03/13/2012 05:28 pm ET Updated May 13, 2012

Inheritance: How Much is Too Much?

It is hard to imagine how parents with a lifetime of experience coupled with heart-felt intentions, can, in one decision, do so much downstream damage to their family. "How much should I leave my children?" or "When I die, I want my children to have what I didn't have." This is the question and comment most often echoed by well-intentioned and loving parents coming to terms with their mortality. It is the last act of significant parental control but it often carries an unexpected impact. Many parents can't spend their own money during their lifetime because it is tied up in the ownership of a home, kept carefully in savings, or a death benefit in a life insurance policy. It is a tree the parents planted, cultivated, watered, nurtured, and sacrificed to grow... yet the children get the fruit. Sounds common, doesn't it? In fact, if you have been lucky enough to own your home, and acquire a little savings, your daughters and sons are set to receive that money, right?

Before you carry through with your "fait accompli," consider this: Whether in life or in death, everything you give your child you take something away. People have needs and wants. Money, without carefully drafted instructions and guidelines, can change wants into needs. Not too often do you hear about a person using the money they inherited to pay down or pay off their mortgage, or donate money to their church's hunger relief project? More often you hear about somebody blowing their inheritance on frivolous desires. And if mom and dad die suddenly while the children are young adults, just imagine handing one of your kids $100,000 today. What result would you expect? Remember, if you die with or without a will, the money goes to your child at 18 years of age. Although a living trust has the option of a delayed payout, most parent's give their children the inheritance at 25 years of age. Recall when you were 25, what your thought process might have been if someone gave you a house worth $500,000, $100,000 in cash, and perhaps a couple of late model automobiles. Someone at the age of 18 or 25 doesn't have the maturity to manage this amount of inherited wealth. Think about the job you had as a young adult at minimum wage as you worked your way toward college, or graduate school to become a teacher, or nurse, or lawyer. I'm betting a windfall of unexpected cash might have made the call of the highway tempting for you. The more significant the inheritance, the less likely your child will ever return to the journey they were previously on to find their true passion.

Estate planning attorneys, despite the best of intentions, have one directive; by minimizing estate taxes, get as much money to your children as legally possible. They are not experienced nor concerned with what happens next? Ask them their opinion regarding children inheriting significant sums of money and their expression will convince you they rarely give the question much thought.

Your will or trust should carry a warning:

"Taking money from this will or trust may have toxic consequences including; a sudden change in lifestyle, a mania to shop, sibling family disputes, arguments with your spouse, a loss of motivation, alienation from good friends, swarming of wealth professionals, a re-acquaintance with distant family, a mailbox full of catalogues, and being targeted by unctuous fundraisers."

The secret to a healthy inheritance plan is to avoid changing the lifestyle of your children. If they are teachers, allow them to continue as teachers. If they are struggling, don't inhibit strife and diminish character-building and family pride. Let the family live at the financial level they have acquired and earned. If they are destitute, permit them basic needs of life. If they are addicts or alcoholics, don't try to micromanage what they themselves cannot easily change. Afford them the pathway to rehabilitation if and when they decide it is time. Money can be a comfort if it acts as a safety net and is not used to increase your child's station in life.

Let me suggest you start with the premise your children need only inherit family memories; good or bad, but no money! Now remember your circumstance at various times in your life; starting a new family, buying a house, the need for a new car, or a desire to travel. What effect would unearned money have had on those historical circumstances? Now consider whether money would benefit your children in the same or similar instance. Your answer in most cases should be "No." Ask how you would best provide a security blanket rather than a blank check. Most often, taking the struggle out of your children's life takes away valuable life lessons, the pride of succeeding, and the humility of failing.

One tool that can be very helpful is to invest at least part of the inheritance in the form of a non-profit family entity such as a private foundation, donor advised fund, or charity. Allow your adult children to be co-directors of that family enterprise and determine what good causes the money can be donated to. The only hitch is the money cannot be used on them. The adult children who decide to participate have the privilege of discovering good causes and worthwhile people or organizations in need of financial support and giving the money away on behalf of your family. Besides gratifying, the joint effort will build family relations long after you are gone. Your family will be remembered for its generosity. You will be remembered for being wise and intentional with your money. It is your decision how to pass along your wealth, not theirs.

It is difficult to consider leaving only a modest amount of money to your children. Perhaps it is our last act of "tough love." But do not turn a blind eye to the reality that even modest amounts of money carelessly given can have unexpected and corrupting results. Money is like a narcotic, a little more is always welcome, and the last amount never quite fills your present need.

Give your children enough they do something, but not so much they do nothing.