Several of my clients are concerned about passing on too much money to their children. They fear that a large inheritance will inhibit their children from reaching their full potential.
One of my clients noticed a positive change in her children after informing them that her Will leaves all of her considerable fortune to charity. Her children now understand the need to become productive citizens if they intend to enjoy a comfortable lifestyle.
A handful of my clients have taken this approach of giving everything to charity, and nothing to their children. Others put a cap on the amount of the inheritance, for example $4 million per child.
Another approach is to leave the child’s inheritance in a trust that makes matching distributions to the beneficiary based upon a percentage of the beneficiary’s earned income. This type of trust is sometimes referred to as an Incentive Trust.
You will have to decide for yourself whether you might be doing harm to your child by leaving them a large inheritance. In my experience, a person’s “work ethic” has been fairly well determined by the time he or she attains age 30. If they already have a good work ethic when they receive their inheritance, they do not become lazy or irresponsible.
On the other hand, attempts to motivate lazy children through a meager inheritance or a restrictive trust have generally been unsuccessful. I have concluded that a person’s work ethic is more heavily influenced by their upbringing, especially the example set by their parents, than it is by the amount or structure of their inheritance.