Transferring Assets: Is It Good for Your Children?
COMMENTARY
by Judy G. Barber
I remember the first check I received when an interest in a building my mother owned was transferred to me. After depositing the money, I headed for a local art gallery and purchased a small painting I'd been eyeing for many months. It was a deeply satisfying purchase and a real gift from my mother, who was already quite ill with Alzheimer's.
It now is many years later. The income I continue to receive from the building is integrated into my ongoing cash flow. Sadly I take it for granted. My mother, who has since died, would have preferred I view the monthly checks as a gift rather than a routine deposit I make with other checks each month.
Has the unearned income had an impact on my motivation? I don't think so. It has provided a cushion that has given me some breathing room. The outside income has helped carry me emotionally as well as financially through two difficult years. It has given me time to sort through a rough transition, look at my options and refocus on what's most important for me personally as well as professionally. Although the money isn't being spent as my mother originally intended, it is nonetheless fulfilling another of her wishes—to ease my life.
When money passes from one generation to the next and parents are still living, both generations often have unspoken concerns. Parents may worry that the money will be misspent, that it will have a negative impact on their children's motivation or that it will foster an inappropriate sense of entitlement.
From another perspective, adult children may be anxious about what they owe their parents or how much control their parents will have in their lives. They may have their own concerns about the impact of the money on their initiative and whether they will be able to carve out a place in the world separate from their family.
Rather than being a joyous exchange and a forging of an adult relationship between parent and child, gifts can reel family members back to the past into styles of communication where parents feel responsible for children's decisions and adult children are caught between wanting to please their parents and meeting their own needs.
For example:
Anne*, a thirty-five-year-old professional winced as her father, Fred, lamented, "I don't understand why you won't take the money." Both of Anne s parents were proud of her career and independence but confused about her refusing their offer to help remodel her house.
After a few moments of awkward silence, Anne blurted out, "I'm not even sure I want to spend the money on the house. And if I did, it wouldn't be my house anymore. It would be "our" house. Dumbfounded, Fred had no idea that Anne had such strong feelings. He thought their suggestions were helpful and supportive. They eventually sorted out their differences. Anne's parents learned to back off from further discussions of what Anne should do with the money.
What's the Money For? When parents and children do not discuss their expectations, everyone stands to lose. Parents can be angry and disappointed with their children; they worry about the way their children use their gifts and feel the children are not earning their own way. Adult children, on the other hand, can feel guilty and resentful as they struggle to free themselves from the shadow of their parents pre-conceived notions. All too often, the hopes and dreams of parents may not match the ambitions and needs of their children.
Discussions between generations don't happen often enough. Discussion can prevent bitterness, disappointment and pain that surfaces at odd times with angry comments and hurt feelings. Ideally, grandparents, parents and adult children will discuss the following questions before a transfer:
• How important is it to parents and the adult children that the child earn a good living without outside income? Do parents expect income from a potential gift of assets to be invested rather than spent?
• Do parents expect children to create their own fortune as they once did? And likewise, do children share the same expectations?
• Is it acceptable to parents that their adult children use outside income to raise their standard of living?
• If a substantial inheritance is passed to the next generation, will it be agreeable to the parents that their heirs live on the income without working for money?
Be realistic about the potential impact of the money on character, personality and initiative. Children are born with different needs and drives. In one family I worked with, the parents wanted to inform their adult children of the specifics of the family wealth and begin gifting. Twenty-five-year-old John said that he didn't want the money; twenty-eight-year-old Ed said he'd like the income; thirty-year-old Susan didn't even want to know about the money.
When providing income or financial support, creating a sense of entitlement can be avoided. Don't expect adult children, regardless of their age, to fully absorb cautionary comments like "Don't get used to this income, it may end." If the income comes directly from parents, there can be an unconscious, childlike belief that financial care from parents will continue no matter what. Although adjustments to less income can be difficult, if adult children own the assets, it may be easier for them to take responsibility when income stops unexpectedly than if parents sitll held the purse strings.
Timing of the gifts can be critical for a positive experience. Some adult children are simply not ready to take on the responsibility of inherited income. Sadly I have heard my share of regrets from clients whose independent income gave them too many choices— much more than they could handle. Sally, a thirty-five-year-old woman got too much too soon. She felt out of the mainstream, with her friends moving into higher positions in their professions while she was still finding her way as a photographer, musician, and volunteer. "The family money may have gotten me off track," she says. Ultimately, Sally tried to stop justifying her actions and comparing herself to other people. Eventually, she accepted that she was different from her friends and was grateful that she didn't have to start at the bottom. She stopped feeling so guilty.
Parents and adult children need to talk together about what the money is for—the influence it might have on career decisions, whether independent income has the potential for isolating young adults from a sense of purpose and a full personal identity, and the potential impact it will have on those important family relationships. Will a transfer create more tension between the generations because of differing values and expectations, or will a gift help strengthen the bond between parent and adult child as they grow from the experience of communicating honestly about these issues?
PERSONAL EXPERIENCE
Inheriting Wealth: The Joys and Challenges
by Judy G. Barber
David is a fiftyish colleague who, over time, has built his business and grappled with the impact of family money on his life. This month, in Family Money, we are pleased to share some of his insights into his motivation in light of inheritance.
FM - What do you currently do? What kind of work schedule you keep?
Management consultant. I generally put in a pretty regular schedule during the week—nine to six o'clock—and I'm probably on the road six to seven days a month. I log about 100,000 miles a year in travel.
FM - How do you define success?
It's a combination of things. The absolute bottom line is competence and excellence, at knowing that I'm one of the best at what I do. After that, I really struggle. Am I making enough for us to live on? In other words, am I making more than we spend? And am I keeping up with my colleagues? Am I making as much money as they are?
FM - That competition is something many people wouldn't admit to but it is a factor isn't it?
Yeah. It's there. I have friends and I know how much they make and it takes a little edge off of what I'm doing.
FM - Can you tell me a little bit about your father's career and how he made his money?
He actually started off as a lawyer but went into the hotel business. One summer during the Depression, he and some other guys borrowed some money and rented a hotel at a resort. He ended up with a couple hundred bucks in his pocket, which was a lot of money in those days. He got together with the guys he'd done the summer rental with and went into the hotel business. He made his money by being a salesman behind the desk and getting much more revenue out of each room than other places that had a room clerk behind the desk and just posted rates. They started small and kept leveraging each place and getting more and bigger hotels and ended up with three or four hotels of modest size, but profitable. The last one he and his partners had was half a city block, a couple of hundred rooms, with restaurants and banquet services. At that point, he was somewhat retired and his partners actually operated it. They also owned some other real estate associated with that hotel. That's where they made the money. The real estate value of the hotels went up significantly in the '80s.
FM - What kind of background did he come from and how did that affect the choices he made?
My father had humble origins. His father sold used clothes from a pushcart. He was always very motivated to making it both financially and socially. He ended up being president of his country club for a few years. That was a big, big thing to him. His job in life was to make money and make the family secure. His father was not a provider at all. He and his brothers were the ones that supported the family. He had jobs from the time he was eight years old, working outside the home to earn money. His job in life was to make money and make his family financially secure. In some ways, my image of him is as the provider, pulling his hand out of his pocket and giving Mom or me cash.
FM - That's an interesting image.
Despite my efforts to be more of a nuturing and present father to my own children, I see myself doing the same thing with my wife, the sitter and the children. When I reach my hand in my pocket, I occasionally have a flash of my father with a wad of bills in his pocket. He'd just pull something out. That's the image of the provider. In other aspects of family life, my mother was more dominant. He was not a force in the house, in a sense. His domain was outside the house and hers was inside. His role was to provide money and stay out of the way. Again, I have made a very conscious effort to do that differently.
FM - Did he love his work?
At some level he enjoyed what he was doing, but on the other hand, it was work. In that generation, you did what you had to do to provide for your family. You had to work. When I was growing up, the idea of anything being something that you liked to do or enjoyed wasn't a frameable question. It wasn't terribly unpleasant, and he enjoyed making the money and he was good at what he did. But if you asked him, I don't think he could have answered the question. He didn't hate it. He certainly didn't like spending long hours behind a desk. He essentially retired at 55. He stopped doing the day-to-day stuff. He enjoyed playing golf, relaxing and traveling.
FM - Did you go to a public or private high school?
I went to public schools and then private universities.
FM - So, you had a private education for undergraduate and graduate school?
Yes, but the Ph.D. was paid for through assistantships, grants and such. Dad never got over the fact that he didn't have to pay for that.
FM - In high school, where did you feel on the social, economic scale? Did you feel you were upper middle class but there were kids who were richer?
We were certainly upper middle class. But there were other aspects of "class" that I struggled with. All my parents' immediate friends were financially successful. I was not terribly aware of this at the time, but as I moved on in life, I found it disturbing.
FM - When were the first gifts or transfers?
There was one piece of property that Dad had an interest in and transferred to me in the mid-'60s when I was just finishing undergraduate school. [The income] was about $2,500 a year, which would be about $10,000 to $15,000 now. I used it for college and expenses. Then in graduate school, it helped me take a trip or two. It was a nice addition. It made things comfortable. Even then, that wasn't a big deal. It was a nice bit of extra money, but not anything that was going to shape any kind of life decisions.
FM - What was the largest transfer?
That happened when I got married. We were looking to buy a house. We looked at what was available and was affordable. Then we found a much nicer house, which I thought was a much better buy but for more money. It was significantly more, and I ended up getting a big chunk of the down payment money from my father as a wedding present.
FM - Do you feel the family income enabled you to live more comfortably so you could get your business off the ground and put money in your business?
Yes. The piece of income producing property was sold and the money from the sale had gone into investments which went nowhere. But basically it was the idea that I had a safety net. My family wasn't going to get thrown out on the street if my business failed. At that point, when I went into business for myself, my father had been dead for two to three years.
FM - Did you receive money from your dad's estate?
After he died, I think there was $100,000 to $125,000, the amount left that could be transferred tax-free, which is what we lived on while I was starting up my business.
FM - Were there other junctures along the way when you could have made different choices?
I could have kept my job and invested the money and lived a little less well because I was on a salary. Cash-wise, I would have been way ahead of the game if I had stayed at my job. My colleagues were making lots and lots of money but they were on the road all the time. If money were the issue, I could have gone that direction. I wanted freedom of choice more than the extra money.
FM - Is that what the family money did for you? It gave you the freedom?
We weren't going to starve. If I had to, I could have gone to my mother and said, "Look, the business totally failed. We're going to lose the house." I didn't want to do that, but I knew there were resources. The gift transfers every year paid for the kids' schooling. I knew I didn't have to save for their college educations. It took a lot of the pressure off in terms of starting a new business, not that I worked any less hard at it.
FM - So, the money allowed you to pursue what you wanted to do?
Yes, and to take chances. I wouldn't have started my own business. I would have stayed with the salary job, and I probably would have gone with another firm to make the money. And I probably would have ended up divorced.
FM - Was there any idea that the money you received might have an impact on your work ethic in terms of what you did or how much you worked?
That's interesting. It's not the work ethic, per se. It's something that I have struggled with for years. Five or six years ago I decided I didn't want to take any more money from my mother. I made up my mind that the money wasn't there anymore and that I had to make it on my own. It's a different focus. Not that I worked any harder; I worked differently. That makes it real. It's not a game anymore. Working hard before was working hard because there was this job for the client and it had to be done well. It became, "I have to succeed." It just had a different edge to it.
It made a tremendous difference, in terms of my self-respect. I had to earn our living and I did. I wanted to know that I could earn what we're spending, that we could live the way we did because of what I earned. I sort of looked at myself and said, "You know, I'm giving my mother power. I'm not real, I'm not an adult, I'm not me unless I can do this on my own." I knew I wasn't going to end up on the street. At that point the business was doing well. I knew that wasn't going to happen. The question then was, "Can I continue to make enough to live on?"
The only thing that takes a slight edge off this for me is that my former colleagues have formed a company and are very successful. They probably earn almost twice what I do.
FM - But they're on the road 60 percent of the time.
I'm on the road 30 percent of the time and I'm willing to take some reduction in pay.
FM - You expressed during another recent conversation that you thought you might have been more motivated if you hadn't had the inherited money. Can you say more about that?
The motivation would have been different if the money hadn't been there. I would have thought,"I have to make money. I need to earn the money I need each year." I'm sure that if I had been raised the way my father had been raised, I would have done the same thing he did. Even with my line of work, I know enough about the financial world to know the way you make money. The way you make money is you start a company and sell stock in it. I know I could do it, but I had no interest in doing it because I know how much of a personal toll it takes.
FM - Do you feel it was a toll on your dad?
I guess it did take a toll on him. He worked long hours and worried a lot about his business.
FM - Did it take a toll on you?
It took a toll on me, but I didn't become aware of that until recent years. He was warm and supportive, but on many levels he couldn't be there for me emotionally. But for that generation, that's the way things were. It wasn't extraordinary for that generation. The men's focus was business; the wives took care of the kids. I am making a real effort to do it differently with my kids.
FM - I have talked to people who have said their parent's career did take a toll. They have a reaction against having the same drive. They feel they lost so much because of their parent's ambition.
It's interesting. I struggle with that. I sometimes fantasize what it would be like driving the kids to school every day, picking them up everyday and hanging out with them much more. But has the amount of attention we've given to our kids demotivated or taken away some of their independence and self-assurance?
FM - Why?
Just funny, minor things. As I look back at myself as a kid, if I got interested in something, I'd read books about it and go off and do it. Our kids don't self-start on things. I don't know if it's how they are being raised or that today's world for kids is so different.
FM - I think some of that is developmental.
No, I mean, when I was my kids' age, I had interests and hobbies on my own. Of course I didn't have the social awareness and friends that my kids have. Who knows?
FM - Do you think that's because you've been so present for them?
I don't know. I struggle with that all the time. I hear the kids saying to me, "Dad can you do this with me today?" And I have to say, "I can't, I have to go to work." I say to myself, "What's the balance here? What's the trade-off?" How can I get them to see that work is important and that Dad cares about them? I know that they know I care about them, but should I spend more time with them? I don't know. Since my parents are both gone, I've fantasized about maybe cutting way back, and having a lot more time to spend with the kids.
FM - What can you do, if anything, to ensure that your children are internally motivated? Are you and your wife the role models, or is it more than that?
It's more than that. I think we are good role models. I look at my siblings' kids. Every summer it is a different adventure. They have incredible opportunities, as will my kids. When I went to college, my spending money for extras was money I earned over the summer. I'm not sure what's right. It's a real trade-off.
FM - Having both may be the best solution. Traveling to Europe is enriching and builds a certain kind of self-confidence. Having a job builds another kind of self-esteem.
I feel the one thing that saved me was that I was smart. I knew I'd make out okay because I had a brain. I felt that you could drop me in any civilized place in the world and I'd make out okay. It was probably an illusion but it was sort of the linchpin of my sanity and self-image. I'm not sure that was right because there are places you could be dropped where you would need street smarts, which I didn't have. But I knew that even if I had to start out washing dishes, in six months I'd be running the restaurant.
FM - Is there anything else that you feel you can do to help your children be internally motivated?
If there is something they feel passion about, then I want them to have the freedom to go out and do it. But if they don't have that, then what am I supposed to tell them? That they have to go out and earn a lot of money? They don't. If they want to, they can. The other reality is that they are going to come into their money sooner than I did. They're going to be coming into reasonable chunks of money in their twenties and thirties - maybe not enough to live on but enough to blow or enough to get them started on, enough to keep them from having to face any career decisions.
FM - Is it important to you that they earn a lot of money?
It's important that they're satisfied with themselves and what they're doing—unless they were satisfied with drinking beer and watching television. I would consider that a failure. If they don't have the passion for something even if it's making a lot of money, then go out and help the world. Do something that's useful to other people, work on community service. That may be the alternative for them. Look, if there's nothing that you feel you have to accomplish, then make the world a better place. You have the chance to do that. That may be the answer.
FM - In terms of your own definition, what are the areas where you see yourself as successful or would want to be more successful, and in what ways?
I think I am successful as a good father, although I probably won't be sure about that for many more years. I feel that I am successful in my work. I love it and it pays the bills. There is some need to be more successful financially. It has nothing to do with having more money. There is something about getting a big paycheck at the end of the month that makes me feel much better. It has nothing to do with buying more things, it's just— well, I'm sure that it has a lot to do with my father's measure of success.
FM - Has your definition of success been influenced by your father?
It has been, very su
!