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The intention for passing down money is as important as the dollar amount.
- Some wealthy parents have trouble figuring out the right amount of money to leave their kids, Joe Pinsker reported for the Atlantic.
- One estate planning attorney who formerly advised wealthy Silicon Valley families told Pinsker that parents should pass down only what their child is prepared to handle.
- Talking to heirs about the intention of an inheritance is one of the most important steps in passing money to future generations, a wealth manager told Business Insider.
- Read more personal finance coverage.
Not all wealthy parents are keen to make their children instant millionaires.
In fact, some are downright worried that handing down cash to a young adult could stymie their motivation to work, so they turn to wealth advisers for help, Joe Pinsker reported for the Atlantic.
"Though it may not be a particularly sympathetic problem, coming into enormous wealth can be isolating and overwhelming, especially in early adulthood, a life stage when people forge important parts of their identity," Pinsker wrote.
About 85% of inheritances are worth $250,000 or less, the majority of which are smaller than $50,000, Pinsker reported, citing data from the Federal Reserve. Though only about 2% of inheritances from 1995 to 2016 were larger than $1 million, he reported, they accounted for about 40% of the dollars inherited.
It's estimated that $68 trillion will be passed down from boomers within the next few decades during the "Great Wealth Transfer," Business Insider's Hillary Hoffower reported. By 2030, millennials will hold five times as much wealth as they do today.
Matthew Wesley, a director in Merrill Lynch's Private Wealth Management arm and a former estate planning attorney in Silicon Valley, told Pinkser that it took him a few years to come up with a response that would satisfy his wealthy clients who were asking how much money to leave their children.
"The answer is: as much as you prepared them for. It really puts the emphasis on what should be the emphasis, which is not the amount of money, but rather the readiness of the children to receive that money," Wesley told the Atlantic.
"I think there's a common notion out there that wealthy kids inherit cash and stocks and bonds, but they don't - they inherit structures, [like] trusts and foundations and LLCs," Wesley said. "You have to know how the foundations and the structures and the LLCs work."
In a recent interview with Business Insider, Michael Farrell, managing director of SEI Private Wealth Management, said the most important step in passing down any type of wealth is discussing intention, which can start as early as college-age.
"I think the thing that people want to succeed in is transferring their values about wealth, not just transferring the wealth value," Farrell, whose typical client is worth at least $10 million, previously told Business Insider. In early conversations, the goal should be to communicate why they're passing down the money, he said.
He said a 2015 study conducted by SEI revealed that nearly a third of parents who planned to pass down money did not communicate with their children about it. Only about 15% of heirs were kept informed of the plan and about half knew the basics, he said.
"One of the things that people have to do is they have to begin to talk with their kids about what wealth means to them. What do they want wealth to do for their family and how and when can they be a resource to each other to help establish their own values about money?" Farrell said.
He continued: "I think communication of intent is the cornerstone to a successful approach of getting your children, whether they're going to inherit a gazillion dollars or whether they're going to inherit a few dollars."