Do not handicap your children by making their lives easy.
Do not handicap your children by making their lives easy.
You have generated the capital (Part 2) and built the legal fortress (Part 3). Now comes the hardest challenge of all: Raising heirs who do not destroy it.
Warren Buffett famously said the perfect amount of money to leave children is "enough money so that they would feel they could do anything, but not so much that they could do nothing."
If you transfer assets without transferring values, you create "trust fund babies"—adults with zero resilience, zero ambition, and zero purpose. To prevent this, you must shift your focus from Financial Capital to Human Capital.
This article outlines the strategies to keep the "hunger" alive in an environment of abundance.
1. The Philosophy of "Skin in the Game"
The primary destroyer of ambition is the removal of consequence. If a child knows the safety net will always catch them, they never learn to walk the tightrope.
To combat this, you must differentiate between Safety and Lifestyle.
The Safety Net (Guaranteed): The Family Trust should guarantee that no family member ever goes hungry, lacks healthcare, or misses out on education. This is the baseline.
The Lifestyle (Earned): Luxury cars, first-class travel, and seed capital for businesses are not rights. They are privileges that must be earned through "Skin in the Game."
The "Matching" Principle
Never give a handout; give a hand-up. Many successful families utilize a "Matching Strategy" for distributions:
Income Match: The Trust distributes $1 for every $1 the beneficiary earns on their own (up to a cap). This incentivizes high-value work.
Charitable Match: If the heir raises $50,000 for a cause, the Family Foundation matches it. This incentivizes effort in philanthropy, not just check-writing.
2. The Family Bank: Lending vs. Giving
The most powerful tool for teaching financial responsibility is the Family Bank.
Instead of giving your child $200,000 to start a business or buy a home, the Trust operates as a private bank.
How It Works:
The Proposal: The child must submit a formal business plan or investment proposal to the "Family Investment Committee" (which can include you, a trusted advisor, or an older sibling).
The Vetting: The committee critiques the plan. Is it viable? Is the child committed? This process teaches them how to think like an investor.
The Loan: If approved, the Trust lends the money. It is not a gift.
Interest Rate: Often set at the "Applicable Federal Rate" (AFR) or a low family rate.
Collateral: The loan is secured against the child's future distributions or the asset itself.
Repayment: The child must pay the Trust back.
Why this works:
Success: If the venture succeeds, the child keeps the upside (equity) and feels the pride of having "paid off the loan."
Failure: If the venture fails, the child feels the weight of the debt. The Trust might restructure the loan, but the psychological lesson of "risk" is preserved.
3. Governance: The Family Constitution
Just as a country has a constitution, a multi-generational family needs a governing document. This is not a legal contract, but a moral one.
The Family Constitution creates a shared identity. It answers the question: "What does it mean to be a [Your Last Name]?"
It should include:
The Mission Statement: e.g., "We use our wealth to foster innovation and support the arts."
Code of Conduct: Expectations regarding public behavior, integrity, and dispute resolution.
Entry Requirements: Some families require members to work outside the family business for 5–10 years and achieve a promotion before they are allowed to join the Family Board.
IMPORTANT
Crucial Note: Involve the children in writing this constitution. If they help write the rules, they are far more likely to follow them.
4. Combating "Affluenza" through Competence
Wealth creates a false sense of competence. You must force your children into environments where your money cannot help them.
Competitive Sports: The scoreboard doesn't care who your father is.
Martial Arts: You cannot buy a black belt. You have to bleed for it.
Meritocratic Hobbies: Coding, chess, or learning a difficult instrument.
These pursuits teach the child that Output requires Input. That creates the "hunger" to improve oneself, regardless of the bank balance.
The Transition
By implementing these strategies, you change the narrative from "Inheritance" to "Stewardship." Your children stop waiting for you to die so they can get the money, and start working to prove they are worthy of managing the legacy.
Next Up: We have covered the Money, the Structure, and the Family. Now, we reach the final stage. When you have infinite money and infinite time, what is the point of it all? In Part 5: The Philosophy of Enough, we will discuss the ultimate goal: Contributing to humanity through high-level pursuits like Open Source Projects, Science, and Art.
