Warren Buffett created the Giving Pledge to convince the world’s wealthiest people to leave the majority of their wealth to philanthropic endeavors rather than as an inheritance to their family. He says, “My family won’t receive huge amounts of my net worth. That doesn’t mean they’ll get nothing. I still believe in the philosophy…that a very rich person should leave his kids enough to do anything but not enough to do nothing.”
One can certainly appreciate the attempt to avoid creating a sense of entitlement in your children and instill a strong work ethic. Plus, the decision to use their wealth for the good of many as opposed to keeping it in the family can also be applauded. However, if you ask your children you may receive a different answer.
An interesting article contributed to CNBC
by Julie Halpert explains that many in the Baby Boomer generation mimic Buffett’s approach to estate planning. In fact, a 2014 U.S. Trust Wealth and Worth survey found that Baby Boomers are less likely than any other generation to believe it is important to leave an inheritance to their heirs.
Halpert’s article outlines several reasons Boomers are less likely to leave an inheritance to their family:
“I earned it and you should too” – A large percentage of baby boomers were the first in their family to accumulate wealth. They are more likely to believe the same should be expected of their children. “I don’t want to negatively impact their work ethic,” says Andrew Aran, a wealthy registered investment advisor, in the article.
Activism and social causes add meaning to their legacy – “The thought that it can go to help others makes me sleep a lot better at night,” says Craig Wolfe in the CNBC article. Wolfe has a net worth between $3 and 4 million and never anticipated becoming wealthy so he feels an obligation to give back.
Boomers are spending more –for a variety of reasons:
Boomers have a “Spend it now because it will be more expensive later or we won’t be here later” mentality. This is often attributed to the fact Boomers grew up and had stable jobs (and pensions) and lived in the aftermath of the Cold War, global uncertainty, and rising inflation.
Boomers are living longer than previous generations and thus are impacted by the rising cost of healthcare and long-term care.
Boomers are spending more money, and for longer periods of time, to support their children as the cost of secondary education continues to rise and as many children of Boomers are forced (or elect) to move home after graduation until they find a job.
Boomers see retirement as an opportunity to redefine themselves and enjoy the fruits of their labor – The U.S. Trust Wealth and Worth survey found that Boomers ranked having fun as one of the most important uses of wealth. Whether it is travel, vacation homes, starting businesses, or other forms of personal enjoyment, most have worked their entire lives to be able to do so and intend on taking advantage of the opportunity.
Regardless of your plans for your retirement savings, you must first accumulate the wealth in order to be faced with the decision to gift it or spend it. Self-directed IRAs are an ideal investment vehicle for accumulating retirement wealth and have the added benefit of allowing the account holder to name a beneficiary. This enables investors to transfer the tax-free or tax-deferred savings to their children, a charity, or other party.
Who will you leave your inheritance to? Why? We are interested to hear from you! Comment on the article below and let us know what you thought of the article and what you plan to do with your inheritance when the time comes.
If you’re interested in learning more about creating a legacy with a self-directed IRA, request a free, no-obligation one-on-one IRA checkup
with an Equity Trust Senior Account Executive.