Kids, Wealth, and Consequences: Ensuring a Responsible Financial Future for the Next Generation

Chapter 2. To Trust and How to Trust

In CHAPTER 1, we encouraged you to test different assumptions: your annual spend rate as a percent of your net worth; your portfolio return; taxes; inflation; and how many children you have. We considered how those assumptions may affect the amount of your estate that you likely will be able to leave to the next generation or two, whether you need to adjust your current spend rate to achieve some desired degree of intergenerational equity, and the potential unintended consequences your children may suffer as a result of inheriting such wealth. In this chapter, we explore how to begin minimizing those unintended consequences by setting up estate plans and trusts that will likely result in the best financial and emotional outcome for the children.

This chapter will not consider the tax issues involved in estate planning. There are many books devoted to this topic and many experts who can guide you. But many of those books and many legal and financial advisors may not consider it within their purview to discuss the personal consequences or considerations involved in preserving and transferring wealth, which is our mission in this chapter. In fact, attorney James E. Hughes Jr., author of Family Wealth—Keeping It in the Family and Family: The Compact Among Generations (both published by Bloomberg Press), pointed out during our telephone interview with him, "It's well-known, which attorneys never tell anyone, that many of their clients who created and ...