vacations.


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