Warren Buffett has some advice for wealthy people who are concerned that their heirs will lack motivation, after they receive a large inheritance.
One thing that wealthy parents routinely worry about when giving their children a large inheritance, is whether it will stifle any motivation to go out and earn their own fortunes. The children might stop working upon receiving an inheritance, and waste it to pay for an extravagant lifestyle.
The fear is not completely unjustified. That is sometimes exactly what happens. However, proper planning can prevent children from wasting their inheritance. Recently, Warren Buffett took to the stage and offered advice about how to prepare your heirs so their inheritance is not wasted, as Forbes reports in “Warren Buffett’s Advice On How To Raise Well-Adjusted Heirs.”
Buffett’s advice includes:
- Do not try to use the terms of a trust to force children into certain careers. Let them choose their own career path and they will be more likely to succeed long after receiving an inheritance.
- Talk to your heirs about the details of your will to make sure they understand their responsibilities, and discuss whether they think those terms are fair. Do not surprise them with your estate plan after you pass away.
- If you have more than one child, do not force your children to give to charity as a group. Letting them choose their own charities can help your children get along better and will promote philanthropic values.
- It is possible to give your children an inheritance that is too large. Ideally, they should be given an inheritance that is large enough to do anything with, but not so large that they can do nothing.
Reference: Forbes (June 1, 2018) “Warren Buffett’s Advice On How To Raise Well-Adjusted Heirs.”