Distributing Wealth Wisely


While researching a potential rental property purchase, I stumbled across an interesting filing with the land records. Basically a homeowner deeded the house to his children upon his death.

I hadn’t come across it before and I was intrigued. It made me wonder about the best way to transfer wealth to my kids or their kids (when they have some).

Here are some thoughts on distributing wealth to family.

Give Wealth Through Knowledge

Is it better to give a man a fish or teach him to fish? Both are important, but it is better to teach him to fish. We may have the opportunity to give wealth to our family but are we teaching them how to use it and preserve it??

Without teaching our families the fundamentals of budgeting, investing, financing, and saving we are setting them up for failure. Much like the impact of winning the Lottery, we could potentially cause them significant problems by our well-meaning attempts to pass wealth along to them.

This is such a big pitfall and I never want any of my family to fall into it. I would hate to give them a great opportunity for financial stability only to see them go bankrupt through laziness or  ignorance.

One of my favorite resources right now is Financial Peace University which is step-by-step guide through the financial basics that everyone should know. This is something that a family member wisely suggested that me and my wife attend a few years ago.

The course is a very basic introduction to personal finance. As a CPA and MBA, I have had exposure to simple and complex financial concepts for years. However, one of the main points that Dave Ramsey makes is that most of your personal finance success comes not from the fact that you understand complex principles but rather it comes from disciplined behavior and planning. It was actually extremely embarrassing to be schooled in this after so many years of finance training!

But hey, I am open to learning new things and growing as a person so I don’t mind being embarrassed as long as I get a benefit from it.

I was amazed at how Dave was able to simplify many complex financial topics. I don’t follow every rule that Dave teaches and will often diverge significantly from them. But even though I disagree on some of the finer points, and think there are some more nuanced ways to approach some of the topics he teaches, I believe that this is one of the best courses to get everyone in the family (even non-financial types) prepared with a foundation in personal finance.

I’m interested to see if there are any other basic courses like this that are helpful. I am not familiar with any other courses and, like I said, this is the one that I was encouraged to take with some members of my family and I loved it, so I’m biased.

Giving in Your Will

So one of the ways to transfer wealth is obviously through naming people in your will. This is a good method because you can be very specific and stipulate who gets what.

The problem is that taxes on this are very high. I don’t even want to get into the tax code and all the different ways various states and the federal government tax estates and income from inheritance. I just know it is a heavy tax burden.

This doesn’t mean you shouldn’t consider naming people in your will as a good way to transfer wealth but it does mean you should consider working with family and estate lawyer to help you determine the best way to transfer wealth when that becomes appropriate.

Right now I don’t have enough wealth to make this worthwhile and the legal fees would probably therefore not be worth it. But one day I hope to be able to have a conversation and set up a legal entity that will shield my kids from an undue tax burden.

Giving While Living

But why wait to give until you are dead? This is something another wonderful family member has demonstrated to us. They even say it from time to time to us. “Hey, I would rather give you things now while I am alive so I can enjoy seeing you get the benefit. Besides, I don’t need any more than what I already have.”

This is mature thinking and a mindset I hope I can quickly adopt. Of course, since I’m on the receiving end I’m probably biased. But I see great wisdom in this. And I see this mindset provides true and lasting joy to the giver and that’s great.

This can be done through a straight gift in the form of check or cash. The rules are always changing on this but recently I read that for federal taxes the annual gift that can be given to family members is a little less than $15,000 tax-free.  That’s a nice chunk of change. Make sure you understand the actual rule and the applicable state taxes.

The other great way to do this would be to pay an expense on behalf of someone. Think about it. Your daughter comes to you distraught because her car just broke down and the transmission is shot. It will cost $3,000 to repair the transmission. This would be a great opportunity for wealth transfer. Have her get the car fixed and pay the bill for her. My understanding (again check for yourself) is that this would not be a taxable event. This would make a huge impact on the daughter’s financial situation because $3,000 when you are young and starting out is a much bigger proportion of annual income and total Net Worth than for people who have years in the workforce.

To me, the giving while living approach seems much better than the transfer upon death approach. Any time I can keep greater control of my money by keeping it from going to the government I am going to do so!

Leaving a Financial Legacy

There are many important legacies that we leave to our children, grandchildren, nieces, nephews, and other family members. The financial legacy you leave will certainly not be the most important one. However, it could be an important one and could become a significant tool to be used for good in society.

What kind of financial legacy do you want to leave? The best one would be something that provides a foundational knowledge base upon which to build greater understanding. Additionally, one which provides an ongoing form of income is helpful. Leaving a large lump sum can be the riskiest form of transferring wealth! It is much more likely to be significantly diminished quickly because it wasn’t the result of years of hard work and lessons learned through experience.

Let me know if you have any experiences with transferring wealth in your family.

Author: Patient Wealth Builder

I live in the Mid Atlantic region with my wife and children. I am a finance manager for a Fortune 100 Company with over 10 years experience and have an MBA and CPA - but my true passion is investing!

4 thoughts on “Distributing Wealth Wisely”

  1. I help facilitate the FPU class and have definitely seen some lives changed when they follow the principles. I agree with 90% of what Dave Ramsey says and I think he is great when it comes to debt. However, when it comes to investments, I think he leaves a little to be desired. But even though I disagree it’s still a great course overall. Thanks for sharing!!!
    Mustard Seed Money recently posted…Confessions of a Reformed HoarderMy Profile

    1. That is great and I have been considering doing that as well. Right now I have too much going on but I would really like to do that and other financial education opportunities. I actually have a volunteer opportunity through work to help sixth graders learn about budgeting by putting together a Thanksgiving meal budget and then going shopping with them for the food. I think that is a great way to pass along some financial acumen to these kids and I am sure I’ll have fun doing it. I think facilitating FPU would be fun as well. The main thing I like about FPU is the baby steps and the underlying theme that the key is behavior.

  2. Indeed, it is always a tough decision on what kind of wealth we should pass to our loved ones. Is it better to give them cash directly or teach them the knowledge of how to manage and acquire it?

    I always believed that financial knowledge is more important compared to directly giving them money. As you’ve pointed out, even lottery winners can spend all of their huge winnings quickly. Knowledge is indeed power and that shall be what I aim to gift to others.
    TheTirelessWorker recently posted…How to have a plan that will change your life 5 years laterMy Profile

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