When Stewart Mott died in 2008, his obituary in The New York Times described him as offbeat. That’s probably a fair description. Mott’s father, Charles Mott, had been one of the founding shareholders of General Motors. As a result, the younger Mott didn’t need to work and instead pursued other passions.
Among his many activities, Mott enjoyed political activism, but he wasn’t a strict partisan. To underscore this, he once brought both a live elephant and two donkeys to a fundraiser. He was also an environmentalist. At his home in New York, Mott converted a penthouse apartment into a garden, complete with a chicken coop and a compost pile. He also spent time living on a junk in the Hudson river. In the Manhattan phone book, he listed his profession simply as “philanthropist.”
Mott’s pleasant, charmed life stands in contrast to that of John du Pont. A contemporary from a similarly wealthy family, du Pont’s inheritance led him down a darker path. Like Mott, du Pont was also offbeat. He loved birds and collected stamps and conch shells. He was a major supporter of amateur wrestling teams. But, unlike Mott, he abused his position of privilege. In business meetings, he would often brandish a gun. In 1997 he ended up shooting someone and spent his last years in jail.
While these are both unusual cases, they highlight a challenge many families face: how to use their resources to benefit their children without inadvertently leaving them worse off. In theory, we’d all like to help our children succeed in life. But when there’s wealth involved, it can be hard to get it right. And there’s no simple formula to guarantee success.
Warren Buffett probably said it best: “You should leave your children enough so they can do anything, but not enough so they can do nothing.” That does sound ideal—but it’s not necessarily easy. The devil is in the details. While there is no one “right” way to do this, below are some ideas to help you develop a plan for your own family.
I should note that many of these ideas apply equally whether you have children or not. If you’ll be leaving your assets to charity rather than to family, these principles still apply.
Start now. Help your children—or your charitable beneficiaries—now, while you’re still living. This has a number of benefits. It allows you the opportunity to give incrementally and to see how the recipients handle your gifts before you give more. And in the case of children, it will allow you to help them when they need it most—early in their careers, when they are contending with home purchases and other big expenses. If they receive an inheritance at age 60, it’s helpful but far less helpful than receiving a hand at age 30. And if you give while you’re still living, you’ll be able to help guide and educate them in handling money.
Equity. If you have more than one child, they will inevitably be in different financial circumstances. You may be tempted to try to even things out—leaving more to the schoolteacher than to the banker, for example—but I recommend against this. It’s very hard to know what someone else’s true circumstances are, and the risk is very high that you end up creating hard feelings among your children. My advice: Treat them all equally, and if one of your children ends up like Bill Gates, he’ll likely have the good sense to help his siblings.
Communication. When in doubt, I always advocate transparency. Speak with your children. Let them know your plans and—in rough terms—the dollars involved. If you’re very wealthy but plan to leave most of it to charity, it would be unfair to surprise your children with that information after you’re gone. Similarly, if you are making significant gifts while you’re living such that there won’t be much left over, that’s also important for them to know. When there’s wealth involved, you can’t avoid the elephant in the room. And more often than not, I believe people make incorrect assumptions. So it’s best to share the facts. But you don’t need to reveal everything at once. I would approach it incrementally, over time, allowing you to shift course as needed and as you see fit.
Control. Estate planners use the term “dead-hand control.” This refers to complicated estate planning strategies that attempt to control the behavior of future generations. So-called incentive trusts might require grandchildren to attain a certain level of education or to be married or to meet other requirements. Other families try to keep special homes in the family indefinitely. While these ideas might sound nice in theory, real life is never that neat. My advice: Leave your heirs what you plan to leave them, and don’t try to control them from the grave.