When Wealth Harms: 3 Rules for Giving Wisely
“Inherited wealth, if you are not careful, will breed laziness, entitlement, and a lack of purpose.”
Providing an inheritance or financial resources to adult children often comes from the best intentions. However, this well-meaning gesture can unintentionally hinder their growth, foster dependence, or strain relationships—outcomes no parent wants.
Wealthy parents, especially those with a struggling child, face unique challenges. Affluence often brings hidden pressures that are difficult to navigate and widely misunderstood. Simply giving money without considering its psychological impact or the incentives it creates rarely addresses the root of the problem.
While much attention is given to the legal aspects of wealth transfer, the most important factor is often overlooked: how it affects your child’s mindset, behavior, and your relationship. In the end, a tax-saving strategy means little if it causes harm—what truly matters is the lasting impact on your child’s well-being.
This guide is a general resource to help you consider these elements, but every situation is unique. If you want to dive more specifically into your particular situation there is a link for that below.
The Three Rules
Rule 1: Have a Family Mission
Having a clear family mission is the foundation of giving an inheritance. This mission represents the guiding purpose behind your decision to pass on wealth and defines what you hope to achieve through this act. Without a mission, the process can become reactive and inconsistent, leading to confusion and unintended consequences.
A mission helps clarify:
Your values: What principles and priorities do you want your inheritance to reflect?
Your goals: Are you aiming to provide financial security, promote education, or support entrepreneurial efforts?
Your expectations: What kind of behavior or outcomes do you hope to encourage in your children?
By articulating a mission, you avoid the risks of ad hoc decisions that might send mixed signals to your children. Honestly, at Trust Fund Tribe, we're always surprised how few parents, have a clear, written down mission that they've shared with their adult children. This is essential for any decision making and communication with your child. It provides a framework to evaluate whether your actions align with your long-term objectives, ensuring that the inheritance serves as a tool for empowerment rather than entitlement or dependency.
Rule 2: Be Rule-Based
Givers of wealth are often unaware of how much their actions and words affect those who might receive that wealth. Children who grow up in wealth that they are unlikely to match with earnings in their lifetime, face really weird incentives. When a parent changes their mind about financial support, it is the equivalent of being fired from the highest-paying job they’ve ever had. The stakes are incredibly high, yet they’re often not even acknowledged. This is why being rule-based is so important.
A rule-based approach:
Prevents misunderstandings: Without rules, children might develop unrealistic expectations or misinterpret changes as favoritism.
Avoids resentment: Inconsistent decisions can lead to feelings of unfairness or sibling rivalry.
Minimizes dependency: Clear boundaries discourage reliance on inheritance as a primary financial plan.
What exactly those rules are depends on the situation, but they should be written down, clearly communicated, and readily available as a reference. Ironically, it is these rules that create the conditions for true independence. As simple as this is we rarely see this put into action.
This is bizarre, you've worked tirelessly to build that wealth, but somehow there’s never a dedicated moment to discuss what this wealth truly means for you and your future generations. Taking the time to establish clear, actionable rules is not just a good idea—it’s absolutely essential.
Rule 3: Communicate
First, when's the last time you actually sat down and laid out and talked with those that will benefit from your generosity? Did you have a mission statement to ground your discussions? Without that, you don’t have a strong foundation for communication. Most people think they are communicating, but really they aren't. Open and ongoing communication is critical when giving an inheritance to children. Why?
Builds trust: Transparency about your intentions helps children understand the purpose and limitations of financial support.
Fosters collaboration: Discussing financial matters encourages your child to participate in decision-making, which can strengthen their sense of responsibility.
Prevents misinterpretation: Clear communication ensures your actions are not misread as controlling or conditional.
Regular family discussions about finances—even starting with small topics—can lay the groundwork for understanding and trust. A well-defined mission sets everyone on the same page, providing clarity and reducing potential conflicts or misunderstandings in the long term.
Special Tip: Ask for Outside Support When Needed
Inheritance and family dynamics can be emotionally charged. These tips take time to implement, and hiring a professional to facilitate discussions can make the process smoother and more productive. While it’s easy to discuss in theory, these conversations are much harder to execute in practice. There’s no shame in bringing in an expert—it shows a commitment to fairness and long-term family harmony.
