How Much Money Should I Leave For My Children?

An endless conversation in the world of personal financial planning surrounds the question of how much money you should leave for your heirs. While some people see great value in keeping family wealth within the family, critics say that leaving heirs with large inheritances can be detrimental to the emotional wellbeing of the recipient. So, how do you find a balance between spoiling your children and not leaving them with enough? This article aims to provide you with some insight into the motivations into why people give inheritances. Understanding this will allow you to evaluate the reasons you may want to leave an inheritance for your kids, and what the optimal amount may be.
 

Why do people give inheritances?

Academic research conducted by Peter Evans identified four core motivations of why people give inheritances. Firstly, people give for altruistic motivations driven by family solidarity. Secondly, people may give inheritances based on the principle of equity, meaning that all family members receive an equal division of possessions in order to maintain unity in the family. Thirdly, another strategy is based on reciprocity. In other words, the idea of “If you give me something, I will give you something in return”. And lastly, some people give inheritances based on egoism and the pursuit of self-interest.

As with all financial decisions, every person has a different situation, so a one-size-fits-all approach to how much money is optimal to leave for your children is simply not applicable.

Understanding your motivations helps you to understand your goals, aspirations, and priorities, thus allowing you to make sound financial decisions that align with your core values.

Rather than starting by asking how much money you want to leave for your children, begin by reframing the question to consider what you want your money to do.


What do you want your money to accomplish?

Make a list of things that matter the most to you. You might really value education and want to contribute to your children and grandchildren’s post-secondary education. Maybe you greatly value experiences and want to set up some sort of travel fund for your heirs. Rather, maybe you have been intent on instilling and demonstrating the importance of financial independence in your children. If this is the case, you may be very conservative about how much you leave behind for them.

Asking this question will not only help you gain clarity about the approximate amount you want to leave for your heirs, but also in what form you may want your assets to be passed down.
 

Align the inheritance you give with your values

While an inheritance is typically a cash endowment, any assets can be considered part of an inheritance. You can pass along real estate, bank and brokerage accounts, items of sentimental value, and roll over retirement accounts such as RRSPs and RRIFs.

Referring back to the previous example –if you greatly value education, consider leaving an inheritance for your beneficiaries in the form of an RESP. Relatedly, if your children or grandchildren have outstanding student loans, you may want to establish terms that dedicate a portion of their inheritance to repay back that debt. If you have always prioritized quality family time, giving your inheritance in the form of a family property rather than cash may help to bring your family together after you are gone. If travel and experience is something you have always encouraged in your family, consider some sort of travel fund as your chosen form of inheritance. Your beneficiaries will be able to explore the world while also having the memory of you with them.

Further, if you feel greatly passionate about a specific cause such as climate change or supporting cancer research, consider making a sizable donation to a charity of your choosing that supports this cause.

While these are only a few examples of how you can align your values when you die, reflecting on what you want your money to accomplish will help to dictate the terms and disbursement of your estate.
 

Transparency manages expectations

Susan Bradley, a Certified Financial Transitionist and founder of Sudden Money Institute, says that she “has found that the biggest obstacle facing the recipient of an inheritance is lack of preparedness”. Being a recipient of a financial windfall can incite overwhelming feelings of confusion, guilt, despair and feeling lost. With more money comes more responsibility. Try to mitigate this lack of preparedness by establishing open lines of communication with your beneficiaries.

When you plan your estate and determine what you want to pass along to your children, sit down and have a conversation with them about it. This will ensure that their expectations are aligned with yours. This will also allow them to work the inheritance into their financial plan and take the necessary steps to prepare themselves for an influx of cash at a certain point in their life. When it is anticipated, it can be better managed.

It is important to keep them up-to-date in the event that the size of their inheritance changes. For example, if you have some large health expenses that eat into your estate, ensure that you communicate that this is communicated so they can adjust their expectations and financial planning, accordingly.
 

Conclusion

To summarize, as helpful as it would be, there is unfortunately no one-size-fits-all formula to help you determine how much you want to leave for your children. Reflect on your personal priorities and the core values that you have raised your children on to determine the appropriate form and amount you want to leave to your beneficiaries.

As Warren Buffet once said: “Give your children enough that they do something, but not so much they do nothing. Your legacy, and perhaps theirs, is in your hands.”

Ultimately, it really comes down to finding the balance between easing the financial burden of your children and spoiling them.