It’s incredibly generous to plan to leave a part of your retirement nest egg to others rather than seeking to get the most out of your golden years with less regard for what’s left over. Undoubtedly, living frugally in retirement so that you can leave over a massive sum to your heirs is a selfless thing to do.

That said, it may also be a less-than-ideal course of action, especially if whomever you’re leaving the big chunk of cash to isn’t financially literate or lacks the motivation to make something for themselves. Indeed, anticipation of a significant transfer of wealth can have a massive impact on one’s psyche.

If you’re expecting a huge inheritance of gifts from the so-called “bank of mom and dad” in the future, the incentive to work hard is what ultimately stands to be destroyed. Undoubtedly, no parent wants such an unintended consequence to result from their great fortune.

That’s why it’s vital to educate one’s children earlier on to help them build the habits to succeed without relying on someone else’s fortune. Indeed, every child is different. Some may have more motivation to create something of their own than others, even with the expectation of a nice windfall (and safety net) set in place in their future.

Given the greatest generational wealth transfer (from Baby Boomers to Millennials) of our time is underway, I think it’s vital that Baby Boomers have a game plan for transferring wealth to their children without hurting their work ethic.

Key Points About This Article

• Wealthy parents are right to be concerned that their assets may limit their children if they’re not careful.
• Warren Buffett has some sage advice for those dealing with such wealth transfers.
• Also: Are You On Track to Retire? Take This Quiz and Find Out ^(Sponsored) 

Some words of wisdom from the Oracle of Omaha

As the brilliant billionaire investor Warren Buffett once put it, parents should strive to give children “enough so they can do anything, but not enough so they can do nothing.” This is another invaluable piece of wisdom that I believe hits the mark. Buffett isn’t just an exceptional investor; he also gives equally powerful advice on topics such as life and family.

When it comes to Buffett, he practices what he preaches. As you may know, the profoundly wealthy investor plans to give most of his wealth to charitable causes, not his kids. Indeed, giving away hundreds of billions to his children is unquestionably above and beyond what they’d need to do anything. That’s why Buffett has likely primed them not to expect to inherit a penny more than they’d need.

Of course, we’re not nearly as wealthy as Buffett. However, I do think it makes sense to view your nest egg as a “tool” and not a “crutch.” Now, I’m not against leaving behind a big sum for one’s children. However, I do think it’s vital that good values are bestowed early on so that your wealth (and soon-to-be their wealth) will help enrich their life rather than limit them.

Be selectively generous and teach the right values.

I think it makes a ton of sense to give to children at various stages in their lives so that they can be set to “do anything,” as Buffett says. Undoubtedly, covering a child’s educational pursuits, if one is able, makes the most sense. Helping hard-working Millennial children make a down payment on a home also stands out as giving in a way that won’t “destroy” their work ethic.

Indeed, Millennial children struggle to break into the housing market due to less fortunate economic circumstances. It’s likely not because of a lack of work ethic, either. Some generations have it tougher than others. If you’re a Boomer parent of a struggling Millennial working hard to scrape by, I’d argue it makes sense to gift cash to allow them to “do anything” in the present. After all, nobody is getting younger.

Conversely, paying for day-to-day expenses could cover or spoil them with discretionary goods and experiences (think luxury goods and trips). It may be excess generosity on your part that sends the wrong message. And if you’ve got millions banked, a sense of entitlement could build up after extended periods of receiving “spoils” and fading motivation. It’s easier to laze around on the couch than work hard when one treats their parent’s funds like a bank.

The bottom line

Parents must be selective in how they give (is it conducive to allowing children to grow and thrive, or is it reinforcing a sense of entitlement over their wealth?) to ensure their children can become independent. For every potential gift or cost you can help them with, perhaps it makes sense to ask yourself if such an expense will empower or disempower them.

Of course, setting up a trust can make sense for some looking to control wealth transfers. However, personally, I believe that one’s teachings hold way more water than any sort of complicated legal arrangement. In any case, speak to an adviser and, most importantly, chat with your children so you can leverage your wealth in a way that helps them do what they want in life.

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