Estate Planning – Where is Your Money Going?

I’m not sure if it’s a recent hot topic, or if it’s because my mind has been on it, but estate planning and inheritance seem to be popping up all over the personal finance landscape (see Canadian Capitalist guest post).

While our current wealth is modest, I imagine that the more time our investments have to grow, the greater our net worth will be.  Our retirement goal, like many others,  is to have an investment portfolio that produces enough income to meet our planned retirement expenses.

However, with our frugal mindset, it is difficult to imagine spending the capital base of our investments.  It is likely that we’ll end up living off  distributions (dividends/interest) keeping the capital in tact.  If we are fortunate enough to live into our 80’s or 90’s, we could possibly have a net worth of several million dollars upon passing.

So what are we supposed to do with all that cash?  What is our estate plan?

The way I see it, the obvious options are:

  • Give 100% of the money to our kids upon passing;
  • Give no money to the kids, but all to charity;
  • Give some money to the kids while we’re alive, rest to charity upon passing.

The problem with giving 100% of the money to the kids, especially if it’s a large amount,  is that it may take away some of their ambition and  drive to succeed on their own.  Similar to expectations for myself,  I want my kids to get their own education, own careers and have ambitious life goals.  Having millions of dollars simply gifted to them would likely take away some of that (depending on their life stage).

The second option is to leave 100% of the estate to charity. I can’t see this option being very popular with my kids, but it would give them the expectation that they need to fend for themselves and hopefully keep them hungry for more out of life.

The most appealing option is to give the kids some money while they are alive when they really need it, like for a down payment on their first house, higher education, seed capital for their business,  or maybe private school for the grand kids.  The gift would be with the expectation that upon passing, the remaining estate will go toward charity.  I’m partial to this solution as we would get to enjoy giving the gift while we are alive and it provides some financial help where it’s really needed (hopefully) without damage.

As everybody’s situation is unique, I’m interested in hearing what you plan to do with your estate.  Do you plan to spend it all while you are alive?  Or leave a large portion to your heirs?  Or maybe a hybrid of the two?

I've Completed My Million Dollar Journey. Let Me Guide You Through Yours!

Sign up below to get a copy of our free eBook: Can I Retire Yet?

Posted in

FT

FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
Subscribe
Notify of

This site uses Akismet to reduce spam. Learn how your comment data is processed.

23 Comments
Newest
Oldest
Inline Feedbacks
View all comments
Jean
10 years ago

It’s a tough decision, one I have not yet made. I do not yet have children, but when I do, I know that I will likely leave most of my money for them and my spouse. The perfect scenario would perhaps be me personally distributing the money before my death. I never thought about setting up stipulations but that could be an excellent idea to ease my mind as well about how it could affect their lives. Still though I would not have a problem if it was a large sum of money, I would like to believe that my children would do the same for me.

-Jean

cannon_fodder
10 years ago

CC,

“fund your kids PSE”? What is the PSE? Are you planning on setting up a trust?

I wonder how many people would have a different perspective if you were 80 years old and thinking of leaving money to your close to retirement children… and their middle aged grandchildren… and their teenage great grand children. That could be quite a brood to distribute wealth to.

The Wealthy Canadian
10 years ago

A very interesting post.

Recently my wife and I have been putting life insurance policies in place, along with a will.

Our goal is to leave our kids a large chunk of the wealth we have accumulated but our will sets out some very specific time frames with respect to when our kid(s) will be able to avail of the money.

Our biggest priority is to be around when our kids get older so they learn the value of a dollar, responsibility, and working to earn their place in the world.

We don’t live a lavish lifestyle and want our kids to be brought up with solid values and a drive to learn and do well. I think that a huge chunk of change in the hands of a young kid or adult at the wrong time can have disastrous consequences.

Dave
10 years ago

Ultimately, the choice belongs with the parents, and what they want done with the money. Leaving something behind means you have passed on and it really makes no difference to you at that point what you’ve done with it. I think that whatever you want to do, you do now while you’re alive.

Give annually to a charity you agree with. Start spending more on yourself. Help your kids out with a mortgage payment or a down payment or with a new car. Take your kids on a trip or pay for them to go on a trip.

I think what a lot of people forget is that a large part of why they worked so hard and accumulated so much wealth is to provide a better life for their family. My parents have recently begun talking about estate planning, a topic I really don’t want to hear at this age (23). My father wants everything to go to me and my potential children, while my mother is more in favour of charity. They have earned everything they have through hard work, and I am on the road to do the same. They have given me every opportunity in life, so it’s up to me to make the most of it. Although they are constantly helping my brother and I out, and have been my entire life, if they want to spend everything or give it all away, I won’t hold that against them. It would be much more appreciated with them around to spend it with anyway, and I expect by the time they pass away, I will be financially independent anyway.

Someone mentioned Buffett earlier, and I love his quote on the subject: “I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing”.

I think this speaks volumes about the whole debate. Leaving millions and millions to your children who have not earned it will ruin them IMHO, but setting them up so they can do anything they want and not have to worry about bills, mortgages, car payments etc., will set them up for a life of happiness in whatever they do.

someone
10 years ago

I think everyone here needs to consider first what will happen to your kids NOW if something happens. Worry about the future in the future. I speak as someone who is currently in a 3 year battle over the terms of my fathers will. This is preceisly what happens when a will is drawn up that does not consider the people you are leaving money to.

Bottom line, what is written in your will is worth only what you spent to execute it. As soon as you are gone so is your ability to control the future of the people effected by the terms of your will. In fact, if you make the wrong decisions, your hard earned money can easily end up in the coffers of an unknown lawyer.

My advice, consider what needs to happen now if you were to pass, and worry about what gift you will or will not give as you are closer to the age you expect to pass.

Canadian Capitalist
10 years ago

I’m not worried about this at present. Every penny we have right now will go to the kids obviously since they are young. Once they are grown up our plan is to fund our kids’ PSE. Anything they get beyond that will be a bonus, not to be counted upon!

Brian Poncelet, CFP
10 years ago

Hi FT,

If you get the right type of insurance the death benefit increases every year.
By year 20, this far outstrips inflation every year. If one lives for a long time and gets the coverage early, this in many ways the cheapest as well.

If one thinks their estate is going to grow and has good cash flow, this is the way to go.

Again, I have an example of the type of insurance in the https://milliondollarjourney.com/how-annuities-work.htm (near the end)

I think what you are thinking about is level coverage.

cheers,

Brian

Brian Poncelet, CFP
10 years ago

Hey FT,

What is missing here is insurance…not term because you might outlive it. Over a long lifetime term costs more. The insurance company is off the risk, but has your money.

You may want to review the story I wrote for you on annuities as one example.

What if you could spend your money, enjoy it and still leave a large estate behind with no worries?

When you factor taxes, probate fees, and accounting costs the insurance gives you two great options. You get to enjoy your money today.
Your estate pays less taxes. Money is given to the estate in days not months or years. You avoid lawyers and accountants…which means saving money and lots of it!

If you want I can draft up a scenarios like buy term and invest the difference and why for someone in a high tax bracket this does not work out because of our taxes, why there is better control of your money, more protection and works for all economic conditions.

cheers,

Brian