Famous Chef Gordon Ramsay isn’t leaving his kids an inheritance. Should you? This brings up a lot of important estate planning questions to consider for the rich and famous and the rest of us.
Gordon Ramsay and the $140M Question
Gordon Ramsay, famous TV chef who has an estimated net worth of $140M1, has four children who are 15-18 years old. But he’s not leaving them a dime. In his words, “It’s definitely not going to them, and that’s not in a mean way — it’s to not spoil them.”2
It’s a pretty bold statement. Certainly, some kids who grow up with money are spoiled. You might spot a few on the Instagram feed titled, ‘Rich Kids of Instagram.’
But the concern most parents have is simple — how will the kids handle the money? Will they just spend it?
There’s a fair amount of research on the topic. One study showed that “70% of family wealth is typically gone by the end of the second generation, and 90% is destroyed by the end of the third.”3
A Wall Street Journal article states that, “the first generation works hard to create a fortune; the second generation enjoys its spoils, substituting hard work with entertainment, and the third generation—with no role model to follow—squanders what remains of the fortune. In business consulting circles there’s a saying to describe this: Shirtsleeves to shirtsleeves in three generations. Unsurprisingly, when the family fortune is blown, family unity is typically obliterated along with it.”4
“It takes the average recipient of an inheritance 19 days until they buy a new car.”5
Why do they spend it?
OK, we get that the money can be easily lost. But why? One article studied 3,250 families who had lost their wealth. It stated that “less than 3% said poor planning and investments were cause for reversal of fortune. Twenty-five percent said heirs were unprepared, and 60% replied it was lack of communication and trust in the family.”6
But this doesn’t mean you shouldn’t pass money along to your kids. It just means you should do it carefully.
Here are a few tips:
1.) Talk it out
It’s crucial to talk to your kids about money. Give them a crash course in financial literacy. Tell them how you handle your finances, what you save, and what you expect from them regarding an inheritance. This not only provides more structure, but can give them appreciation for the value of money.7
You wouldn’t just hand over the keys to your car or your business to your children without some training, would you?
On a related side note, my wife and I watch a lot of TV (a lot) and we’re getting into a BBC documentary on the Windsors, the longest reigning Royal Family. In one episode, they highlight how King George VI spent time with his eldest daughter, Elizabeth, Queen-in-Waiting, talking to her about the “family business” and how to run it. Why would you want to hand over the keys to your family fortune without a plan? If a good talk can help a future Queen, it can’t hurt you and yours.
2.) Elephant in the room
Often a Will is created in secret without disclosing the details to the recipients. But this can backfire. Instead, parents should sit down with all of their children and go through the nitty-gritty of the Will. Get it out in the open and work through the details, possibly making adjustments along the way. Because eventually all of the kids are going to find out who got what anyway. By having open communication, you can avoid potential legal battles and family in-fighting later.8
3.) Make a family plan
According to one study, “Almost one-quarter of baby boomers think their kids will not be able to handle wealth properly until the ripe age of 40.”9 That’s why you should consider creating a financial road map for your kids. You can formally write out what you expect in terms of saving, spending, donating, and even growing their wealth.10
This is precisely what family governance specialists recommend and what many well-known family businesses – like the DeVos family of Amway fame – actually implement. By providing a framework that integrates values and finances, a family business – and by extension, the family itself – can prosper.
4.) Passing on more than money
And you shouldn’t just be focused on the money and the tax issues that may result. You’re passing along more than money. You should be passing on your values. This is typically more important than the money and it is how many great family fortunes are passed along and survive from generation to generation. Focus on conveying values, not valuables, and that will help your family survive (http://www.barrons.com/articles/SB50001424052970204883804575483921684638904) .
To get started on an ethical will consider free tools such as these: http://www.lifebio.org/ .
Whether you have a lot of money or only a little, be careful how you pass it on because this is where families can get it wrong.
And this is what Chef Gordon Ramsey is likely worried about. The most important thing is to keep the family intact beyond any money considerations, because in the end, that’s what matters.
To get started with your personal estate plan, assemble your team and get started.
For a complimentary overview discussion, schedule a call.