“I want to leave my children enough so that they can do anything, but not so much that they can do nothing,” Warren Buffett once said.
Buffett’s net worth is £144 billion and he is one of the richest people in the world, but his children will not benefit from all his wealth.
He’s not alone – celebrity chef Gordon Ramsay, whose fortune is worth an estimated $220 million, according to Forbes, also publicly said his children will not get his wealth.
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“It’s definitely not going to them, and that’s not in a mean way; it’s to not spoil them,” he told The Telegraph in 2017.
Bond actor, Daniel Craig, also once said he will not leave any of his money to his children. “Isn’t there an old adage that if you die a rich person, you’ve failed?” Craig told Candis in an interview in 2021. Craig, who has one child, is one of the richest 007s and has an estimated net worth of £116 million.
But, are the likes of Buffett, Craig and Ramsay onto something? Do children have this automatic entitlement to inherit all our wealth and should we be stashing it away for them to enjoy?
The psychology of saving for our kids starts from the moment they enter the world.
Newbie parents are obsessed with hunting down the best savings accounts for children or top junior ISAs for their newborns – these savings sometimes come at the expense of the parent’s own comfort.
It doesn’t stop at saving accounts. It’s become an expectation that we will preserve our wealth and pass it onto our children. It’s all for the kids, right? But before you pass on your assets, there are a few things to take into consideration when looking at inheritance, especially if you are looking to give some of your wealth away as a gift while you are alive to minimise inheritance tax liabilities.
What are your income needs?
Before you promise any kind of inheritance to your children, be sure to take care of your needs first.
It sounds obvious perhaps, but it is often a trap that many fall into for misjudging what they need to live on.
Ask yourself if you genuinely have enough to retire on comfortably. While you may think you do, research from Scottish Widow shows around 40% do not save enough for a basic pension and around 30% don’t know what they need to retire on. It comes as no surprise therefore that retirees fall short on income when they stop work.
So, before you consider gifting any inheritance, be sure your future income is adequate and takes into account any unexpected needs – don’t give away your inflated buffer.
Deprivation of income needs
Care is often a forgotten cost. Care costs can run into thousands a week and though you may like to think we do not need care, if you do end up needing it but give your children some early inheritance, then there is a risk your local authority may see it as deprivation of assets.
This is when someone intentionally reduces their assets so that it is not included when working out whether they should pay for care. It could mean you end up facing a large bill which you may struggle to pay for.
Are your children ready to inherit a large amount of wealth?
While you may be looking to leave your children a huge inheritance, are they really ready for it?
Recent research from the Current Account Switch Service shows 71% of UK adults do not understand how savings work, let alone other aspects of managing your finances.
This is just a small element of the lack of financial literacy we face. Unless you have instilled good money habits and taught them how to manage money, should your children really be trusted with your wealth?
Not all young adults are ready to take on large sums of money or inheritance of assets such as property – so before you give them anything, be sure they have good money sense. It could also become a burden for them if they are not sure what to do with their inheritance.
It’s also important that they understand how money works so they don’t grow up relying on inheritance to see them through.
Building relationships
While many parents place a huge focus on money and wealth, and always working hard so that they can pass it to their children, let’s not forget – what children of any age want the most is your time and attention.
I know it too well, as a parent – no amount of money can build the emotional relationship my children need from me. Emotional needs cannot be met with money, broken relationships can’t be rebuilt by giving your children assets.
While we all want to provide the best for our children, be sure any inheritance you give them comes with memories, family stories and let them know it isn’t just money they are inheriting – they are inheriting a part of you that loved them more than the wealth you built for them. Make the inheritance a meaningful one.
Enjoy yourself
While leaving some inheritance is a lovely gift to your family, don’t forget to enjoy your money. Go on that cruise, buy that holiday home – live your dreams with your money. Yes, your children may think you’re eating into their inheritance, but it was never really theirs to enjoy, was it?
