The sensational case of the super-rich hit-and-run driver has riveted public attention in the past week. Naturally, there has since been plenty of chatter, informed and uninformed, libellous and otherwise, about the lives of the wealthy in general.
It's not my place to pass judgement here, but I would like to share my thoughts on responsible wealth transfer planning.
Let me give you some simple examples to illustrate my point. If you give food to a man, you will take away his hunger. If you give toys to a child, you will take away his loneliness. In giving, there will always be something gained and something lost.
However, once you go beyond life's essentials, such as with an inheritance, it is often a considerable challenge to be sure that what you give is good and what you take away is bad.
Let's suppose again that I give my son a brand-new Ferrari for his first car. What am I likely to take away from him? In so doing, I am likely to take away several experiences that would be far more valuable to my son in the years ahead than the car.
I probably have taken away his ability to set realistic controls on his spending and denied him the opportunity to experience the satisfaction of working hard and methodically saving up to buy his first car.
I may have also taken away my son's ability to appropriately connect a healthy work ethic to its corresponding material rewards. I have seen these kinds of gifts made many times by well-intentioned parents that only ended up producing a net-loss life-effect for them.
The one question that is almost never addressed by people in wealth transfer planning is to ask whether inheritance is a required obligation we owe our heirs, or is it an optional gift? This is important because it involves two vital issues: the amount and the timing of an inheritance.
If you want to help your heirs get a good start in life, by helping them with college, getting their first house, getting a business started, maybe helping send their children to a private school, etc, these needs come earlier in life, not when the parents are 85 years old and the children are 60.
So if parents are looking to fund opportunity, the idea of lifetime inheritance planning becomes essential and the children's inheritance will be given in planned amounts for specific reasons to help them along the way as needs and opportunities arise. This must be done while the parents are still here to observe, monitor and coach their heirs.
Below is a list of the 10 most common purposes for inheritances, starting with what are known as "opportunity inheritances":
1. Transfer of a family business (if any);
2. Funds for a new business startup;
3. Funds for a first home (down payment or to pay off mortgage);
4. Funds to establish an emergency reserve;
5. Tuition for children's or grandchildren's education;
6. Funds for increased charitable giving;
Lifestyle inheritances include the following:
7. Funds to provide ongoing income for a pre-set desired lifestyle;
8. Transfer of family property or funding for other personal property;
9. Transfer of the family residence, holiday homes, etc;
10. Funds to provide ongoing income due to special needs or disabilities.
Add up the amounts and you might be surprised with the outcome. If it is appreciably different from how your current inheritance plan is set up, I would encourage you to take steps to adjust your plans accordingly.
Teera Phutrakul, CFP, is chairman of the Thai Financial Planners Association.
About the author
Writer: Teera Phutrakul