How Much is Too Much What to Leave Your Heirs

By: John Welsh, Senior Vice President, Director, Commerce Family Office at Commerce Trust
Many Americans have long believed in the cultural tradition of leaving some if not all remaining assets after they’ve passed away to their offspring. Down through the years, an inheritance generally has been considered more of a gift than an obligation on the part of parents to take care of their children—but not something to be taken for granted by their heirs. But how much is too much?

What to leave to your heirs
The fact that many boomers seem to be planning on leaving assets to their children may be influenced to some degree by what their parents left them. A 2019 study by United Income analyzed data from the Federal Reserve on inheritances passed down from the Silent Generation (born before 1945) to Baby Boomers (born between 1946 and 1964). Some interesting findings came to light. From 1989 to 2016:
■ The total value of inheritances per year rose by 119% from $195 billion to $427 billion (once adjusted for inflation).
■ In total, over $8.5 trillion was transferred to individual households.
■ Average inheritances rose in value by 75% from $169,000 to $295,000.
■ Major inheritances ($1 million or more) received by 0.3% of people grew from $2.7 million to $6.6 million (an increase of 149%).

The study also found the average age adults received an inheritance rose from 41 years in 1989 to 51 years in 2016. Also, more than 25% of inheritances went to adults over the age of 61—indicating that inheritances may be becoming less about lifestyle enhancements for younger heirs (fast cars and expensive homes) and more about shoring up the financial security of older Americans.

Parents Plan To Share Their Wealth

Perhaps that’s the real question to ponder. As time rolls by, it’s no surprise that statistics show American households are growing older—and often wealthier. However, in spite of the great wealth transfer that’s been going on for decades, the school of thought on inheritance seems to be changing.

Individuals across all wealth classes are living longer—and with inflation, health care expenses, and the rising cost of living they may not have saved enough to maintain their current lifestyle through retirement, let alone pass along an inheritance. Others question whether their gifts to heirs will be used wisely and are concerned that too much money could spoil their kids or ruin their lives. They worry their children may never have the incentive to find a job and build a career they’re passionate about or figure out how to make it through life on their own.

Opinions about how much—and what—to leave for an inheritance also vary. If wealth has been passed down through the family from one generation to another, chances are good the parents will try to carry on the tradition. For ambitious entrepreneurs who started at the bottom and worked their way up fortune’s ladder, the legacy they pass on to their children could look entirely different from a traditional inheritance of real estate, stocks, bonds, and cash.

For example, it’s been well publicized that Mark Zuckerberg, Warren Buffett, and Bill Gates don’t plan to leave their children much (or any) money at all. Buffett’s famous philosophy on the subject is this: “A very rich person should leave his kids enough to do anything, but not enough to do nothing.”³ That quote has inspired and guided parents for years, including Bill and Melinda Gates. These famous individuals and other families who aren’t as wealthy, believe in donating much of their wealth to causes that make our society and world a better place instead of passing it all to their children.

In general, everyone does agree on one point: There’s no formula to calculate how much to leave your heirs—and no set cutoff for how much is too much.

Determining what and how much to pass on to your offspring is a very private and personal decision that should include guidance from your advisor, tax, and legal professionals. These six tips may help you work through the initial stages of the process:
■ Put your own needs first—be realistic about what it will cost to maintain your current lifestyle through retirement.
■ Determine how much financial wealth you can afford to leave to your heirs—not how much you want to pass along.
■ Consider other ways to share your wealth with your children and grandchildren while you are still living: pay for their education, help them set up a business of their own, purchase a vacation home where the family can spend quality time together and build memories, or assist family members with buying homes or property of their own. Giving during your life allows you to see how your gifts are being enjoyed and how recipients handle them, which can then guide any future gifts. 
■ Find ways to spend time with your children and grandchildren—share your values, work ethic, family history, life skills, hobbies, and culture. You can consider leaving a personal letter expressing your values, how you accumulated your wealth, and your hopes for how beneficiaries will use the funds. In addition to sharing with your family, this type of letter could help trustees better align with your wishes.
■ Decide which charities you wish to support with your estate—involve your heirs in those decisions so they can carry on your philanthropy work.
■ Carefully consider how your inheritance gifts will affect and change the lives of your loved ones, then determine the amount you want to leave accordingly. Consider having a conversation with beneficiaries about their inheritance as these gifts can be problematic when they come as a surprise. Plan how you can help prepare your family members to handle their inheritance responsibly once they receive it.

Preserving your assets can be as challenging as building your wealth, but an effective and current estate plan is important for all levels of wealth. The earlier you start planning, the more effective the plan can be in accomplishing financial and non-financial goals. Contact Commerce Trust today to learn how our team of professionals can help you transfer your assets according to your wishes and distribute them privately and expeditiously when the time comes.

¹Source: David Robinson, founder and CEO, RTS Private Wealth Management,
³Warren Buffett, Fortune interview, September 29, 1986

The opinions and other information in the commentary are provided as of September 18, 2020. This summary is intended to provide general information only, and may be of value to the reader and audience.
This material is not a recommendation of any particular investment or insurance strategy, is not based on any particular financial situation or need, and is not intended to replace the advice of a qualified tax advisor or investment professional. While Commerce may provide information or express opinions from time to time, such information or opinions are subject to change, are not offered as professional tax, insurance or legal advice, and may not be relied on as such.
Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Commerce Trust is a division of Commerce Bank.