Which of Your Kids Should Get More?

Class today is about bequests — wealth left over to one’s heirs. There are many interesting economic questions about bequests, including whether they are planned (partly yes, but partly no, because wealth is left over when people die that they had planned to spend in their very old age) and what bequests do to economic inequality (they raise it).

Another question is whether people plan bequests to compensate for their kids’ differential economic successes — give a bigger bequest to the “loser” among one’s kids — presumably to equalize the kids’ marginal utility (if we can make comparisons between kids).

The evidence is clear on this: nearly three-fourths of estates are divided essentially equally among the heirs. The problem is what to do about grandkids, a serious issue if your kids have different numbers of children. Do you divide your estate, or give gifts, per stirpes (equal shares going through each kid) or per capita (equal amounts for each heir)?

This is directly relevant in our gift-giving, since one of our sons has two kids, and the other has four. What to do? We solve the problem each year with equal, large gifts to each son, but with smaller equal gifts to each grandchild. The family of the son with four kids gets more in total, since we feel he needs it more; but the difference isn’t huge — one son’s family gets 45 percent of the total gifts each year, the other 55 percent.

I think this combination of per stirpes and per capita makes sense — it satisfies our preferences, but occasionally I’m bothered by the decision.


Sally

For Adrienne --

Being first-born is a mixed bag. When I went to college, tuition was cheaper and my parents spent less to send me through college, and money was also tight because there were still several kids at home. When the youngest kid went to college, tuition cost (in unadjusted dollars) for one year was equal to three years of my tuition. There were no kids at home to have to support, but living expenses weren't more generous for the youngest because of inflation.

The oldest grandchild may not see the grandparents at her wedding because her social life hasn't worked out. There are younger grandchildren who seem to have more successful relationships (on both sides). Also, on the intangible side of the scales, the position of "oldest grandchild" in my family and my husband's family for two generations has been a very isolated place. The grandchildren are too old (by a 3 to 5 years) to have anything in common with the younger kids until the younger kids are in college or out of it, and too young to hang out with the adults.

In one of the families, a gift to the oldest grandchild when the kid started college raised all kinds of objections from family members who didn't want the younger kids to receive the same dollar amount when inflation would affect the amount. So the college assistance ended up being doled out within a year to all grandchildren, to be spent or invested as the parents saw fit. Frankly, our youngest did better than our oldest under that plan, because there were more capital gains after the oldest was in college. Again, no advantage to the oldest.

Attendance at graduations can be troublesome. Any person looking forward to an emotionally important event, whether graduation, wedding, or whatever needs to be aware that circumstances out of their control can make an event less than what was desired without its being anyone's fault.

In our family, one college graduation party was cut short because it was prom night at home for the younger teens in the family. There have been graduation parties that conflicted with 25th anniversary parties and business trips that conflicted with other family events. We've also had cases where family members weren't invited to graduations because the parties were only for the graduate and friends, which was the tradition in the community where the family member had moved.

Finally, one grandparent is becoming deaf and doesn't like going to events now where it is hard to hear (graduations often have crappy amplification in fieldhouses or stadiums). Another just isn't happy in crowds now. I know an older person who uses a cane who says he avoids events like graduations unless he has several family members who can create an area around him so he has room to use the cane and isn't afraid of falling. Family members need to find the time and circumstances they feel comfortable in in order to enjoy each other without always linking the event to an occasion, and family members have to avoid measuring affection with dollars.

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Liya

My grandfather had two children: my mother (still living, two children) and my uncle (deceased, three children). Grandfather spent considerable money for uncle's final nursing care and medical expenses, and for cousins' college; our family has not needed such assistance. I am glad to see that Grandfather has been able to make a significant difference in the lives of people he cares about, and do so while he is still alive to see it. When he dies, the estate will be put in trust, from which my mother will be able to draw as needed; when she dies, what remains will be split equally among the grandchildren. I think this is fine: I want Grandfather to spend whatever he wants or needs for his own quality of life; I am glad my mother will be well taken care of, whatever she may need. As a previous poster said from the parent's point of view, we have already gotten the gifts that matter from our ancestors: love, care in raising us, etc. Maybe when the money comes we will involve our children in choosing which charity to give it to - this might be the best way to keep the truly important gift passing on.

Money's only worth being jealous about when you don't have enough for necessities of life. Once you have that, who cares about making a bigger pile of beans.

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prkly

I am the oldest of 3 adult children and it has been made very clear to me that my parents entire estate will be left to me. While I don't think this will come as a complete shock to my siblings (they are extremely well-off and I am not), they have not been told. I am extremely grateful to be the recipient of such generosity, but I am also worried that my siblings will be angry. Even though they don't need the money in the least, and I have a much warmer relationship with my parents than they do, I'm guessing that they think the estate should be divided equally.

mary

Interesting question... In my father's family, he had one brother who was, well, trouble, so instead of leaving things to the siblings, they left things to the grandkids. The brother still got money when he needed it and they even paid for him to get an advanced degree when he was old enough to pay for it himself, but he didn't get heirlooms or share in their major investments.

Adrienne

It is a really interesting question; what is fair when dealing with heirs? My mother is in the middle of four siblings, each of whom has two children, including my mother (resulting in eight total grandchildren). My grandparents wanted to give to their heirs while still alive, and so have paid for the eldest 4 grandchildren's college educations, including myself. The fifth eldest decided not to go to college. However, we four that have been paid for all went to state schools and were on partial scholarship.

I wonder how they will handle the youngest two. Their parents are fairly wealthy (daddy's an i-banker) and I'm sure their educations won't be a bargain.

Also, the same goes for the grandparents' attendance of graduations and weddings. We grandchildren are all close in age, so often these events occur around the same time. The problem is, we all live in different parts of the country.

There have been a multitude of complaints as to which events the grandparents choose to attend. Not so much among the grandchildren, but among our parents. They are vying over our grandparents. For instance, the grandparents attended my graduation and my older cousins's wedding and graduation, and they will attend my wedding this summer; however, they did not attend my younger sister's graduation or my other cousin's graduation because they were graduating the same year and they thought to attend one grandchild's graduation would be unfair to the other. But my mother was still heartbroken and felt that their decision was "unfair."

And by the time my sister decides to marry they will probably be too old to travel that far in order to attend her wedding. The same is the case for most of the younger grandchildren. The oldest grandchildren are therefore treated "better" just due to the simple fact that they were born earlier on.

This begs the question, does simply being born first give you an unfair advantage?

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DavidL

As my wife and I approach retirement, we have recently redrafted our wills to give most of our estates to charity. We have accumulated enough wealth throughout our lives that we could make both a sizable contribution to our charity and ensure that our children, and perhaps even our grandchildren, would live comfortable lives. And for many years, that was what we had planned to do.

It was recently that we realized that the greatest gifts we could possibly give our four children, we'd already given: love, support, and opportunity. We brought them up right (at least we like to think so), provided for them, and paid their way through school, college, and in the case of two of them, graduate school.

Our view is that through these efforts, our children (and through them, our grandchildren) have already been provided for. To give them anything more would be an excess and might discourage them from working as hard as their parents.

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kwillmann

Didn't this issue get solved in much the same way in "Its a Mad Mad Mad Mad Mad World?

htb

I'm amazed at the snippy comments here about the number of children people have. So the infertile couple "chose" to have zero children? The family with an unexpected pregnancy "chose" to have another? (One of my siblings was born as a direct result of a failed vasectomy.) The family with twins "chose" to have twins?

Given one infertile couple and one set of "oops" twins, you could have people who wanted exactly two children end up with either zero children or four -- through no fault of their own.

As for my family:

My mother died young; her share of her parents estate was divided between her children. All grandchildren received a small, equal bequest (totaling about 10% of the estate). This is similar to Daniel's system and I think it's a good one: the majority evenly to kids, with a small amount evenly among the grandkids. They are all equally your grandkids, after all.

On my father's side, one of the three siblings has no children. I would be sorry for him to be disinherited in favor of the grandkids, even though he has no natural heirs other than those grandkids. His estate will ultimately go either to those grandkids or to a charity, but in case he needs the money in the meantime (say, for nursing home costs), then I think he should have it. If Kathryn (#24) thinks through the implications here, I think she'll worry less about whether her children get Grandma and Grandpa's money right away, or after their beloved aunts and uncles die.

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Judith

I hope to convince my parents to leave whatever they wish to my sibling, and if they wish my kids. I don't need it (knock on wood).

As to fairness, I'm ok with getting different amounts of money (as we have for many years because I make about 5x what my sibling makes). As long as they make very clear that the money is not a reflection of caring (as they have).

I think the author's approach is pretty reasonable. And as his kids hopefully grow into financial independence and stability, I'd transition the bulk of the giving to the kids. Kids want "stuff." Most successful adults buy the stuff they want.

Kelley Cunningham

Now, this is a problem I would like to have.

mathking

The best advice I have ever heard (and put into practice) is to talk about things beforehand. And make sure the will is set up to facilitate the decisions you make.

When my grandmother went into a nursiing home, she signed all of her remaining assets over to be in my uncle's name and hers (over a period of a couple of years). When she died, there was no probate and the siblings each got an equal share of the money and the physical things pretty much went to the person who wanted them. A few things were wanted by two (of 6) siblings, but everything was resolved amicably. I know that this wouldn't happen in every family but everyone was able to talk about it well ahead of time.

On the other hand, my grandfather (other side of the family) never updated his will after he got Alzheimers, and in the intervening years my dad's sister died. The will as written left her kids completely out of the inheritance, as well as my aunt who had taken care of my grandfather and my grandmother. So there was a lot of legal wrangling to get things set up so my aunt was provided for and my cousins weren't cut out of the will.

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arnold b

We have three children and six grandchildren.

Years ago, we set up accounts for each of our children with me and my wife having power of attorney. Each year, we deposit, equally, whatever was permitted as a tax free gift. This was not initially intended as gifts, but, rather as a means of legally getting assets out of our eventual estate.

Over the years, stuff happens. For example, our son needed substantial funds to buy a house and we dipped into his account for that. Separately, his sisters have had financial needs and we help support them out of their accounts.

We've set up 529 accounts for each grandchild and add $5,000 to each every year.

Mayuresh Gaikwad

I think the answer lies in how you see your grandkids. If you see your grandkids as your direct heirs (and fairly so, because they are the final ones carrying 1/4th of your genes each way into the future and your children have sone their parts by giving birth to grand-kids)

However, lets say you see your grandkids as your children's heirs/property more than yours (and rightly so, because afterall, your kids have given birth to them) and you think that only your direct children should be your heirs. In this case, you should distribute the corpus equally among your children without worrying who has a larger number of grandkids.

The situation is further comples when you have a limited corpus and the children really need your money for living their lives (God forbid).
In that case a division according to the number of grandkidswould be grossly unfair to your kid who gives birth to only one grandchild thinking that s/he will be able to nourish one child better than having a horde of children, given limited resources. Your second child, on the other hand gives you four grandchildren. May I say that s/he mindlessly produced grandkids without taking into account that s/he only had limited means to raise them in the first place. So, if you gift all your grandkids equally, you are penalizing your kid who actually had the good sense to produce only one offspring after noting the limited money at his/her disposal.

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Joe D

Money, shmoney. My brothers and I do okay, and I don't think any of us will have problems putting our kids through college (of course, the occasional drop in the 529 from the grands doesn't hurt).

I want my parents to enjoy their life together. If they spend every cent they have doing so, good for them. All I want is my dad's vintage Gibson ES-175.

If you parents are well enough off that they have an estate to divide, shouldn't most of the kids be pretty well off, too?

As I tell my seven-year-old over and over: Fair is for games with rules. Fair is for lawyers. Love isn't fair, life isn't fair, and I promise never to be fair to her (cf. any of a number of parables in the Gospels, e.g. the workers in the fields, the prodigal son, etc.).

sarra

As a young person myself, I think parents should avoid substantial gift-giving to their kids after college. To me, the greatest gift my parents could have given me was to pay for my college education so that I was able to leave without the large student loans that some of my friends have. Now that I'm out of school, I would prefer to make my own way. Even though I'm in grad school and so not exactly rich, I think it's important for "children" to at some point become financially independent and not get these huge gifts from family all the time. They CAN and should learn to live within their means. If you teach your kids not to be dependent on your money, then this issue won't arise--you can give equal monetary gifts in "token" amounts at holidays (which is always nice for a little extra cash) instead of freaking out about who "needs" it more--none of your kids should need it! If there does arise a situation where a kid does need money (obviously things happen), I think that should be dealt with separately and not "equally"--this should be seen as a special circumstance rather than the norm. And what to do with all that extra money? Why don't you give it away, maybe in the form of scholarships to college for students whose parents can't afford to give them the head start of college without loans?

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Jeff

Coming from the other direction, my wife and I have had a strange money problem come up. We have twins (boy and girl) who are 7 years old (and we have no other children). Our daughter backed into a modeling gig and was paid an unexpected significant amount of money. Both children have college saving accounts. I suggested we just don't tell our daughter about the money (she thought it was all for fun anyway), but my wife let the cat out of the bag. My wife and I then decided to put the money in her college account anyway. At the time, our kids didn't care at all about it, one way or the other.

Well, a recent event (too long to go into) has inspired our kids to be MUCH more interested in and aware of the value and utility of money. As an illustration, for a couple of years we have been giving them a very small allowance contingent on doing some chores (mostly cleaning things up). It had always been neither here nor there to them until their recent enlightenment about money. When they asked and then we told them how much we pay our cleaning lady (which is significantly more than their allowance), they almost fell of their chairs in disbelief. It wasn't that they wanted a bigger allowance, but that we pay the cleaning lady so much (in my opinion, they have a point, but then I refuse to clean the toilet so I have no clout).

The kids have also revisited the modeling payment and have been expressing consternation that they don't have access to it. There is a general assumption between them that they should share it and that it should be liquid.

Fairness is a big deal to myself, my wife and our kids (twins especially are acutely concerned with fairness, I think). But in this case there were many ways to go with the modeling money:

1. Don't tell, put it all in our daughter's college account.
2. Don't tell, split it between both accounts.
3&4. Tell and put it into either her or both accounts.
5. Give it all to our daughter (and let her give some to her brother if she wants to).
6. Split it between both (seems fair to them now, but sets a difficult precedent)

In retrospect, we probably should have kept the amount secret, given them both a small chunk of it, and put the rest in the accounts. In fact, secrecy is probably an essential part of the solution to many of the gifting problems put forth here. My sister is having more financial difficulty than my brother or me. My brother and I assume that my parents help her out more than us, but we just don't know by how much. I think it's probably better for all of us (parents, me, my brother and my sister) that it is kept that way.

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Jeremy

Regarding the bequests: give the money to your children per stirpes. They decided how many children to have and should have factored in the financial liability of each additional child. Large families come with good and bad. You can't compensate the child with a small family b/c he lacks the joys of your child with a large family. So you shouldn't compensate the latter b/c the former has financial benefits. Also, you are giving to your children, not your grand children through your children. If you want to give to the g'children do so directly and per capita.

Regarding the gifts: During holidays give to each child equally and each grandchild equally.

During life, if certain children have unique difficulty that is out of their control, then give gifts to help them in while you live. The only one who accurately knows what each child gets is the grantor, and the accounting should not be broadcasted by you or your children.

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Matt

Hamermesh, your system seems to be very close to the intestate succession order urged in the Uniform Probate Code (they call it "per capita at each generation).

Mischa G., at comment 2 -- is there evidence beyond the anecdotal (e.g. craiglist & Salvation Army stats) that Americans are saving too little for retirement? Most of the figures I have seen indicate we save too much.

Allen

It really depends on the purpose of the gift here. Is it to help out? Or to distribute your wealth?

I would say to set out a list of priorities/goals for the gifts. For example:
1)Grandkid's necessities (food, clothing, rent)
2)Grandkid's education
3)Home upgrades

As long as the grandkids are being provided for, set up a 529 account in the grandchildren's names for college education. Once that has been funded completely (difficult, given the price of education these days), then you can do whatever else you want guilt-free.

That way, even if their parents are not financially able to provide for their education, all the grandchildren will receive the same amount of help. It's not the grandchildrens' fault if their parents decided to have 4 kids rather than 2. Don't punish them for a choice their parents made.

The key is to making sure your gifts have a clearly defined purpose.

discordian

My kids are too young for me to worry about it.
However, I've noticed with my parents and in-laws everyone gets treated equally with gifts for, say, holidays and birthdays.
It works out evenly on my side of the family: I have a sister and we both have two kids and a spouse. Mirror image.
On my wife's side she has one sibling who has a long term boyfriend and kids.
Wife and her sister seem to get equal, my sister-in-law's boyfriend and I get equal. Then my two kids get gifts. So - while my 'family unit' makes out better than s-i-l and boyfriend, no individual is snubbed.
Honestly - at this point in my life I wouldn't care if I didn't any gifts and neither would my wife. Grandparents should be spoiling their grandkids. We got our spoiling with help paying for college.
Unfortunatley neither of our sets of parents are having any of that.