Billionaires Warren Buffett, Bill Gates have similar ideas about how much money to leave your kids
Buffet’s sticking with his philosophy of ‘enough money so that they would feel they could do anything, but not so much that they could do nothing’
Over the next decade, ultra-high net worth people — those with US$30 million or more — will transfer more than US$3.9 trillion between generations, according to a 2016 Wealth-X report.
No matter your income level, gifting money to your kids can be daunting.
As family wealth transfer expert Howard Sharfman told Wealth-X: “Parents are concerned about making sure that the children have meaningful lives, lives of significance, and they don’t want their financial fortunes to hurt that. They want to help, and that’s a very hard balance.”
How do the wealthy strike that balance?
Self-made billionaires Warren Buffett and Bill Gates have expressed similar philosophies when it comes to passing on their money: They, along with other super-rich individuals, say that their children aren’t inheriting much of their fortunes.
Bill and Melinda Gates are giving their three kids “a minuscule portion” of their estimated US$81 billion, they told the Daily Mail in 2011. “It will mean they have to find their own way,” Bill Gates said at the time.
Buffett is also leaving just a fraction of his estimated US$65.4 billion to his children, The Washington Post reported in 2014: “ Buffett’s three kids each have a US$2 billion foundation funded by Dear Old Dad. The rest of his money? Going to charity.”
To be fair, a fraction of Buffett and Gates’ fortunes will still put their kids among the wealthiest individuals, but it doesn’t compare to their parents’ billions.
Buffett, along with the Gateses, created the Giving Pledge in 2010 to encourage more of the super-rich to leave the majority of their wealth to philanthropy. As of 2016, 154 ultra-wealthy people and families from 16 countries have joined the effort, including Richard Branson, Sheryl Sandberg, and David Rockefeller.
As for how much to pass on to your kids, Buffett once offered a good rule of thumb: The perfect amount to leave to your kids, he told Fortune in 1986, is ‘‘enough money so that they would feel they could do anything, but not so much that they could do nothing.’‘
If the Buffett formula doesn’t work for you, there’s always “Shark Tank” investor and self-made millionaire Kevin O’Leary’s more severe approach: “I’m not planning on giving my kids any of my wealth,” he told Chatelaine in 2013.
“They know when their education is over, I’m pushing them out of the nest,” O’Leary said. “You want to prepare your children for launching their own lives. I tell wealthy parents that if they don’t kick their kids out of the house and put them under the stresses of the real world, they will fail to launch.”
Disclosure: CNBC owns the exclusive off-network cable rights to “Shark Tank.”