Sting recently made headlines when he flatly stated that his six children shouldn’t expect to inherit much money because he and his wife “are spending it.” The multimillionaire is the ninth wealthiest musician in the UK (estimated worth of $308 million), but he employs over a hundred people and is involved in many philanthropic efforts—all of which is eating up a large part of his fortune.
Indeed, in a recent interview with The Daily Mail’s Event magazine, Sting referred to trust funds as “albatrosses” that he didn’t want hanging around his children’s necks; he credits his children with having enviable work ethics and a desire “to succeed on their own merit.”
Does Sting have a point?
The Giving Pledge: A Commitment by the World’s Wealthiest Individuals and Families
As it turns out, some of the world’s richest people certainly think he does. Bill Gates and Warren Buffet made the Giving Pledge public in 2010 as “an effort to invite the wealthiest individuals and families in the world to commit to giving the majority of their wealth to philanthropy.” To date, more than a hundred billionaires have pledged to give away to charity at least 50% of their wealth either before or after death.
“And if you want to do something for your children and show how much you love them, the single best thing—by far—is to support organizations that will create a better world for them and their children,” wrote Michael Bloomberg in his letter signing the Giving Pledge.
The Estates of Non-Billionaires
But what about the Average Joe or Jane who happens to own a business, intellectual property or other significant assets? Is passing on your wealth to your children in your last will and testament or living trust a good idea?
The ultimate answer is, of course, exceedingly personal, but one of the main concepts behind not leaving a significant fortune to one’s children in your last will or living trust is to teach them the importance of hard work and creating their own success. If this is something important to you as well, you might consider not leaving the bulk of your estate to your children in your last will and testament or living trust.
That said, it is important to remember that you don’t have to go all-or-nothing when it comes to leaving assets to your children in your last will or living trust. Other options could be to create a trust in your last will or during your life earmarking the money for specific purposes, such as education, especially if they are minors. Or you could hold the money until they reach certain age—or give them some or all of their intended inheritance now, whether it’s to help them purchase a home, start a business or send their own child to college.
Passing Along the Family Business
If you have a business, your first consideration regarding passing it along to the next generation is what kind of business you have: sole proprietorship, partnership, limited liability company (LLC) or corporation. A sole proprietorship, for example, cannot be bequeathed or inherited as the law says it dies with the sole proprietor. The assets belonging to the sole proprietorship, however, can be bequeathed and inherited, and although they can’t be used to operate the same business, they could be used to start a new one.
Another option for transferring your business to your child is by making your child a co-owner before your death so that your interest transfers to your child automatically upon your demise. You can always choose to transfer your business to your children through your last will and testament or living trust. The way to make these gifts depends on the type of business you own and how it is structured.
And finally, as with any decisions regarding your estate and significant gifts to loved ones, you should be sure you understand tax and other legal consequences that may arise as some transfers of businesses can become quite costly if not handled properly.
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