How much should I leave my children

Question: May I know what the law says on how much inheritance should I leave my children? – asked at EnRich™ Estate Planning training program

Answer: It is common for parents around the world to leave inheritance for their children. To them, their child will always be that little baby boy or girl they once cradled and nurtured. This love has no bounds even unto death. That is why parents desire to leave some wealth to their children.

Have you ever come across people who relate to you how their parents or even grandparents built their wealth from practically nothing? Such are truly remarkable stories. And when the wealth is managed properly, they really grow and last many generations.

But with today’s high cost of living and expensive health care, can parents still leave meaningful wealth behind? And if parents do leave something behind, they still have to worry about the attendant taxes in the transfer of their net estate regardless of the estate planning device used.

Many parents will agree that the best inheritance they can give to their children is their education. In fact, a lawyer friend once said that there was nothing in the law that said parents had to leave any inheritance to their children. The question is, “What kind of education?”

I was recently asked about the best gifts to give during Christmas by a person who is under a budget. My reply was to give a gift that keeps on growing; and that is an investment. The beauty with today’s investment instruments is that they can be opened for as little as P1,000.

Of course, growing P1,000 to even P100,000, much less to P1 million will be a most difficult task to undertake. This is where the education comes in.

While some investment instruments allow for P1,000 opening amounts, they require that periodic additional investments be made until their standard minimums, usually P10,000 are reached. Teaching and aiding children to make the periodic investment additions instill financial discipline such that the additional investments will be made even after the standard minimum amounts are reached. And what better way to instill that discipline than to make the periodic investment additions in a way that children do not feel it.

Behavioral scientists say that asking a person to save 10 percent of his income or allowance will not get them far. People do not like to incur losses; and saving 10 percent of income or allowance is treated as a loss. However, you could get better results if you were to ask people to live on 90 percent of their income or allowance. While the two strategies yield the same mathematical result, the second one is perceived as forgoing a gain and not incurring a loss and, therefore, more acceptable. Sometimes, it is just in the way you frame the challenge.

That is why I salute financial institutions that allow for auto debit arrangements against payroll or ordinary savings accounts. Such auto debits facilitate periodic investing since the additional investment amounts are debited and deployed to investment instruments before the savings account holder even gets to see them. As a result, the account holder gets conditioned to live on just the remainder of his savings.

Teaching your children periodic investing is along the lines of the saying: “give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.”

But what does the Good Book have to say about leaving an inheritance? Proverbs 13:22 says, “The good bequeaths a heritage to children’s children, the wealth of the sinner is stored away for the upright.” This passage should not be read as leaving inheritance to your children’s children makes you good. Rather, doing good will allow your wealth to last for many generations. In fact, Luke 12:15 says, “Then he said to them, ‘Watch, and be on your guard against avarice of any kind, for life does not consist in possessions, even when someone has more than he needs.’”

So how much should you leave your children? As much as you can afford after you have funded your retirement lifestyle and long-term health care. Surely, you do not want your children’s wealth to be impaired or depleted by the medical expenses in your old age. And if by chance you happen to leave very little or nothing, take heart in the thought that you had given them the best education you could afford as well, including practical knowledge on personal finance.

If you want to learn more about wealth creation, attend the free EnRich™ Cash, Debt, Risk and Wealth Management training on Oct. 11, 2014. For wealth conservation, attend the EnRich™ Estate Planning training on Oct. 10, 2014 for a modest knowledge investment. Both training events are happening in Manila. E-mail [email protected] or SMS 0917-505-0709 for the details. Details for the training may also be found in www.personalfinance.ph.

(Efren Ll. Cruz is a registered financial planner of RFP Philippines, personal finance coach, seasoned investment adviser and bestselling author. Questions about the article may be sent by SMS to 0917-505-0709 or emailed to [email protected]. To learn more about the RFP program, attend a free orientation on Oct. 16, 2014, 7pm at the PSE Center. Email [email protected] or text <name><e-mail><RFP> at 0917-3464126 to register.)