Probability of Inheritance Receipt by Income Group

  For all income groups, the probability of receiving an inheritance is highest at around age 60 (2013–2016).

  My colleague Marina Krakovsky, who has helped me in the research and writing of this book, read an article about a woman who was in dire financial straits, even though her mother had plenty of financial resources. Marina tracked the woman down and, well, here’s what Marina found out:

  For many years after her divorce, Virginia Colin struggled financially. Receiving almost no child support from her ex, she raised her four children on her own, “mostly at the edge of poverty,” as she puts it. She eventually remarried, was able to hold down a decent part-time job, and attained financial stability. Then, when she was 49, her mother died, at age 76, leaving Virginia with a large inheritance: Virginia is one of five children, and each of them received $130,000. “I think the $650,000 was the maximum that you could get from one person’s estate without incurring some kind of estate tax,” Virginia points out, suggesting that her parents had most likely accumulated even more wealth than the total bequeathed to Virginia and her siblings.

  The $130,000 windfall was definitely welcome—no question about that. “But it just would have been a lot more valuable a lot earlier,” says Virginia, who is now 68. “I wasn’t at the edge of poverty anymore—we weren’t rich, but by this time we were living a comfortable lower-middle-class life.” The money was now more like a nice bonus rather than the lifeline it would have been a decade or two earlier.

  What a sad situation: Here was somebody who, for many years, barely had enough to feed herself and her children—while her parents had lots of money but, like so many others in our culture, just wanted to wait until they died to give it to her.

  Virginia’s parents are no longer around, so we can only guess what they would say if they heard me talking about dying with zero. If they’re like most people I’ve spoken with, chances are they would say, “But what about the kids?”

  Put Your Money Where Your Mouth Is

  I know I might sound harsh when I talk about this stuff. My goal isn’t to go around calling everyone a hypocrite. Most people have good intentions for themselves and for their kids—and if they’re hypocrites, it’s only by accident, because they fail to act on those good intentions. That’s true every time you say one thing but do something else, whether or not the disconnect is deliberate. For example, in your heart of hearts, you want to enjoy your free time, but in reality you spend a good chunk of it checking your work email. Or you say you want to provide financial security for your kids, but in the end you leave it to random chance whether and how much your kids will actually get from you.

  The Die with Zero way, on the other hand, makes sure that you deliver on your good intentions. It’s a more thoughtful approach in both senses of the word: It simultaneously shows seriousness and caring. When it comes to the kids, Die with Zero shows thoughtfulness by having you put your kids first, which you do by thinking deliberately about how much to give them and then doing so, before you die.

  This is radically different from how many, if not most, people in the United States approach the question of giving money to their children. Yes, some people transfer money to their kids instead of waiting until their own death—but these “in vivo” (between the living) transfers, as economists call them, make up a small minority of all wealth transfers. The vast majority—between 80 and 90 percent, depending on the year—of households that received some type of wealth transfer in the years 1989 through 2007 received an inheritance. (I’d prefer the percentage to be zero, but realistically I would be happy to see it at 20 percent, since some people die early.) And it’s not at all clear whether the benefactors actually meant to leave that much to their heirs. Economists who study data on bequests say that when people leave money to their children and grandchildren, their motives appear to be some mix of intentional and unintentional. The intentional part is what you give because you want your kids to have a certain amount of money. The unintentional part is just a random by-product of precautionary saving—someone was saving money for unexpected medical expenses, for example, but ends up dying without spending all those savings, and the kids get those financial leftovers. And when economists look at the data on actual bequests, it’s hard to tell whether any particular bequest was intentional or not. That’s because in the end, both types of bequests look the same. All you know is that a living person got a certain amount of money from the estate of a dead person.

  It’s not just that economists and recipients can’t tell what’s intentional—what bothers me is that the givers themselves aren’t really clear on this. I say that because if you are clear about your intentions, you will not commingle intentional gifts with unintentional ones (leftover savings) in a bequest. Instead, you will figure out what you want to give—and you will give it well before you die. Do you want your daughter to get $50,000 of your wealth, or only $20,000? Whatever the amount is, if your intention is to give it to her, then I encourage you to act on your positive intentions by actually giving her that amount. Be intentional with your kids just as I am urging you to be deliberate with yourself. Put your money where your mouth is.

  The Enemies of Rational Thinking: Autopilot and Fear

  Why don’t more people act more deliberately when it comes to their kids and financial gifts? One reason is just autopilot, the antithesis of deliberate action. Autopilot is easy, and it’s what most people around you are doing. So when you look around and do what everyone else is doing, you’ll be coasting on autopilot just like everyone else. In fact, you might not even realize you’re doing it. The sad truth is that many people aren’t as deliberate as they could be with their own lives, so they’re not as deliberate as they could be with their children, either.

  But even if you’ve stopped to really think about what you want for your kids, and have the best of intentions, you’ve got to overcome another powerful force pushing against rational thought and deliberate action: fear. This is exactly what kept Virginia Colin’s parents from sharing their wealth when she was on the edge of poverty. “My dad grew up as the son of an immigrant from Germany, during the Depression,” Virginia explained, “and he was afraid of not having enough even when they had more than enough. What if there was a huge, expensive medical problem?”

  As it turned out, Virginia’s father did live into his nineties—outliving Virginia’s mother—but although he had some big medical problems, private insurance and Medicare covered most of the cost.

  I know that’s easy to say in retrospect. Maybe he was just lucky. What if he’d had a particularly costly disease, like Alz­heimer’s, which typically requires expensive long-term care? Wouldn’t he have needed his savings for that? As noted earlier, if that’s the main reason you feel compelled to keep saving and saving, remember that you can buy long-term care insurance, which costs far less than self-insuring by saving massive amounts of money for a crisis that may never come. Just like any other kind of insurance.

  In any case, Virginia learned from her parents’ experience: Don’t wait until you’re dead to give your money away. With her five children and stepchildren, ranging in age from 29 to 43, she and her husband make a point of giving them money sooner rather than later, depending on their needs. “If you get [the money] when you are 30,” she rightly points out, “you can buy a nice house and raise your kids in the environment you want to raise them in, and not have to scramble the way I did.”

  Timing Is Everything

  As Virginia’s story illustrates, timing is key. We’ve already established that waiting until you die is not optimal—so what is the optimal time to give money to your children?

  Certainly it’s easier to say what is suboptimal. Most people who have assets to give to children wouldn’t give them to a 12-year-old, or even a 16-year-old. It’s pretty obvious that children and most teens are too young to manage wealth.

  But of course that doesn’t equate to “the later the better.” I don’t want to say there’s an age when it’s just too late to give your children money—late, after all, is better than never—but age 60 is worse than 50, and 50 is worse than 40. Why? Because a person’s ability to extract real enjoyment out of the gift declines with their age. This happens for exactly the same reason your own ability to convert money into enjoyable experiences diminishes after you get past a certain age. And for a whole host of activities, you need a certain minimum mental and physical state to enjoy them at all.

  So, for example, if the peak utility of money (the time when it can bring optimal usefulness or enjoyment) occurs at age 30, then at age 30 every dollar buys you one dollar’s worth of enjoyment. By age 50, the utility of money has declined considerably: Either you would get a lot less enjoyment out of that same dollar or you would need more money (say, $1.50) to obtain the same amount of enjoyment as you got out of $1 back when you were a healthy, vibrant 30-year-old. For the same reason, as your adult children age, every dollar you give them goes less far, and at some point that money becomes almost useless to them.

  Let’s look at a more specific example. Suppose you ignore my advice about giving money to your kids before you die, and you want to take the more traditional route of leaving some money to your children after you die. Now assume that your life expectancy is 86, and that your oldest child is 28 years younger than you—so they’ll be 58 when you die and they inherit. At this point, they’re well past their peak of extracting enjoyment out of that money. Now, I don’t know the exact age of this peak, but based on what I know about human physiology and mental growth, between the ages of 26 and 35 seems about right, and 58 is clearly past that optimal point.

  I actually did an informal Twitter poll recently in which I asked people what their ideal age was to receive an inheritance windfall, and most of them agreed. Of the more than 3,500 people who voted on this question, very few (only 6 percent) said the ideal age to inherit money is 46 or older. Another 29 percent voted for ages 36 to 45, while only 12 percent said 18 to 25. The clear winner, with more than half the votes, was the age range 26 to 35. Why? Well, some people mentioned the time value of money and the power of compound interest, suggesting that the earlier you get the money, the better. On the other hand, a bunch of people pointed out the immaturity problem of getting the money too young. And to those two concerns, I would add the element of health: You always get more value out of money before your health begins to inevitably decline. Bottom line? The 26-to-35 age range combines the best of all these considerations—old enough to be trusted with money, yet young enough to fully enjoy its benefits.

  What I’m pointing out is the stark contrast between what people say they want . . . and what the U.S. inheritance data shows most people actually get. You can’t always get what you want—but I’m talking to you as the prospective giver. If you have the means to give money to your children, then you have the power to control when they receive it. So don’t waste that opportunity! Whatever you give your heirs past their optimal age of receiving has less value to them. If you’re trying to maximize the impact of the money you give—instead of just maximizing the absolute dollar amount you give—then you should aim to give the money as close to their peak as you can.

  Now, you might disagree with me about the right age to begin to turn assets over to your kids. But even so, you must acknowledge the decreasing value to your offspring with respect to time. Just take it to the extreme: the case of your leaving money after living a very long life. Does it make sense to wait and leave money to a 76-year-old? No, most people would say that’s too old. (My friend Baird has a mother who’s 76 and knows she can’t spend her money before she dies—the last trip she took lasted five days, and that was two days too long, he says. Since her money is of limited use to her, she has been trying to give it away to Baird, who is 50—but by this point, Baird really doesn’t need the money anymore!)

  Optimization doesn’t care whether we’re talking about parents or children: The same principles, such as the declining value of money, apply to everyone. If your goal is to maximize what you get out of your life, it makes sense to want to maximize what your kids get out of their lives, too. So if you want to make the most of your gifts to your kids, you have to consider each recipient’s age. By applying this line of thinking, you will be taking money that is nonproductive in terms of life enjoyment and turning it into money that is maximally useful.

  This is exactly what I’m trying to do with my own kids. For my daughters, who are not yet 25, I’ve funded an educational savings plan (a 529 plan) and set up a trust. Mind you, the money in the trust is their money, not mine, and I contribute to it as I see fit, up to the maximum that I’m willing to give. My stepson is older—29—so he’s already received 90 percent of his “inheritance,” in the form of money he used to buy a house. (By the way, spreading out your giving in this way is totally fine. But I sure am not going to wait until he’s 65 to give him the rest!)

  I do have a will, which is only for disposing of what I have in case I die unexpectedly. A while ago I realized I had money in my will for people who are older than me—my mom and my sister and my brother. That made me think: What about now? Do I want to give anything now, when they can enjoy those gifts more than later? My answer was yes, so I gave them that amount.

  In short, by giving the money to my kids and other people at a time when it can have the greatest impact on their lives, I’m making it their money, not mine. That’s a clear distinction, and I find it liberating: It frees me to spend to the hilt on myself. If I want to spend like mad, I can do it without worrying about the effect on my kids. They have their money to spend as they wish, and I have mine.

  Your Real Legacy Isn’t Money

  I spent much of this chapter talking about giving your money to your offspring—but that’s only because money is what most people are talking about when they ask, “What about the kids?” But remember, money is just a means to an end—a way to buy the meaningful experiences that make up your life. As I explained in chapter 2, I’m assuming that your goal in life is not to maximize your income and wealth but to maximize your lifetime fulfillment, which comes from experiences and your lasting memories of those experiences. And just as you’re trying to maximize your own fulfillment, you’re trying to maximize your children’s fulfillment too.

  The same holds for memories: Just as you’re trying to form memories of times with your kids, it makes sense to want your kids to form memories of you. Both sets of memories will yield a memory dividend—one stream of dividends for you and one for your kids. So how do you want your kids to remember you? That’s just another way of asking: What kinds of experiences do you want them to have with you?

  That’s important to think about before it’s too late. Look at it from the perspective of the child deprived of experiences with the parent. A friend of mine received a massive fortune from his father, with whom he had almost no relationship while growing up, because the dad was always away chasing deals to build his fortune. So despite the family’s impressive wealth, my friend had a pretty miserable childhood. He was the classic poor little rich boy. The years of emotional neglect put a lasting strain on the father-son relationship: When the two did finally have time together, they found that they had trouble enjoying each other’s company. There was just no way to make up for all that lost time and attention. Now when my friend thinks of his father’s legacy, material wealth is one of the few things he recalls with any sense of gratitude.

  It’s like the song “Cat’s in the Cradle.” The lyrics are just heartbreaking: The man telling the story basically missed his son’s whole childhood, because there were always “planes to catch and bills to pay.”

  A lot of people quote from “Cat’s in the Cradle” because it is so emotionally moving and rings true for so many people who hear it. I love the song, too, with its message that you can’t delay experiences with your kids indefinitely—but its message is incomplete. Yes, many of us are too busy chasing x, y, and z for the sake of future benefits, not realizing that the time to have meaningful experiences with our children is now. But it’s too simplistic to leave it at that, because there’s a limit to the benefits of spending additional time with your kids. You can’t delay everything, but you can delay some things.

  I do believe firmly that your real legacy for your kids consists of the experiences you’ve shared with your children, especially when they’re growing up—the lessons and other memories you’ve imparted to them. But I don’t mean it in a schmaltzy, best-things-in-life-are-free way. In fact, the best things in life aren’t actually free, because everything you do takes away from something else you could be doing. Spending time with your family usually means not spending that time earning money—and the other way around. Instead, there are ways to think about experiences in a more quantitative way that will help you make better decisions about how to spend your time.

  But before I get to that, let me make my main point clear: Of all the experiences you are trying to bequeath to your child, one of those experiences is time with you.

  Time with you is crucial, because the memories your kids have of you have lasting effects, for better or worse. Scientists have known for some time that young adults who as young children receive more affection from their parents come to enjoy better personal relationships in general and to also have lower rates of substance abuse and depression. We also know that the positive effects of loving, attentive parents last well past young adulthood, thanks to a study of more than 7,000 middle-aged adults. Researchers asked these adults a bunch of questions about their memories of their mother and father—questions like “How much time and attention did she/he give you when you needed it?” and “How much did she/he teach you about life?” and “How would you rate your relationship with your mother/father during the years you were growing up?”