Succeeding At Succession - Workable Inheritance Plans
James Bond's latest incarnation has said he does not want his children to inherit his fortune. He joins the ranks of those who think bequeathing big sums to offspring is a sort of curse. What are the sensible ways to address this? Law firm Withers takes a look.
The editor of this news service is an unapologetic James Bond fan, and was happy to have watched the new film starring Daniel Craig. Unsurprisingly, Mr Craig has made a mint from his time as Ian Fleming’s legendary spy, and that raises questions as to what he will do with his fortune. Actors’ wealth can be notoriously uneven – lots of work followed by fallow periods. The large majority of those who appear on the screen or tread the boards don’t earn much, but a few do. Their wealth and estate planning can be messy. Magazines and websites love to chronicle the financial misadventures of such folk.
Craig doesn’t want his children to inherit his fortune, and thinks they will fare better by learning to make their own way in the world. In the following article, international law firm Withers looks at cases of parents who leave little or nothing to their offspring, and the results. The insights here come from Dawn Goodman, senior counsel, and Charlie Tee, partner. This news service is pleased to share these views, and invite readers to respond. To jump into the conversation, email email@example.com or firstname.lastname@example.org
Actor Daniel Craig is the latest HNW celebrity to announce in an interview (in Candis) that he does not intend for his children to inherit his fortune. He joins many other HNW individuals who believe that they can serve their children better by requiring them to generate their own success and provide for themselves.
But can the decision always be so clear cut? And is the example, of which Bill and Melinda Gates have been at the forefront, one which families which do not have such massive wealth should necessarily follow?
For those with wealth beyond the dreams of avarice providing benefit for many in preference to leaving all to a few relations would seem to make sense, and not just from a philanthropic perspective. Stories abound of children being crippled rather than enabled by wealth. If everything is served up on a golden platter, finding a motive to get up in the morning, let alone make a life independent of the wealth, can be challenging.
Of course, some family members are inspired by their good fortune to use it for good, whether that is philanthropy, impact investing or ethical, social and environmental commerce.
Attractive though the idea of encouraging a child to earn their own living sounds, some may, through illness or misfortune become unable to do so. Parental expectations may lead a child into a career they would not have chosen; alternatively, if they do follow their inclination they may be left feeling a failure for not achieving their parents' idea of success.
In families where money is rarely discussed it is not uncommon for parents to have an unduly rosy impression of their children's finances. They may be shielded from painful facts: that their children are deeply in debt paying school or university fees; that their job or marriage is in jeopardy; that the health of a family member is deteriorating and care may be needed or simply that with the demands of supporting a family it has proved difficult to make adequate pension provision. For such families, money from their parents' estate may mean the difference between a comfortable old age and a financially- constrained and difficult one. For the next generation it could mean getting on the property ladder or being able to go on to further education.
Some parents who think of leaving nothing to their families by will have provided generously for them during their lifetime - and indeed it is hard to think of any HNW who has been vocal about not leaving their children anything who will not have ensured that they at least had a roof over their head and have been well educated – "nothing" is very much construed in the eyes of the beholder. Even so, unforeseen circumstances can give rise to a need for financial support and an emergency fund held in trust may provide a valuable safety net for the family.
A parent wondering whether to leave their wealth to their children or not does not have to take an all or nothing approach. There are many ways of preserving the next generation from the harm that excessive wealth may cause without leaving them little or nothing, which can be particularly damaging if their lifestyle up until that point has not encouraged them to support themselves and their family in comfort.
Aside from money, there is a very important factor to be taken into account: the emotional distress which a unilateral decision to leave children nothing or next to it can cause. Without prior explanation – and ideally acceptance – the raw emotions on losing a parent can intensify a feeling that they have not earned the love of their parent or were not considered worthy to receive anything. If greater benefit is conferred on a sibling without good reason (preferably one accepted by the family as being so) the difference in treatment can readily be construed as “he/she loved him/her twice as much as me.” A recent survey by Netwealth found that only 53 per cent of parents were planning to split their wealth evenly amongst their children. Worryingly, the same research also found that only 23 per cent of young adults had openly discussed succession plans with their parents.
Such emotions may be the embers of a probate dispute and family breakdown, which often is the fastest and most effective way to ensure that there is a lot less of the family wealth to pass down to the next generation. Even in families where primogeniture is considered the norm, shock and distress is not uncommon amongst the other siblings (as artist Alison Jackson noted in a recent interview).
There are many ways of providing for family while minimising the risk of children being spoiled by money. First, a parent's estate does not have to pass entirely to the next generation. There may be two or three next generations, two of which may be adult. Wealth can be shared between them (directly or by making them beneficiaries of one or more will trusts) as well as putting funds in trust for grandchildren and great grandchildren. Funds can be set aside to help family members meet particular expenses- medical and care costs, education, buying their first home, setting up a business and so on. This could ensure that funds are available when needed while not burdening individual family members with too much wealth and ensuring that no one is able to live the life of a "trust fund kid."
If the parents wish to support philanthropy with the bulk of their wealth their children and grandchildren can be encouraged to become involved with the management and goals of such a philanthropic foundation. For many families such a philanthropic enterprise becomes a powerful motivating factor and the glue which helps to hold the family together. It can also prove a very effective way of introducing children to the concept of stewardship and the responsibilities that come with wealth.
The keys to successful estate planning - especially if the greater portion is to pass to philanthropic purposes – are communication, inclusion and compromise. If parents want the best for their family they will want to know what their financial circumstances, needs and goals are. Their family's ideas and ideals may not match their own aspirations, of course. and long and perhaps difficult discussions may take place before some form of accommodation is reached. However, it is clear that by having such discussions in a lifetime, even if challenging and awkward at the time, greatly reduces the risk of family disputes later.
The family that plans its future together (and openly talks about it) has a better chance of staying together.