In­her­i­tance looked at in dif­fer­ent ways

Auckland City Harbour News - - OPINION -

Think­ing about leav­ing in­her­i­tances has been chang­ing.

I blame longer lives and the hol­low­ing out of the mid­dle classes.

I be­lieve fam­i­lies should have in­ter­gen­er­a­tional money strate­gies but in that I am not fash­ion­able th­ese days.

I think the aim should be for fam­i­lies to try to leave each gen­er­a­tion hap­pier, health­ier, bet­ter ed­u­cated and wealth­ier than the last.

But with peo­ple living longer, peo­ple are in­creas­ingly ex­pected to con­sume all their re­sources dur­ing their lives.

Leav­ing money to the kids or grand­kids is now a luxury the tax­payer is in­creas­ingly un­will­ing to fund. I come across many le­gacy strate­gies th­ese days.

It’s a far cry from the tra­di­tional strat­egy of leav­ing the house to the kids so they can sell it and pay down their mort­gage.

The strat­egy I am run­ning into more and more is what I think of as the ‘‘straight teeth and an ed­u­ca­tion’’ strat­egy.

It goes like this: Ed­u­cate them, love them, make sure they go to den­tist reg­u­larly and af­ter that the only thing they should ex­pect is ad­vice. It’s the equiv­a­lent of spar­rows rais­ing their chicks.

When the lit­tle ones have spread their wings, they are gone and mum and dad get on with the busi­ness of sur­viv­ing.

The at­trac­tive thing about this strat­egy is that any money gen­er­ated and saved by mum and dad be­longs un­equiv­o­cally to them.

They can use it with no sense of guilt. With longer lives and the con­tin­ued rise of a ‘‘user-pays’’ so­ci­ety, that means they can con­sume cap­i­tal and live de­cently, ek­ing out their money, dy­ing (if they plan it well enough) with just enough in the bank to pay for the fu­neral.

An­other strat­egy I fre­quently meet is the ‘‘skip a gen­er­a­tion strat­egy’’.

This is where rel­a­tively wealthy peo­ple, who were lucky enough to own a home be­fore the mas­sive rise in house prices, de­cide they have enough to tide them over and that any­thing their mum and dad leave them can be passed straight through to the kids.

The great thing about this strat­egy is that it means the kids can get on to the prop­erty lad­der.

This strat­egy means the next gen­er­a­tion gets a great start in life. That feels like in­ter-gen­er­a­tional suc­cess.

A third strat­egy I see is the ‘‘give them their in­her­i­tance now’’ strat­egy. This in­volves a one-off leg-up in life, usu­ally a lump sum for a house de­posit, per­haps from eq­uity re­leased from down­siz­ing or mov­ing to a ru­ral town.

Once that money is paid over, mum and dad can feel guilt-free about ev­ery other cent they have.

This does, how­ever, in­crease the risk that those giv­ing away wealth run out of money be­fore they die.

Some will not ap­prove of me talk­ing of guilt. They will say mum and dad have noth­ing to feel guilty about. It’s their money and their kids should ex­pect none of it.

I can un­der­stand that view but I also have a strong be­lief that if one gen­er­a­tion had the good for­tune to in­herit wealth, the aim of that gen­er­a­tion should be to pass on at least an equal value of wealth to the next gen­er­a­tion.

I also have a con­vic­tion that the mas­sive rises in eq­uity in many peo­ple’s houses have de­liv­ered mas­sive wealth which has had a big im­pact on the next gen­er­a­tion.

Those young­sters will have to ded­i­cate more of their in­comes to own­ing a house, while work­ing in a labour mar­ket lack­ing any sem­blance of job se­cu­rity.

Think about the strat­egy that’s right for you and your descen­dants.

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