Wealthy parents today face an inevitable
choice: leaving boatloads of money to kids who aren’t good with money.
They say that money is the root
of all evil, but that’s not quite right since money can also be the product of
much hard work, knowledge, and ability. What tends to be right more often than
not, and also what happens to be more unfortunate, is that money is the “toxic soil”
of crooked trees, unruly gardens, and those that don’t understand money and
value itself.
That’s a serious challenge to
the wealthy estate planner and especially the planner with a business to leave
behind.
As pointed out recently, here,
a possible, if difficult, option among wealthy parents is some form of
disinheritance. That’s right, you may actually decide to simply not leave your
wealth (or some form/amount of wealth) to your children. It need not be out of
malice, but it likely will require every bit of planning that otherwise leaving
a robust inheritance otherwise would.
Your challenges aren’t in the
political system, the tax court, or even arcane IRS challenges, but they are no
less real. For one thing, you must decide what to do with those assets if not
to let them transfer downstream. At the same time, you must protect your
decision against entreaties and potential lawsuits from the disinherited.
The poster-parent of this idea,
and the source of much legal activity in the Australian Court system, is none
other than Gina Reinhart the mining billionaire (and an heiress herself). It
seems Ms. Reinhart came to the conclusion that her children aren’t fit to run
the company and shut them out of the ownership stakes of the business (although
they are already part of the family trust):
Court
documents cited in the Australian media show that Ms. Rinehart believed the
kids weren’t fit to manage their fortune. She said none had ever held a real
job, unless it was given to them by the family. “None of the plaintiffs (her
children) has the requisite capacity or skill, nor the knowledge, experience,
judgment or responsible work ethic to administer a trust in the nature of the
trust in particular as part of the growing HPPL Group,” she claimed in court
papers.
It’s not a complete
disinheritance, but it is a decided opinion, and a terse objection, to leaving
certain things to those children. Indeed, a tough call.
More information about the
Reinharts and their trials can be found in the original
article.
Their specific situation and
grievances aside, it goes to show that planning to give and planning to
withhold are, usually, two sides of the same coin. They require the same
decision making and authoritative execution.
Reference: Forbes (March
13, 2012) “Billionaire
Says Her Kids Aren’t Fit for Inheritance”
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