Are Boomers Hoarding Wealth From Their Millennial Children?
“Using the funds and the proper trust, trustee and beneficiary design, you can empower your children, while using the wealth to encourage growth and learning,” Derousseau said. “It’s not meant to be a gift, but instead to help them understand how the wealth was built, how they can build it as well, and encourage proper investment of the funds.”
In this context, early gifting can help ensure that children can focus on higher potential purposes — especially if family members are struggling to care for children or pay debts.
“Or maybe it’s building a process for lending through a trust, so investments can be made in businesses or careers that build the family as a whole,” Derousseau suggested. “This will serve your children now, but also help strengthen the family as a whole in years to come when the money is in your children’s hands.”
As for the younger generation, Derousseau continued, it’s important to understand and respect what it means to be a good beneficiary.
“It’s not simply coming to your parents, looking for handouts,” he said. “Instead, it’s proving that you can be a good steward of the financial future of the family as a whole. If it’s informal, this means having regular conversations with parents about their goals and wishes for the wealth in the future. … If it’s formal, through a trust, then it’s also about learning how to be a good mentee to a responsible trustee, so you can handle the financial burden that you will one day carry.”
Some Words of Caution
John Power, an advisor and principal at Power Plans, offered a bit of a different take.
“I’d say that the boomer parents aren’t hoarding but simply making themselves the top priority,” Power said. “That is their choice and complaining that they won’t help pay off their children’s debt is a misunderstanding of responsibility. I often counsel parents to help their children with major matters, but almost always when they can well afford to do so.”
Powers does not generally counsel them to pay off the children’s debts, however, and particularly credit cards.
“In my experience, excessive credit card debt is a result of poor financial behavior and paying that debt off is the worst course of action one can take,” Powers argued. “You are enabling that bad behavior. Better to help them plan their finances and perhaps match their pay-down of debt.”
Better options are to help with a down payment on a house or to help with college funding.
“Paying their bills is definitely not a good use,” Power said. “If you want them to grow up and be responsible (and that is the parental responsibility) you are doing exactly the wrong thing by bailing them out. I have clients I have worked with to plan strategies to help their kids get sorted.”
Leslie Beck, an advisor with Compass Wealth Management, offered a related take.
“The very first thing I say to clients who mention to me the possibility of an inheritance is that it’s not their money,” Beck said. “I will not incorporate it into their financial plan until they actually receive it.”
On the other hand, when she sees aging clients who have far more than they could possibly need for their own retirement, she does suggest gifting “reasonable amounts” while they are alive, if only to share in the joy that gift could generate.
“But I wouldn’t call those people ‘hoarders’ by any stretch of the imagination,” Beck said.
The Power of Planning
Kevin Coombs, the lead financial planner at Donaldson Capital Management, told ThinkAdvisor in a longer phone interview that the debate shows how intractable money issues can be within multigenerational families. But it also shows the power of a financial plan.
“On the one hand, $10 million is a substantial amount of wealth to use to navigate retirement, but the fact is that a lot of people haven’t done the planning, and they are just governed by fear,” Coombs said. “They may be scared of things like long-term care planning and the pressures of inflation of a multi-decade retirement.”
In his experience, walking retirees through a planning process that includes stress testing and assurances that lifestyles won’t be disrupted deep in retirement can go a long way to relieving these fears. Once the fear is gone, conversations across generations can flow more naturally.
“That’s when the first generation can really relax and start to think about their wealth in a more positive way,” Coombs said. “I also agree with the comments that starting out with smaller regular gifts can be a good way to start passing along wealth. Maybe the older generation funds a 529 plan for the grandkids, and that can be a jumping-off point for deeper conversations about future inheritance.”
