Leave Some for the Kids, or Last Breath, Last Dollar? Users Weigh In

Forty billionaires announced this week that they'll give half of their money to charity, either during their lifetimes or after their deaths. But even if you're not in the same orbit of the superrich, you've no doubt made long-term plans for your assets. Is leaving money to your children and grandchildren a priority, or are you using the last breath, last dollar approach? Or are you spending what you need to spend for a comfortable retirement but also planning to leave something behind?

I posed that question on Morningstar's Investing During Retirement forum this past week, and was pleased (though not surprised) to see so many thoughtful responses and specifics about your approaches to this important question. Click here to read the complete thread.

Operation Help the Kids
For many posters, leaving assets behind for children and grandchildren is a key financial goal, and they have developed frameworks through which they can pass assets effectively (and tax-efficiently).

For example, Dtconroe wrote, "Our parental job is to never be so selfish to only think of our needs but to continually think about our children and their family needs as long as we live. We hope to not outlive our retirement funds, and in doing so leave our children a strong financial position for facing the increasing complicated world they will live in. I do not know if they will have Social Security when they reach my age, and as far as I am concerned, what my wife and I can leave them will offset worries about their future and their retirement."

MsGigi echoed that sentiment with this comment: "What better way to help your children than to leave them something? Now, they're young. But later, I would like them to be involved in the investing. The trust/charity decisions. A super way to help them learn. "

Yogibearbull noted that with his retirement needs under control, leaving money for the kids was an overarching goal. He wrote: "We are using Living Trust, IRAs, and 529s to leave the money behind for future generations. We are also using a donor-advised charitable fund to leave money for charities."

A few posters noted that leaving assets for their children was a key goal because their children had pursued careers that were personally gratifying to them but not especially lucrative from a financial standpoint. For example, Bobbinm wrote: "We only have one daughter so all of our assets are in TOD [transfer on death] accounts (simplest transfer). We're waiting to see how the new estate-tax regulation turns out and will make whatever change may be necessary.

"Despite her education, she and her husband have chosen to be organic farmers selling at their local farmers' market and to members who receive a share of the farm's output each week. Needless to say, it would be almost impossible for them to provide much for their retirement. We contribute the maximum to her Roth each year.

"We live well and hope to leave her a bundle. She's a great person," Bobbi went on. "The plan is 60% of nest egg devoted to an income portfolio which provides for all our wants and needs and the remaining 40% devoted to a legacy portfolio for growth. Due to the vagaries of the market the ratio between these two parts, [the allocation] is now 63%/37%."

Ahjishan has also carefully planned out her legacy, noting that she's able to balance her own income needs with her desire to leave assets for her children. "I have an IRA and a Roth IRA, which I will leave to my two sons. One son is disabled, so his money will be in a Special Needs Trust, while the other son will be the executor of the trust. I also have assets in taxable stocks and a muni fund; I add to them frequently with some of the required minimum distributions I must take. This money will also be inherited by my family."

She concluded on a happy note: "I have invested in a 529 for my granddaughter; however, she has just received a full scholarship for undergraduate school, so the plan now is to use the 529 for graduate school!"

Lifetime Gifting
Several other posters noted that rather than focus exclusively on leaving money to their kids after they're gone, they were actively gifting assets to their children during their lifetimes.

CurtisC noted that a recent experience had underscored the importance to him of gifting now versus watching assets drain because of long-term care and other health-care needs. "My 97-year-old mother just passed away in March. For six years I watched assisted-living facilities, nursing homes, physical therapy, occupational therapy, doctors, and hospitals sucking up her assets as a private-pay resident while residents in the same facilities covered by Medicaid were receiving the same care in exchange for their Social Security checks.

"My parents had worked hard and saved as much as they could with the intention of providing for their own care without being a burden to me or my sister and still have money to leave us after they passed. They succeeded in providing for their own care, but there was little to leave behind.

"With this fresh in my mind my current goal is to make sure that the money I am saving goes to my children and grandchildren before others have the chance to grab as much as they can. I would like to leave little in my estate to my children as my parents did, but unlike my parents, I want it to be because my children received it before I died rather than because others got to it first."

He concluded, "I give my children money monthly, contribute to my grandchildren's 529 plans, pay for family vacations, and gift them items whenever possible so they can save their money."

Rene1562 echoed the value of lifetime gifts, noting that the benefits are as pronounced for the giver as they are for the recipients. "My intent is to leave my children with the amount of wealth I received from my parents," she said. "In the meantime, I enjoy helping each of my children in their economic journey.

"As a special treat for myself, I have a $10,000 brokerage account for each of my grandchildren. They may gain access to the account for the earnings--dividends actually. Each understands this 'free money' will become their personal money upon college commencement ... Active grandchildren offer me extraordinary windows upon the world."

Splitting the Difference
Many other posters noted that leaving money behind is a key goal, but that they're balancing that goal with their desire to live well during retirement. Several posters noted that making their assets last so they're not a burden on their children is an even bigger priority than leaving money behind.

ChiefK nicely (and humorously) summed up the decision-making process for many retired investors with this posting: "I have three possible options: A.--Die the month I run out of money (a long shot). B.--Die with money in the bank (IRA, annuity, and so on). C--In my old age, be totally dependent upon Social Security. Upon mature reflection, I've decided: * Option A is wishful thinking. * Option C is suboptimal (it stinks on ice). * I've decided to go with Option B."

Joe123 agreed that "splitting the difference" is the way to go, noting, "First priority: Being self-sufficient so as not to burden kids ... Being generous with kids/grandkids, funding vacations, buying nice clothes ($80 for a pair of Nike shoes???) for grandkids, sending grandkids back home with some grandpa/grandma cash, and so on."

SailerBob and his wife are also taking the two-pronged approach, balancing their own happy retirement with a desire to help their kids. He wrote, "My wife and I definitely have two goals in our retirement financial planning:

"One, we want to enjoy our retirement and be able to do the things we want to do while we are capable of doing them. As we are both in our early 70s some of the things we would like to do are no longer in our capability parameters! However, we like to take some nice trips, but we don't go overboard in our expenses.

"Two, we want to help our grandchildren through college and our children as they reach early middle age. The first of three grandkids will start college in 2011, the second in 2013, and the last in 2018. While we won't be able to fund their total costs, we will be able to give them substantial support so they won't graduate with huge debt loads.

"Our wonderful kids will never be financially well off due to their chosen professions. One is a single teacher (elementary grades) and one is in lower management and married to a pastor of a very small congregation. All three of them love what they do, do it well, and are content in their lives.

"Our assets are mostly in tax-sheltered traditional IRAs and our house. Hopefully when we are gone there will be a goodly amount available to them as inherited IRAs, which will improve their lives both while working and in retirement. Our hope is that they will treat these gifts properly so that (our son's) children will inherit and enjoy the benefits of these assets also."

Molokoeo no doubt spoke for many parents and grandparents with the following post: "My wife and I have a sound, well-funded plan which should see us through to the end, at which point our children will inherit the remainder. We don't expect to run out of money with our last breath; we hope to leave the kids enough that they're pleasantly surprised. Our wills have been structured accordingly. That said, our primary goal is a comfortable retirement for ourselves. We haven't cut back much since retirement, and where we have, it's not with a bequest in mind. To the contrary, we spoil our children and especially the new grandchildren like spendthrifts, and take great joy in doing so. It is, after all, the most enjoyable part of this journey."

Not Convinced About Leaving a Legacy
Not all posters were on board with that sentiment, not because they don't love their children, but because they want to enjoy their retirements and are not convinced that leaving money to their kids is a necessity.

Frequent poster Avilynn had a laundry list of reasons why leaving money for the kids isn't a priority for him and his wife: "My wife and I do NOT plan on leaving assets for our children because: 

1. They are well off;
2. We spent the money on their education;
3. We don't like 529s because, a. read this article and b. since you need a decade or two to invest in stocks, the 529s may not deliver; 
4. Our house is paid for--it would be available if we don't reverse on it;
5. If we were considering leaving money, it would then be in life insurance policies."

MissThePoint has also taken steps to avoid leaving money to children, largely because of concerns that they are ill-equipped to handle the windfall: "Regrettably our adult children have not been good money managers or realistic life planners. Due to divorces and serious psychological problems in their environment, they are very vulnerable to emotional and financial manipulation. Leaving a large lump sum to any of them is probably the riskiest thing we could do.

"My husband and I, in our 60s and close to retirement, plan to live independently, comfortably without being a burden. We have both worked very long hours without hobbies or vacations, cared for elderly parents with long illnesses, cared for children with more than the usual illness and injuries. Now we hope to have some time to catch up on what we were not able to do earlier in life.

"Any remaining assets [after the second of us to die] will go to trusts for our two grandchildren and a trust for our single child. We are generation-skipping over the grandchildren's mother because of a greedy spouse, and she is otherwise in OK shape because of three pension entitlements. The institutional trustee will be instructed to pay legitimate living, educational, and health-care expenses subject to reasonable limits.

"It saddens us greatly to have to do this in such an impersonal way, but it is the most practical means of passing on any remaining assets while trying to preserve value for their life needs."

Several posters' opposition to gifting large sums of money is more philosophically grounded, with a few noting that inheriting large sums could reduce their kids' desire to work for what they want. For example, bjk1945 opined, "[I'm] not a millionaire so I don't have quite as much to play with, but we are taking care of ourselves first and enjoying ourselves. Our goal is not be a burden to our children and if there is anything left after we are gone, then it is theirs. We have helped them from time to time as needed and in a pinch would do so again. No one left us a bundle, and we don't feel the need to do so for them. Money earned is usually held in higher regard and perhaps used more wisely."

PlantTheSeeds echoed that sentiment: "I am 36 with a 1-year-old. Right now more on the lines of saving for retirement. I do not want to gift too much to my son. I have strongly believed that struggling to build your financial house is a valuable life lesson ... I may change perspective as time goes by, but this is where I am today ... I love my son but don't need to show him with money."

Bill1234 summed it up for the "skip the legacy" contingent with this short but eloquent post: "Life is about the journey, not the stuff, and I don't want my kids losing a key motivator to get up in the morning and get on with the journey."