Many who have created wealth struggle with how to properly raise children in very different circumstances than those they grew up with. I’ll share with you that I grew up in a family that constantly struggled financially. As a teenager, I earned the money necessary to purchase a car, fuel and insure it. I also put myself through college and law school.
Fortunately, I’ve found success in my law practice as well as various business ventures. While we’re not über-wealthy, my wife and I have been able to raise our daughters in a much different environment. We’d like to think that our children are well-grounded, but we also understand the struggle those with means encounter. How much is enough? Where and when do we draw the line?
These questions are adroitly addressed in Douglas Andrew’s book, “Entitlement Abolition.” In it, he points out that those who work hard to grow wealth, enjoy a life of abundance and foster a similar dream of prosperity for their loved ones often find their dreams turn into nightmares when well-meaning parents chronically step in to pick up the slack for their children. He says that parental overreach can come in many forms:
- Covering for children’s mistakes at school and work;
- Protecting children from the uncomfortable consequences of their own poor choices;
- Buying expensive cars, clothing, vacations and luxuries without involving them in the responsibility to pay for those things;
- Paying for children’s education without including them in the process by earning scholarships or by repaying the parents through low interest rate loans;
- Giving children something for nothing.
Andrew asks parents to examine why they do what they do. Certainly, it’s not the parents’ intent to create permanent dependency. Often, instead, it’s to appear as the hero, or to give their children something that they didn’t have themselves growing up. The problem is, of course, that without the same frame of reference, it’s unfair to expect the children to fully appreciate their good fortune.
What instead occurs is that all of this could contribute to the creation of BRATs – Blamers Running from Accountability and Truth – which creates a family with co-dependent tendencies. Entitlement creeps in and can infest families, businesses and even communities.
What’s the answer? There really are no easy answers. Andrew’s book goes on to provide greater details and strategies to consider. What’s interesting is his take on estate planning. I had the opportunity to spend some time with him in a coaching group that we both attend.
“I don’t really believe in the common “divide and distribute” estate planning model,” he said. When I pressed him for an alternative, he referenced the establishment of a “family bank”. In that model, Andrew explained, a trust would hold amounts to be used by family members to provide for medical and financial emergencies, education, support, seed money for starting businesses and/or practices and a variety of other means.
A board of trustees would decide upon the distributions, many of which would either be in the form of grants that would have to be matched by the recipient (with his or her own money, whether earned or gained through another means such as a scholarship), or in the form of a loan, with the expectation that the loan eventually be repaid to the trust.
“This empowers family members as opposed to enabling them,” Andrew added.
I believe that he is onto something here. The challenge, of course, lies in the decision makers. Distribution decisions are easy so long as the generation that earned and created the wealth is alive and able to make those decisions. Once that generation dies off, however, those drop down to siblings or other family members serving as trustee, all of whom have a “conflict of interest” when deciding who the trust benefits and how. This conflict of interest exists because the decision makers are potential beneficiaries themselves (as are their children and grandchildren).
Once the family reaches the third generation it’s even more difficult. Here the likely decision makers are cousins as opposed to siblings.
These issues aren’t insurmountable. Third party trustees might be employed, either as primary decision makers or as independent tie-breakers. This type of a trust should be extremely detailed in its wording. I would go so far as to recommend that “statement of intent” provisions be carefully drafted and included to give future trustees direction as to the original grantors’ vision just how a “family bank” should operate.
No one wants to create BRATs. More of that has to do with raising the children, as well as the values instilled during life. Nevertheless, a family estate plan galvanizing family values of self-reliance and responsibility are certainly appealing. Perhaps this estate planning model is the wave of the future.
© 2019 Craig R. Hersch. Originally published in the Sanibel Island Sun.