How To Figure Out What To Leave To Heirs

Rick Kahler, president of Kahler Financial Group in Rapid City, S. D., is a student of ”money scripts” —the unconscious beliefs we hold about money that often determine the financial decisions we make. This phenomenon can be seen in how bequests are allocated in family estate planning.

Larry Light: How you dole out your assets to heirs seems like a fraught subject.

Rick Kahler: Based on my experience, American societal money scripts around estate planning appear to be “Good parents leave everything to family,” and “The more money I can leave my kids the better off they will be.”

It’s not surprising, then, that estate planning often does not include discussion of how to pass on an inheritance in a manner that doesn’t harm the kids. It’s even more rare to consider leaving money philanthropically.

According to Professor Russell James, of Texas Tech University, in a January 2014 article, “Neuroimaging and Charitable Bequests, only “between 5% and 6% of people 50 and older include charitable giving in their wills.” That means 94% to 95% of estates are left to others, usually family.

Light: What might be behind those estate planning motivations and money scripts that focus only on family?

Kahler: According to Professor James, bequests rest on two factors: the beneficiary must share the perspectives, goals and values of the giver, and the giver must have empathy for the beneficiary. He says, “When donors are considering leaving a bequest to charity, the most important question they tend to ask themselves is, ‘Which charity or cause is part of my life story?'”

Compelling stories make it easy for givers to visualize a bequest as part of their life story. Children, of course, are usually a central part of a parent’s life story and its ongoing legacy.

The problem is that this visualization may be more of an extreme belief. It does not question whether giving money is harmful or helpful or whether the children necessarily share the parent’s values. The forgone conclusion is that leaving money to family is positive and helpful.

Light: Could you give us an example of how givers deal with this question?

Kahler: James’ research reminded me of a client I will call Pam, who struggled with estate planning decisions. She and her husband, lifetime entrepreneurs in a profession they were passionate about, had accumulated an estate of $25 million that she inherited on her husband’s death.

Pam’s three adult children had widely differing world views. Jarred shared his parents’ entrepreneurial values and owned a successful business. Laura was a college professor who embraced more European values of controlled capitalism, high taxes and a broad social safety net. Alex despised capitalism, embracing societal revolution and the gift economy, where goods and services are not bought or sold, but freely given.

Pam had good relationships with all her children and was extremely conflicted around leaving her estate to them. She had no problem leaving inheritances to Jarred and Laura, seeing them as responsible with money and sharing her frugal values.

She was hesitant to leave Alex anything, both because she viewed him as a spendthrift and because “it doesn’t feel right to give money to someone who despises the very economic system from which it comes.”

Light: So what happened?

Kahler: I asked her about any charities or organizations that she was involved in. She immediately started talking passionately about her and her husband’s life’s work, including several organizations to which she clearly had emotional connections.

I asked if she had considered leaving bequests to any of them. “No, it never occurred to me.” “How would it feel if you did?” I asked. “Actually, it would feel amazing!”

Pam decided to leave each of her children about $1 million, with Jarred’s and Laura’s being outright bequests and Alex’s left in trust that would give him a foundational income of around $30,000 a year. The bulk of her estate will go to several of her cherished professional organizations through an endowment that she established with a local donor advised fund. This treats her children equally and appropriately, as well as supporting groups that will carry her values into the future.