Will an inheritance spoil your children?

While we don't want to see our children struggle, leaving them a huge inheritance can also be harmful.

Love Money
Last updated: 5 April 2018 - 11.24am

Wanting to look after our children financially is as natural an instinct as wishing you could keep them off the internet until they’re 18, or wrap them in cotton wool before they even think about leaving the house.

Unfortunately, while our instincts are based on sound principles, they can lead us astray: wanting to ensure the kids are well cared for financially can be a dangerous business.

Anyone who has stumbled across the nauseating ‘Rich Kids of Instagram’ is familiar with the effects of wealth and entitlement.

In some cases, these insanely wealthy 20-somethings have their lifestyles paid for directly by their parents, but often they receive a trust fund from the age of 18 to provide them with an income.

The website reveals how they choose to spend that money – on endless days of ‘funemployment’, drinking Cristal, partying on their private yachts and blowing their cash on watches and cars that cost more than the average suburban semi.

The spoils of too much money

You have to wonder whether this was what their family had in mind when they decided to take care of their kids financially.

At the very least, there’s a risk that their offspring will never learn the value of money, develop a work ethic or take responsibility for their own financial future.

At the most extreme end of the spectrum, their inherited wealth can get them into all kinds of trouble.

The rich keeping their riches

It’s easy to understand why so many of the rich and famous have made it clear they don’t plan to leave anything to their children – either in a trust fund while they are alive, or in their Will. Sting famously said he didn’t want to give his children “trust funds that are albatrosses round their necks”.

Meanwhile, Jackie Chan says he will leave his money to charity, and Nigella Lawson has said she doesn’t intend to leave anything to her children, because it would ‘spoil’ them.

The decision may actually be easier for the rich and famous. They have more to gain from cutting their children off: in many cases they have the kind of wealth that means their children would never have to work again, so the decision not to pass it on is designed to encourage children to work and make a life of their own.

They also have less to lose, because in many cases they have equipped their kids with an expensive education, provided vital professional contacts through their circle of influence, and imbued them with a sense of success.

What’s more, they may have provided the means for them to set out on their own – with a house deposit, or an investment. They can then have a degree of confidence that they can let their children ‘stand on their own two feet’ without any real harm coming to them.

Read more: the insurance policies you need in your 70s

The rest of us

For the rest of us, meanwhile, there is still a drive to scrimp and save to leave an inheritance. Saga research found that 81% of older people are working hard to leave something for the next generation. Part of the problem is that people feel leaving a legacy is their duty.

Children's inheritance: how much is too much for your kids?

They also have to contend with the fact that an awful lot of families expect it.

Research from SunLife found that one in five adult offspring are relying on an inheritance to sort their finances as they get older. According to the Co-op, 41% of dependents have already mentally spent their inheritance.

When asked how they would feel if their parents spent the money instead, 24% said they’d feel they’d made a ‘bad decision’ and ‘wasted’ the money. A fifth said they’d be worried for the future, and a tenth said they’d be upset and angry that their loved ones did it out of spite.

Unfortunately, there’s a risk that in saving for an inheritance: we are shortchanging ourselves. Increasingly, the lack of support from the Government means we need everything we have saved to pay for care as we get older.

A recent study for the Local Government Association, for example, found that a quarter of people may need to spend their children’s inheritance on care, while three in ten will have to sell the family home. A refusal to spend this money may well mean people don’t get the help they need.

Even if we manage to keep aside a chunk of money to leave an inheritance, there’s a risk that it comes too late for our adult offspring. Increasing longevity means that there’s every chance that adults will have to struggle alone through their expensive 30s, 40s, 50s, and even their 60s – looking after both their children and their own parents – before finally receiving an inheritance in their 70s – when it’s far too late.

Last year the KPMG Fraud Barometer found a spike in adult children stealing from their own parents. It said that people over the age of 65 were far more likely to become victims, and that 72% of the largest cases were committed by people over the age of 45.

It concluded that a significant proportion of this may be because adult children were getting frustrated waiting for their parents to die - so they decided to help themselves to their inheritance.

Closing the gaps

Finding a balance is therefore the key.  We could perhaps learn from the rich and famous – and commit to leaving no inheritance for our children. Instead, we can do what the very wealthy do as a matter of course, and help our children throughout their lives.

This doesn’t mean spoiling them, and funding a ‘Rich Kids of Instagram’ lifestyle.

Instead we can recognise the aspects of life that are more expensive for younger people than they were for previous generations, and focus on closing the gap. We could, for example, ensure they have enough to pay their student debts, cover the deposit for a home, and start a decent pension.

We can tell them they’ll get nothing from the Will – and get on with the fun business of spending the rest of our savings.

There’s much to be said for taking the approach of 83-year-old Joan Bakewell, who has a fortune of around £5 million, and announced last year that she would be leaving her kids nothing.  

She said: “I don’t mind admitting that as I’ve grown older I’ve grown fond of posh restaurants, nice clothes, good handbags. I feel I’ve earned the right to indulge myself.’”

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