Most of us are familiar with the sad spectacle of the downward spiraling life of Paris Hilton. This young woman had the good fortune to be born into one of the richest families in America. To be blunt, she has brought shame to her family and disgrace to herself by flaunting a lifestyle of conspicuous consumption and wild behavior. A few months ago, she received much media attention as she was hauled off to jail, screaming and wailing like a spoiled toddler. While some will no doubt defend Paris’ right to be a free spirit, I take a more old fashioned view. In the Gospel of Luke we read: “For everyone to whom much is given, from him much will be required; and to whom much has been committed, of him they will ask the more.” (13:48). Now let us look at a contrast.
At the beginning of the 20th century, oil baron John D. Rockefeller was the richest man in America. Instead of leaving generations of spoiled, pampered lay-abouts, he left a legacy of children and grandchildren who were governors, a U.S. Vice President, a U.S. Senator, educators, business executives and philanthropists.
Now, I can hear some of you dear readers saying:” OK, Robert, that’s interesting, but we don’t have any Hiltons and Rockefellers in West Tennessee.” To this I reply: “No, we don’t, but no matter the size of the inheritance, beneficiaries need to be protected from the same things. They need to be protected from other people and from themselves.” It has been my experience that most families actually have more in assets than they realize. It is indeed true that we don’t see great industrial fortunes in West Tennessee. However, with 401(k)s, IRAs, life insurance, and real estate, many families have significant assets. All parents should be concerned with how inheritance will affect the lives of their children. Some children are able to responsibly manage money at age 18, while others are unable to at age 58. Research has shown that most people who receive significant amounts of money, whether by inheritance or by winning the lottery, do not keep it. Sixty per cent burn through their money by the second generation, and ninety per cent by the third generation. Surely there is a better way!
Now I don’t know where the Hiltons went wrong in raising Paris, but I do know what Rockefeller did right. He successfully passed on to his descendents the virtues of hard work and civic responsibility. Several generations of Rockefellers have been useful, productive citizens who not only carefully managed their considerable inherited wealth, but also used it to benefit and improve society as a whole. Long before the term “giving back” became a popular buzz word, the Rockefeller family was doing just that.
Patriarch John D. Rockefeller did at least two things that influenced his family’s attitudes toward the use of money. First, he started a family tradition when his children were very young. He held regular scheduled family meetings to discuss finances with his children. Now, this is one of the hardest things for parents to do. Most parents find it far easier to talk to their children about sex than about money. We avoid talking about money because such talk so often leads directly to tension. It is so hard for us to talk to others, especially our children, about what money ---earning it, inheriting it, spending it, saving it, gifting it---means to us. Why is this? Well, we happen to live in a society and culture with money as its center. Not only do we tend to judge others economically, we judge ourselves as well. When the topic of money is brought up in the family, issues of shame, fear and guilt often appear. For many of us, money has multiple meanings, some obvious and some not so obvious. Money can mean personal security, freedom from want, and the ability to help others. It can also mean greed, revenge, dependence, jealously, favoritism, vulnerability, and deception. Our attitudes about money shape our values and behavior, and these deep feelings become the blueprint for how we live our lives from a financial perspective. Our beliefs and ideas about money come to us from our families, and while children listen to what their parents say, they place more importance on what they see their parents do. If we are not articulate in communicating financial decisions within our families, issues can lay dormant, waiting to confront us in the future.
Ideally, parents should start the tradition of family meetings when children are as young as five or six, keeping the meetings short and fun. The guiding purpose should be to instill values, not to lecture. Children can learn by way of example how careful management of money is a key to success. Teenagers may think family meetings are weird at first, but will later come to appreciate being included if the parents take it seriously and if everyone’s opinion is given some weight. Grown children will appreciate being part of the family decision making process instead of wondering what they will find when they finally get access to their parents financial matters. Family financial meetings are not just for the wealthy; all families can benefit from honest and open communications about money vales and practices. Before each meeting, prepare a written agenda, and keep notes of the meeting. At the end of a meeting, decide what everyone is supposed to do before the next meeting. Years of such meetings will give parents the confidence that their children will be able to handle money. If you are uncomfortable with the idea of holding family meetings, ask a trusted financial professional, such as your attorney, CPA, or investment advisor to facilitate them.
The second thing that Rockefeller did to protect his heirs from misusing an abundance of money involved the wise use of trusts. He left the majority of his wealth in a series of trusts that insured that it would stay in the family for generations. Like family meetings, trusts are not just for the wealthy. Trusts are created to protect beneficiaries from creditors, from predators, and from themselves. Parents who are worried that their children may not use an inheritance wisely may find that trusts offer reassuring alternatives to direct bequests of large sums of money. For example, a trust may include a “spendthrift clause” that keeps the trust assets from being subject to the claims of the beneficiary’s creditors. With such a clause in place, the beneficiary cannot pledge the trust assets for his or her debts, including alimony. Trust may contain provisions that ensure that children and grandchildren use their inheritance in ways that the grantors of the trust would prefer. For example, trust distributions can be tied to educational expenses, home purchases, medical expenses, or matching retirement account contributions. Trust provisions can also tie distributions to the beneficiaries’ earnings or community service, to help ensure that they become useful, productive citizens. Trusts can also dole out cash in installments, rather than all at once. For example, money can be distributed to beneficiaries in thirds, such as one third at 30, the second third at 35, and the balance at 40. Trusts can also offer significant tax advantages, often combined with charitable remainder features.
Critics of trusts say that they are rigid, full of administrative costs, and make heirs feel like their parents or grandparents are trying to control things from the grave. I have personally been involved in the administration of trusts for many years, and assure you that in almost all cases, the benefits of trusts far outweigh any of the downsides. Trust documents can and should be drawn to provide flexibility. So very often the trust provides the beneficiaries with much needed financial management and guidance until they gain the maturity and experience to manage their own funds.
The sad example of Paris Hilton need not be repeated in your family. Begin by taking the appropriate steps to instill the right values about money in your children. Talk to them about money. Help them learn to manage it. Don’t hesitate to use trusts for their financial protection. Your thoughtful actions can help insure that money becomes a blessing to your children instead of a curse.
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