JACKIE Chan announced in 2011 that he would give half his money to charity when he dies. He is not planning to leave his son Jaycee any of the millions he made.
Similarly, American investor Warren Buffet reiterated in one of the interviews, “I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing.” Buffet pledged to give away 99 percent of his wealth either during his life or when he dies.
The retiring generation has given its children two things that they need to succeed in this world: personal wealth and a privileged education. However, most family business founders are not confident of the next generation’s commitment to the business. They worry about the impact that sudden wealth will have on their children.
This is a growing concern that needs to be addressed: the ‘Inheritor’s Dilemma’, which can block the succession plans of family businesses for decades.
Children of successful business owners have not had time to create an identity outside of the wealth and status of the business. Affluence is a part of their core and they may find it a challenge to develop self confidence and forge healthy relationships. No wonder most business owners try to keep their newly earned wealth under the radar, even to their own family. And wealthy parents aren’t raising kids to be good with wealth either, so they refuse to leave them wealth.
We call it the Rinehart Paradox. Remember Gina Rinehart, the Australian billionaire who was recently called the richest woman in the world? In a battle over the family trust, Ms. Rinehart said the kids “lacked the requisite capacity or skill, knowledge, experience, judgment or responsible work ethic” to manage the business and inheritance.
Study after study reiterates that only half of millionaire baby boomers think it’s important to leave money to their kids. A third of them said they would rather leave the money to charity rather than their kids.
The Philippines is no exception. Unfortunately, our inheritance laws mandates the intergenerational sharing of wealth to the qualified and beneficial heirs in the next generation. But most often than not, I still hear business owners having strong preference of bequeathing their wealth directly to their grandchildren and skipping the next-in-line descendants.
According to a CNBC article written by Robert Frank, there are two explanations for their stinginess.
First, they want their kids to grow up with the same middle-class values they had. They want them to learn and experience struggle and hard work and failure and the joys of earned success and all the other lessons that helped the boomers become successful (those born from 1945 to 1964). Aligned with this benevolent explanation is their commitment to charity and the broader world.
The second and perhaps more realistic explanation is that boomers don’t think their kids can handle all that money. Only 32 percent of baby boomers are confident their children will be prepared emotionally and financially to receive a financial legacy.
Microsoft founder Bill Gates, the richest man in the world, and his wife Melinda, are not interested in keeping their money for themselves or their three children. In 2010, Gates told “The Sun” that leaving the money to his children wouldn’t be good for his children or society.
Texas oil and gas magnate T. Boone Pickens, who is worth $1.4 billion, does not favor handing over his money to his children. Asked about leaving money to his kids, he said, “I enjoy making money and giving it away. I’m not a big fan of inherited wealth. In general, it does more harm than good.”
In the end, the situation boils down to a simple problem: the millionaire entrepreneurs have raised kids who are unequipped to inherit large amounts of unearned wealth. It is absolutely imperative therefore for business owners to start a strategic wealth management plan so they can confidently hand over their inheritance to the next generation stewards of the family business.