The wisdom of passing wealth and properties to the children

We all wish to leave something behind to our next generation. It is a gesture of love and goodwill, and how we want to be remembered.

But very often, we don’t know what, when and how to give.

I just read a very good legacy planning book titled Wealth of Wisdom: The Top 50 Questions Wealthy Families Ask. The book has fifty-three chapters written by different subject matter experts in the industry.


Don’t burden children with wealth too early

Although children with well-to-do parents are seen as “having it all”, they are often living under the shadows of their successful parents. They find it hard to be on par with them, and are under a lot of pressure to succeed.

Chapter 22 “How Can You Help Children Thrive in a World Focused On Success” described the problems faced by these children: They are often overloaded with too many activities. They lack the space and courage to pursue their own dreams.

These challenges, if not handled properly, can easily lead to perfection obsession, emotional problems and rebellious behavior.

In Chapter 21 “How Do You Raise Responsible, Independent, and Productive Children (versus) Entitled Trust Fund Babies”, the author raised an important question: How do I ensure that my money does not mess up my children’s lives?

If we give our children substantial financial wealth and let them know too early, it is confusing to them. Because many inheritors, especially the young ones, can’t take this kind of well-meaning gift well.

The thought of being wealthy make them lose the drive to work hard in their studies or their profession. The loss of purpose and meaning in life may lead to self-destruction. As the author pointed out, “inherited wealth can foster isolation, addiction, delayed emotional development, and depression”.

As human beings, we need the positive feelings of accomplishment, achievement and self-actualization – which wealth recipients are deprived of after getting their inheritance.

When is the right time to let our children know their inheritance? When is the right time to pass it down?

In Chapter 23 “How Much Money Should You Leave Your Children, and When?”, the author had a good suggestion: As soon as the beneficiaries can take it, and as much as we are prepared for it. It all depends on the maturity, financial status and financial literacy of the recipients. It also depends on how ready we are as the giver.


To give or not to give

My blog post “Should we give properties to our children?” written in August 2016 had sparked a heated debate after it was being reposted in Yahoo News.

I am not leaving any property (or wealth) to my children. I hope they remember me for who I am, my values and my wisdom, rather than remember me from an old property. And I stated the reasons behind my decision in that blog post.

As parents, we tend to think from our own point of view what our children need. We immediately follow-up and take actions to equip them or provide for them.

But many times, our well-intentioned but unsolicited help means unnecessary control and intervention. We are depriving the opportunities of our children to think for themselves and to stand on their feet. It is immoral to deprive an individual the experience to explore life on his own.

When I was pregnant with our first child, I was curious to know how PAW (Prodigious Accumulator of Wealth) parents avoid the fate of producing UAW (Under Accumulators of Wealth) children.

I looked for the answer in Thomas Stanley’s 1996 book The Millionaire Next Door: The Surprising Secrets of America’s Wealthy. I was convinced to create a “self-imposed environment of scarcity” – by adopting a thrifty lifestyle and living well below one’s means.

The practice is not for everyone, especially in a society that encourages higher consumption with higher income. It only works for people who truly enjoy a simple life and place non-monetary things over material possessions.

Money can amplify the good or exaggerate the bad in people. As T. Harv Eker said in his book Secrets of the Millionaire Mind, “Money will only make you more of what you already are”.


Money can’t buy love and respect

Hong Kong director and actor Alfred Cheung highlighted a very common phenomenon in his book Doubt Ba Sheng.

“Whether a family is happy or not is not determined by money. It is highly related to the head of the family. Those who can earn a lot of money outside home do not necessarily earn the respect of their children at home.”

The reality is: We can’t parent with our wallet. Our success in wealth accumulation may make us stand out in our workplace and our society. But that doesn’t elevate our value as a person, especially in front of our children.

Money can’t buy respect. It also can’t buy love. But we live in a materialistic world where people often mistake money for love. There are a few common examples in the case of wealth distribution.

1) The wealth receiver may misinterpret the amount of inheritance as the extent of love from the giver.

2) A child who receives a smaller inheritance than another sibling may misread it as the giver practising favoritism.

3) By leaving everything or more to the child who needs help and nothing or less to the child who is self-sufficient, the giver is seen as being unfair by rewarding the bad and punishing the good.

Instead of having gratitude in return, wealth distribution results in tension, hatred, conflict and rivalry among the recipients, and also between the giver and the recipients.


How to leave behind properties

In Singapore, parenting doesn’t stop at providing food, shelter and education. Some parents with financial means also purchase or leave behind properties for their children.

As the author highlighted in Chapter 10 “How Can You Preserve a Beloved Family Vacation Home or Estate?”, legacy family properties can be either a powerful grounding force or a disastrous destruction weapon for the family.

“Keeping a legacy family property while also keeping the family together requires clear communication, thoughtful planning, structure, commitment. And it takes funding.”

“There can be conflict that, if unresolved, can fester and upset family relationships.”

What we want least is appearing in the news with our spouse and children fighting in court over the properties we leave behind. It doesn’t matter who win the case at the end. Everyone in the family lose. We fail in our legacy planning. We also fail to build a cohesive family, with family members fail to put family relationship over money.

“For this reason, many advisors recommend selling family properties instead of passing them on to your descendants and hoping they can figure out how to make it work.”

There was a recent Straits Times Invest article about a father planning to buy properties for his children and set up a trust for each of them.

The author cautioned us about setting up a trust because it can easily backfire. Recipients will wonder why the giver chooses to believe in strangers rather than trusting them.

In Singapore, all trust income is taxable. If in doubt, consult your lawyer and tax accountant.

Inheriting a private property also implies that the child is ineligible to apply for a public flat when starting a new family. If the property is not fully paid, the parent is not leaving the child an asset, but a liability subjected to depreciation.


What, who, when and how to give

There are a few important questions to ask ourselves when distributing our wealth and properties:

1. What to give

We need to decide what assets and valuables to pass down. Whether we give away as it is or cash it out at the right time. For certain things such as art and collectibles that amateurs may not be fully aware of their value, clear communication and explanations are important to avoid dumping at undervalued prices in the future.

2. Who to give

Besides our children, we may have to include distribution to our spouse, extended families, friends, staff, religious places and charitable organizations.

3. When to give

Timing is important. We don’t want to give too early to burden our children before they are ready. We also don’t want to give too late and miss the time when our children need money the most.

4. How to give

This is the most complicated part. According to the book, there are a few considerations:

– At what stage can we tell our children their inheritance?

– Should we involve them in the planning stage for ideas and contributions as a family?

– How do they perceive money and wealth? What are their money habits?

– Do they often express gratitude to acts of kindness or feel entitled and take things for granted?

– What are the possible outcomes and negative impact?

– How do we handle disappointment, or anticipate and resolve disagreement?

– Are we open for suggestions, counterproposals and compromises?


A final thought

If we have provided the right education for our children, and passed on our genes good enough for them to survive in this world, does that make any difference what money or assets we pass to them?

Would our generation have more reasons to look up to us if we could distribute our wealth to charity, philanthropy, or impact investing that can generate some social impact?

What if our wealth can put into better use by helping someone not blood-related but with imminent need for money; by finding a cure for an illness that has taken precious lives and broken happy families, or by supporting a good cause that can make the world better long after we pass on?

As the book said, “values are caught, not taught”. To our next generation, how we give is how we stand behind our values.

The spirit of legacy planning is not about distributing our wealth, but about passing down our values. By crafting a will, we are leaving behind our values and a legacy we want to be remembered.

How do you want to be remembered?


Mr. Ku Swee Yong, CEO of International Property Advisor Pte Ltd, is conducting a half-day workshop to share his unbiased views on good and bad buys of properties in prime districts and Sentosa. He will also share tips and traps of buying different classes of landed properties. Sign up for the Choosing Prime Properties In Singapore Workshop and see you there.