Why You Should Start Legacy Planning Today

Generational wealth bothers some people, from politicians who want to seize and redistribute it to the super wealthy who don’t see the point of leaving everything to their kids.

Warren Buffett and Bill Gates are on record stating their kids aren’t going to inherit the majority of their respective accumulated wealth. They plan to give most of what they’ve amassed to charity.

Still, Buffett’s children will receive US$2 billion apiece… or about 2% of his net worth per child.

Many super-rich and famous decide not to risk spoiling their kids with mega-inheritances. I understand. Why would a parent want to contribute to making it easy for his children to become useless members of society?

As my first grandchild approaches her third birthday, these concerns are much on my mind.

I grew up relatively poor, the son of a single mother. We never went without dinner on the table, but we were definitely lower middle class. I saved long to be able to pay for my first car, and I worked two jobs to cover college tuition… then worked two other jobs while in grad school.

I don’t resent it. It gave me a real appreciation for the value of a dollar… and it made me who I am.

The prejudice is that kids of wealthy parents don’t do anything with or for themselves, and I’ve seen it. Kids of upper-class families do sometimes grow up to be ne’er-do-wells.

Of course, there’s no guarantee either way. Children of wealthy parents can turn out to be hard workers, while kids of poor hard-working parents can grow up to be lazy gits.

Giving money to your kids without first thinking through a big-picture strategy can create big problems… for you and for them.

Take, for example, one proud father I know who gave his daughter a big house in a nice neighborhood as a wedding present. He had the best intentions but didn’t think through the consequences of the gift. While the son-in-law made a good living, the young man couldn’t afford the property taxes or the maintenance. So, even though they lived in a paid-for house, the daughter and son-in-law struggled to keep up financially.

An asset-planning attorney I work with tells the story of a client who tried to address the risks of giving a child more than he or she could handle. He set up a trust that allowed his children to withdraw an annual amount up to the income they generated personally each year.

His son, a teacher earning US$50,000 a year, could take out US$50,000 a year. His daughter, a Wall Street banker earning US$500,000 annually, could withdraw US$500,000 a year. They could each double their income.

The thinking is that the banker would, in theory, know how to manage that kind of income and wealth, while the teacher would struggle to manage 10 times the amount of his annual salary. Maybe he’d figure it out… or maybe he’d squander it.

Perhaps he’d even be tempted to quit his teaching job and live off the trust money.

For a long time, my priority financial objective associated with my children was to be able to pay for college for them. With my youngest child graduating this month from NYU, that goal is met.

Now I’m looking ahead and thinking bigger and longer term.

I’m beginning to focus on legacy planning.

I’m looking at which investments I own that could perhaps be transferred now to my children and grandchildren.

And I’m considering new investments giving priority to their estate-planning implications and upsides.

In Miami earlier this year, Kathleen and I met with an asset- and estate-planning attorney. What are our goals, he wanted to know.

Kathleen and I have worked hard over the past three decades and we’ve been very fortunate. As we push into a next stage of our lives, we wonder ourselves… what are our goals now?

We’d like what we’ve managed to build and whatever we’re able to create between now and when we die to remain intact.

We want our children and our grandchildren to have full use and benefit of the assets we hold… but we don’t want to divide everything up or risk it all being sold off.

Some of our holdings, in particular, are worth holding on to.

The apartment in Paris where our children grew up, for example, is a generational asset. Any Frenchman (or woman) owning this apartment wouldn’t give it up without a fight. They’d want it to remain in the family.

Indeed, over the two decades we’ve owned it, we’ve watched ownership of other apartments in our hotel particulier transfer ownership… but not through sales. As original owners have passed away, their adult children have taken on the family assets. We share our building now with families with young children who run and sing on the cobblestones of our courtyard… just as our children did when they were young.

We want our grandchildren and their children to carry on in this place in the same way.

Some assets are not meant to be owned but safeguarded. Our one-of-a-kind apartment in central Paris qualifies… and so does Los Islotes.

This is our primary legacy undertaking… the place where we’ve chosen to create a generational base.

We own the land at Los Islotes and are erecting many structures upon it that, yes, we also own.

But that’s not the point. At Los Islotes the point is stewardship.

At Los Islotes we’re working to protect the special natural world we’ve discovered and to marry it with the best of 21st-century living.

We hope our children and grandchildren will pick up where we leave off and that they and the generations to follow will continue to benefit from what Kathleen and I would say is the greatest asset of all…

Land with legacy.

Lief Simon