False Gods: “Magical Trusts Will Teach My Children Well”
By Randy Kaufman
with research assistance from Dustin Lowman
The “False Gods” series deals with convenient untruths — things we tell ourselves to avoid dealing with deeper problems. This installment’s false god is the Magical Trust: the elixir for years of poor wealth parenting.
Money doesn’t spoil people. People spoil people.
As a wealth advisor, I often have conversations with parents concerned about spoiling their children. “I just don’t want my kid to turn into Paris Hilton,” they tell me, using “Hilton” as a byword for all that can go wrong with a privileged upbringing. Their children are often either adolescents or young adults, displaying some Hilton-esque warning signs.
The parents want me to work with their estate planning lawyers to build a web of magical trusts which will somehow prevent their children from squandering their hard-earned wealth.
Sadly, by the time we have that conversation, it’s usually decades too late.
Why, I often wonder, do people believe money spoils people? Money is an inanimate object — a concept, really — sitting, inert, in a bank account. Money: “A medium of exchange, an object that is generally accepted as a form of payment. A unit of account: a means of keeping track of how much something is worth.” Money has no willpower. No intellect. No agency. You know who does? Parents.
With the Great Wealth Transfer — in which 45 million U.S. households will pass $68 trillion to their heirs across 25 years — well underway, parents of all means might want to consider setting the stage for healthy spending habits.
First, beware the common mistakes:
1. Keeping wealth a secret. The first, most common mistake wealthy parents make is substituting legal trusts for human trust. They hide financial information from their children, believing that knowledge of wealth alone will spoil them. I knew one couple who went so far as to hide their private plane from their children for years. But when an emergency happened, the plane was brought out to save the day.
Emergency solved — anger, shock, and distrust ensued. How little did they trust their children to keep this hidden? Spoiler alert: family secrets are always unearthed, and when they are, the movie doesn’t have a happy ending.
Children are smart. Children are observant. Children have supercomputers at their fingertips. They will understand that big houses, fancy meals, and lavish vacations connote wealth. Avoiding wealth conversations is surely the easy path, yet one that builds resentment and warps perspective.
2. Investing more in money than children’s confidence. People thrive when they live according to a purpose — one that they create for themselves, not one that’s shoved down their throats. Having more and more, especially when it comes to money, isn’t a purpose. Yes, we all need money for survival, and yes, we all want money for freedom. But what we really need when it comes to money is enough, not more.
Some wealthy parents get so focused on preserving and growing every penny that they shoehorn their children into a narrow range of professions — doctor-, lawyer-, banker-or-failure syndrome. But, doing as their parents say, the children aren’t living with purpose, they’re taking marching orders. This creates resentment, and a tendency to misbehave in Hiltonian ways. Charlie Collier, former senior philanthropic advisor to Harvard University, the author of one of my favorite books on this subject, Wealth in Families, wisely pled: “Parents, let your children find their own burning bush.”
3. Expecting children to learn lessons you never taught. Someone I know took his family on a cruise. The ship had a crowded bowling alley. Lest his children wait in line with the “common folks” and waste their time — which was seemingly more precious than that of the less wealthy — he paid the man running the bowling alley a large sum to close it down so his kids could, ironically, bowl alone.
That story took my breath away.
What message did that send to the children? It said: You can buy your way to exceptionalism. This was one of a series of behaviors that this person modeled to his children — that, years later, he was distraught to find his children emulating.
Really? Cue Harry Chapin, 1974, Cat’s in the Cradle: “And as I hung up the phone, it occurred to me, he’d grown up just like me. My boy was just like me.” (While we are on this topic, consider watching and listening to Johnny Cash’s wonderful rendition of this song.)
A Better Model
Two of my absolute favorite clients — and people — are a family I’ve worked with for decades. To me, they’re the gold standard of parenting with wealth. Here are a few lessons I’ve learned from them and their children through our 22-year relationship.
Teach your children well. As I’ve written before, proactive, frank conversations about wealth establish perspective and good habits early. If you need some help starting/framing these conversations, you can always reach out to a wealth advisor like me, who brings decades of experience to the table, and isn’t afraid to give tough advice. As I often say to prospects, if you want a best friend, get a dog, not a wealth advisor. They are cheaper and cuter!
Focus on the one thing you can actually control: your own behavior. Many people let money change their lives. They acquire multiple McMansions, discard old friends for the sake of new, rich ones and buy their way to outlandish conveniences. This family, wisely, did none of this. They updated but kept their original house. They enjoyed their wealth, but they never let it define them, and they never lost sight of their original values: love of humanity, helping others through hard work, impact investing, and philanthropy. Your children will follow your lead. What kinds of behaviors do you want them to emulate?
Remember that you are not your money. Upon becoming wealthy, the family stayed true to their roots — they kept their friends, opened their house to the broader community, shared their wealth with others. The number in your bank account does not correspond to your value as a human. If you believe it does, so will your children. Sadly, no money can buy and no lawyer can draft a financial trust that can undo that belief.
Let your children find their own burning bushes. Over the years, this family did not tell their adult children what to do with their money, some of which we had set aside in trusts. Nor did they tell them what to do with their lives. They taught their children well, instilling them with confidence and values. They understood the best way to avoid big mistakes is to let kids make and learn from small ones. Whenever I asked if it was okay for them to use trust money to buy a house, take a vacation, or if they should sell stock of the company that created the wealth, I was told: “Good question, Randy, ask my kids!” The student becomes the master!
My readers know I draw great inspiration from music. Around this topic, I come up with three songs:
Teach Your Children, by Crosby, Stills, Nash & Young
Cat’s in the Cradle, by Harry Chapin
Man in the Mirror, by Michael Jackson
Parents, please, before you accuse your children of being spoiled by money, look in the mirror. Ask yourself how you want your children to behave. Please: practice as you preach.
ABOUT THE AUTHOR
Randy Kaufman, formerly a corporate tax attorney and investment banker, is now a wealth advisor who prides herself on focusing on what matters most: clients’ peace of mind, family dynamics, and getting enough, not more. Randy is a passionate student of impact investing, strategic philanthropy, and behavioral psychology (while not a psychologist, she occasionally plays one in the boardroom). She is dedicated to helping the underprivileged, and is a proud member of global venture fund Acumen's advisory board. A thinker, learner, and pursuer of overarching truths, she is always eager to discuss big ideas about money, and its off-and-on associate, happiness.