Wealthy parents are showing an increasing reluctance to pass on large sums of money to their children, or are imposing strict conditions over how and when their heirs will inherit funds.
Wealth managers say clients – especially those who have made their fortunes themselves – increasingly want to motivate their children to earn their own money rather than relying on a generous inheritance.
A recent report by Barclays Wealth found that more than a third of the wealthy families questioned thought it was a bad idea to leave large sums of money to their children.
Jeremy Arnold, head of Barclays Wealth’s advisory business, says: “This is an increasing trend simply because there is more money around. Children are in a position to inherit much more but this raises issues surrounding self-motivation.”
The report said many families feared that children who inherited enormous wealth would feel unworthy and unable to cope with the responsibility of managing it.
“Parents want their offspring to share in their prosperity but they need to educate and prepare their children for the responsibility of wealth,” Arnold says. “It is important to ensure children have the desire to achieve their own success and build their own legacies.”
Parents – particularly in the US – are also increasingly imposing conditions on inheritance. Barclays found that 60 per cent of very wealthy individuals (those with $10m-plus worth of assets) were insisting that their heirs went to university or held down a job for a certain length of time before they received the inheritance.
In the UK, parents are introducing higher age limits on when their children can access inherited funds.
“A few years ago, people were fairly relaxed, allowing children access to their inheritance at 18. This is often now being pushed out to 25 or 30,” Arnold says.
Merrill Lynch has also seen an increase in the number of clients feeling uncomfortable about their children receiving a very large sum of money. Nick Tucker, managing director of global private clients, says this is particularly common among people who have created their own wealth.
“Often entrepreneurs and wealth creators want their children to be like them,” he says. “They want to give their children the same start they had and do feel that, if they give more than that, then they are depriving the children from doing what they have done.”
Chris Hancock, senior banker advising family businesses at JPMorgan Private Bank, agrees, saying: “Among the wealthy, there is a growing feeling that it is irresponsible to leave substantial sums of money to children as it subjects them to pressures and burdens that are not desirable.”
There is also an increasing desire among wealthy parents that children should be encouraged to follow their own talents and ambitions rather than automatically taking over the family business or the running of the estate, as has historically been the case.
Hancock believes this feeling has sprung from high-profile cases of wealthy businessmen such as Warren Buffet and Bill Gates openly saying that they plan to leave just a fraction of their wealth to their children.
However, few wealthy parents are likely to leave their children empty-handed. The most extreme example might be that parents fund their children’s education, buy their first flat, and then leave them to make their own way.
Richard Baldock, executive vice-chairman of Rothschild’s global trust says it is rare to see a situation where parents do not give children anything. “Most people want to make provision to protect their children, but not to spoil them so they don’t have their own work ethic,” he says.
Wealth managers say that even in cases where the children do inherit a significant sum, there is a definite sense that it is their job to at least add to it.
Baldock believes it is becoming more common for parents – especially those who have generated their own wealth – to find a way to give their children some protection but to keep control of the money themselves.
“Often, if people have made the money, they want to keep it. With the changes to tax rules the government is encouraging people to give money away without ties. But, often, particularly with newer money, people want to remain involved with it,” he says.
More people are involving philanthropy in their planning. They might set up a charitable foundation, for example, to which their children are trustees, rather than giving the money away outright.
People are also increasingly concerned that their money will run out too soon – or that a family breakdown will result in a large proportion being taken by the “non-blood line”. The expense of future long-term care is one reason that makes people reluctant to give away their money too soon, according to Graeme Clark at wealth manager, Courtiers.
“People want to make sure their capital doesn’t expire before they do. This is becoming more of an issue as people live longer,” he says.
Wealthy people are more keen to enjoy the money they have made, as well – a growing attitude among those who have worked hard to earn it, according to wealth managers. The Barclays report found that more people were motivated by the prospect of financial security in retirement and the ability to enjoy the finer things in life than the ability to provide for their children.
