Warren Buffett’s widely-publicized decision to transfer most of his wealth to charitable foundations rather than to his children and grandchildren has sparked discussion about whether inheriting wealth might be a curse rather than a blessing. Inheriting wealth cripples motivation, saps the will to work, and leads inheritors to live a life of unhappy indolence, or so this story goes. Rather than becoming independent contributors, inheritors regress until, like infants, they become completely dependent upon their inheritance.

But is it true that wealth invariably cripples motivation? Clearly not – just as there are wealthy inheritors who have lost their way, there are inheritors around the globe for whom wealth has been a tool in building a rewarding life and creating value for themselves and others. So, are there steps that families can take to reduce the risk that their kids and grandkids will become trust fund babies?

Perhaps the best way to inoculate the next generation is to set a good example. If parents do meaningful work and manage money wisely, if the family expectation is that all children will study hard, obtain the best possible educations, get good jobs and live well within their means, then kids are more likely to gain confidence and a sense of self-worth from work rather than spending. Kids also need to understand the denominator problem – unless they too commit to sustaining and building the family’s wealth, the inexorable increase in beneficiaries at each generation will quickly dissipate even the biggest fortune.

How wealth is transferred also makes a difference. Trying to protect wealth at all costs – by keeping the next generation in the dark about family wealth, failing to educate them in the basics of stewardship and wealth management, creating trusts with elaborate control provisions – generally backfires. Beneficiaries who sense that they aren’t trusted are much more likely to display the very behavior the grantor feared most. Beneficiaries who understand the uses and purposes of family wealth, who see themselves as responsible stewards with an important role to play in preserving and growing wealth, are more likely to carry on the family’s legacy.

Buffett’s charitable transfers illustrate another important and growing trend in family wealth transfer – the value of philanthropy. Buffett funded substantial gifts to foundations run by each of children, thereby giving them a considerable degree of power, independence and responsibility – a lasting confirmation of his respect for them, their charitable goals and their decision-making ability. Buffett and his first wife undertook major philanthropic efforts individually, jointly, and in partnership with others (including the Gates Foundation) thereby setting a precedent and providing an important education for his children.

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