Why middle class kids may actually have an edge over rich kids
We usually look at wealth as something that can help a child get ahead, perhaps by paying for tutors and tuition at top prep schools and Ivy League universities.
But in many instances, there can be too much money, too soon — levels of financial assistance so great that they interfere with psychological, social and emotional development.
Consider a child in high school or college. In a middle-class family, the parents might cover tuition, but make the student work part-time to cover personal expenses.
This entry-level job, whether at school, in a coffee shop, or in a convenience store — will provide valuable learning experiences. Without even realizing it, the youngster learns how the world works and what it takes to survive and thrive.
But in a wealthy family, the parents usually pay all expenses and perceive an entry-level job as demeaning and an obstacle to schoolwork or other worthwhile pursuits. This child won't get that real-world education, and thus might lag behind his less-sheltered peers.
Another example: Young adults from less affluent families might live with roommates in order to make ends meet. In the process, they learn how to live and get along with others.
Contrast this with children from wealthy families who can afford to live by themselves in apartments or houses and thus miss learning how to live with others. This lack of interpersonal experience often causes long-term challenges throughout life.
Leaving money to your heirs, however, is not necessarily detrimental. There are ways to leave your children an inheritance in a way that supports their natural growth and development.
Consider the case of Stan and Deborah Jones, who financially supported their daughters, Jessica and Megan, throughout college and graduate school, providing each daughter with a substantial living allowance.
By the time the daughters were 32 and 37, neither had ever held a steady job.
After meeting with a qualified financial planner, Stan and Deborah became concerned that they couldn't support the daughters forever, which would be a problem if the estate ran out of money.
Stan and Deborah worked with the financial planner to structure a program whereby each daughter's allowance would slowly decrease over time. The gradual decrease in support would both allow and force each daughter to look for and secure a job.
I structured their estate plan so that each daughter would receive money following the death of her parents, but the trust would be managed by an independent trustee. The guidelines for the trustee included that each daughter should earn her own income, with any distributions from the trust supplementing, not supplanting, income earned through her own effort.
Stan and Deborah further instructed the trustee that their ultimate goal was that money be available for each daughter for as long as possible, so smaller distributions over a longer period of time were preferable to larger distributions over a shorter period.
In this case, the financial planner and I were trying to fix a problem that had already started. The daughters had already received too much money, too soon. Fortunately, we designed a plan that helped reverse the damage that had been done.
It's even better when clients consult with their financial advisors and estate planning attorney prior to making financial gifts and distributions. With the proper foresight, structure, and planning, you can ensure that your heartfelt intentions to give your children a head start will serve as a benefit and not a barrier.
Commentary by Manya Deva Natan, an estate-planning attorney with specialized training in the area of wealth transfer and its impact on childhood development. She is the founder of SSS Legal and Consultancy Services, an estate planning firm in Calabasas, CA. Follow her on Twitter @SSSLegalService.
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