What do Sting, Bill Gates and Warren Buffett have in common? All three have huge fortunes, and none of them are giving it to their kids.
Sting just revealed that most of his $300 million won’t end up with his six adult children. I certainly don’t want to leave them trust funds that are albatrosses ’round their necks, the musician told the Daily Mail in June. They have to work. All my kids know that and they rarely ask me for anything, which I really respect and appreciate.
Philip Seymour Hoffman, who died of a heroin overdose in February, left specific directives in his will, which was made public last month: His son should be raised in a large American city and be exposed to the culture, arts and architecture that such a setting offers. The will was created before the birth of his two younger children, but the actor deliberately didn’t give his $35 million to his children because he didn’t want them to be trust-fund’ kids. (They’ll be fine; his entire estate went to their mother, his longtime girlfriend.)
The rap on trustafarians – all those spoiled rich kids with more money than sense – is that they won’t make smart choices or live healthy, productive lives if they have unfettered access to a large inheritance. Celebrity chef Nigella Lawson has stated she has no intention of leaving a substantial inheritance: I am determined that my children should have no financial security. It ruins people not having to earn money.
Wealthy families have always struggled with this issue. But the same drama is now playing out on a smaller scale for millions of baby boomers, who are poised to give away $30 trillion over the next 30 years – the largest transfer of wealth in U.S. history, according to consulting firm Accenture.
What used to be a private family matter has become a public discussion about wealth, privilege and personal responsibility. Who gets the big money? Should it be the heirs? Or are they better off without it?
Bill and Melinda Gates are giving a reported $10 million for each of their three children: pocket change compared with their $76 billion. Buffett’s three kids each have a $2 billion foundation funded by Dear Old Dad. The rest of his money? Going to charity, just like Gates and several other billionaires who have pledged their vast fortunes to improving the world.
As Buffett famously put it, the perfect amount to leave children is enough money so that they would feel they could do anything, but not so much that they could do nothing.
We probably struggled over this more than any other issue, says a Washington, D.C.-area self-made multimillionaire. The businessman and his wife, worth hundreds of millions, grew up modestly in middle-class families and wanted to create a financial plan that would take care of their children – but not spoil them – if the couple died suddenly.
We were horrified by what might happen if they had control of a large amount of money at a young age, he says. The more we stared at that, the more we became uncomfortable.
Inspired by Buffett’s example, they created trusts for each of their now college-age children. Each kid has $2.5 million controlled by trustees, who can release money only for education, health care, a home purchase or a business startup. Any unspent money in the trust will continue to be invested and grow.
Those restrictions remain in place until each child reaches age 40; after that, the money is all theirs to do as they please. In their 20s and 30s, the funds are there to get them launched; by 40, their parents assume they will be mature enough to use the money wisely or save it as a safety net.
The rest of the family fortune is going to a foundation, which will eventually be administered by the children – and can be used only for philanthropy. The kids are aware of the trusts and the planning that went into them.
They really are thrilled with it, their father says. They want to be their own persons. A huge inheritance, he believes, can be a lifelong trap for children of rich parents. I didn’t want them to look in the mirror and say, Who am I?’
Jamie Johnson has spent his entire life around the very, very rich. In 2000, when he turned 21, the Johnson & Johnson heir inherited a huge amount of money – reported estimates put the figure at $600 million – from a family trust. Each of his five siblings received a similar amount, with no restrictions on its use. His 2003 documentary Born Rich was a study of his family’s money and other super-rich friends.
When vastly wealthy people say, I’m not leaving my kids any money,’ it’s typically not true, he says. Even when children don’t have immediate access to cash, they get the best schooling, housing, contacts and opportunities. All of these are things that only rich families can do. These are all different ways of transferring wealth and influence.
Whether having so much money is good or bad for trust-fund babies depends on how the family has prepared the kids, their personalities and how well they handle the pressures of great wealth and the fear of disinheritance.
For every party girl like Paris Hilton, there’s an Ivanka Trump, who got a business degree from Wharton and has parlayed her family’s money and famous name into a thriving career. Johnson used his inheritance to launch a filmmaking career and to live, all things considered, a relatively normal life in New York. In my case, it turned out to be a great benefit, he says.
Occasionally, wealthy parents put strict conditions on behavior and threaten to cut off their kids. Tori Spelling reportedly inherited just $800,000 of her late father’s estimated $600 million fortune; money tensions have been an ongoing issue between her and her mother, who controls the estate. In an interview with the New York Times this year, Candy Spelling explained that her daughter would close a store and drop $50,000 to $60,000. I never did anything like that. She just went crazy.
Most parents want to protect their children from the dark excesses of money – drugs, lawsuits, hangers-on, crippling self-doubt – and preserve the family fortune for future generations. That usually doesn’t work out: The first generation makes the money, the second spends the majority of it, the third drains the rest.
Take, for example, the Vanderbilts. When he died in 1925, Reginald Vanderbilt had blown through more than $7 million (about $94 million in today’s dollars) of the railroad and shipping fortune that his grandfather had amassed. But there was still a $5 million trust for his two young daughters. One of the girls was Gloria Vanderbilt, who went on to earn her own $200 million fortune in design and decorating.
Gloria has told her son, Anderson Cooper, that he won’t get a penny from her. My mom’s made clear to me that there’s no trust fund, he told Howard Stern this spring. And he’s fine with that: Unearned money, he said, is a curse.
Who’s inherited a lot of money that has gone on to do things in their own life? asked the CNN star, who earns $11 million a year. From the time I was growing up, if I felt that there was some pot of gold waiting for me, I don’t know that I would have been so motivated.
So, what’s a loving parent to do?
Traditionally, the wealthy gave all their money to their children and grandchildren, then hoped for the best. Baby boomers, says Accenture managing director Bob Gach, are living longer and struggling to balance their own retirement needs and charitable interests with their children’s welfare.
It’s this interesting confluence of demographics, longevity and accumulation of assets, Gach says. He’s done well in his career and plans to leave some of his wealth to his 20-year-old son, some to his alma mater and some to his favorite causes. I want my son to have the benefit of that, but I don’t feel I have to leave him every penny.
Bill Gates, the world’s richest man, won’t disclose the exact amount each of his three kids will inherit, but he told the Daily Mail in 2011 that it will be a minuscule portion of my wealth. They’ll get an unbelievable education and health care and the reported $10 million, which still puts them firmly in the One Percent – but not even close to their self-made father’s billions.
For that, they’ll have to found their own global empire, he said: In terms of their income, they will have to pick a job they like and go to work.