When to Hand Over the Inheritance

Ive written a lot about the virtues of giving money to charity while youre still alive, and theres growing consensus about the virtues of giving while living.

But theres still widespread disagreement on when to hand over money to kids — should it be while the parents are alive, or after theyre gone?

Martin Rothenberg

The argument for the afterlife is that kids should get the money as late as possible, so it doesnt spoil them early in life. Parents can also use the expectation of an inheritance as a tool throughout their lives to keep kids on the straight and narrow. And of course parents will be spared the venom of arguments over the final amounts (You only left me how much?”) if those only come to light after they’re gone.

Yet there are good reasons to give while living. For one, kids get a realistic sense early on of what theyre going to get. Sure giving a kid $10 million at the age of 25 may spoil them. But being 25 and expecting $50 million could spoil them more.

In this New York Times article by John Leland about leaving an inheritance, Martin Rothenberg (who made $10 million from selling voice-recognition software) set up a charitable foundation and community foundation for his kids with $5 million. He then used some of the rest to start another business. (Photo of Dr. Rothenberg from rothenberg.org.)

Speaking of his kids, he said that I think they all probably would like more money. … But by giving out the money earlier, that settled it. They cant think of my money as their money because there isnt any money.

His daughter Sandra adds: The kids wanted it earlier, not after he died, so we didnt have to spend the rest of our lives wondering, if we did this, would he cut us out of his will? We didnt want money to be a factor in our relationship.

Of course, money is always a factor in the relationship between wealth creators and their families. But maybe giving while living is the best way to reduce money’s impact.