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Wealthy American Parents Face Inheritance Dilemma

Can a large inheritance do more harm than good? According to a new article from the American Association of Retired People (AARP), many wealthy parents still struggle with decisions about how much money should be left to their children, and how that inheritance should be structured.

Wealthy parents from Bill Gates to Sting have publicly declared that their children will have to make their own money. And according to a recent article in CNBC, a number of Bay Area parents are following suit, fearing the implications of handing down too much money.

But increasingly, a number of private individuals and wealth advisors are expressing more nuanced views.

Wealthy parents have a unique opportunity to raise their children to be responsible and principled wealth managers, regardless of the size of their inheritance. Parents with the opportunity to engage in significant charitable giving can and should involve children in the process of examining opportunities and deciding how to give. In addition, many experts recommend that parents engage teens in setting up and managing retirement funds.

On the flip side, some parents must face the reality of a child or family member with personal problems, such as addiction or frequent legal trouble, that cause irresponsible financial decision-making. Wealth experts point out that in these cases, when an inheritance really can do more harm than good, parents now have a host of options for trusts that support their child in meaningful and structured ways.

For most experts, the consensus seems to be that it is not the inheritance that will make or break the child, but rather the understanding of how to use and manage wealth. Regardless of the choices that parents make about the size and distribution of an inheritance, experts agree that clear and open communication with one's children about the what and the why of inheritance decisions is crucial.

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