Passing Down Wealth Without Spoiling Heirs 101

Passing down wealth may sound simple, but the reality is much more complicated! In this episode, we cover why leaving money to the next generation is tricky, including surprising statistics on how quickly wealth can disappear, and compare the experiences of first-generation wealth builders with their heirs. You'll also hear different ways to prepare kids for an inheritance and discover useful estate planning tools and trusts that can help protect your legacy.

Read the episode transcript, show notes, or watch the video version at thewealthmindsetshow.com/s2e21

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Chapters

• 1:12 Life Updates: Back to School, Teacher's Pets, and Wilson Academy
• 3:00 Why Passing Down Wealth Is Tricky & Some Shocking Stats
• 5:30 First-Generation Vs. Second-Generation Experiences
• 7:05 How to Prepare Heirs & Kids for Inheritance
• 18:30 Practical Trusts & Estate Planning Tools for Passing Down Wealth

Transcript

You are listening to the Wealth Mindset Show, where Hixon Zuercher Capital Management's team of finance professionals, portfolio managers, and a life coach come together to tackle complex topics in finance and retirement planning so you don't have to. From investment strategies and wealth management to tax planning, retirement income, and aligning your money with your values and purpose, the Wealth Mindset Show offers the tools to thrive.

Austin Wilson:

All right. Hey, hey. Welcome to the Wealth Mindset Show, where our Hixon Zuercher team will have conversations on managing wealth, navigating retirement, and making smart decisions for a secure, meaningful future. I'm Austin Wilson, director of Investments at Hixon Zuercher Capital Management.

Josh Robb:

I'm Josh Robb, Director of Wealth Management here at Hixon Zuercher Capital Management. Today we're joined with co-founder and CEO, Tony Hixon.

Tony Hixon:

Hey.

Josh Robb:

And also our Senior Wealth Advisor, Jessica Hinks. And so today we're going to be talking about the concept of passing down wealth to your kids or heirs without spoiling or messing up their life and that legacy you're trying to pass on.

Austin Wilson:

Can it be done? That's what we're going to be answering. But first of all, I mean, summer's wrapping up, we're finally getting to some cooler weather here in Ohio because, I don't know about you, but I feel like it's been hot.

Josh Robb:

It's been warm.

[1:12] - Life Updates: Back to School, Teacher's Pets, and Wilson Academy

Austin Wilson:

We've had a real summer. We had a real winter last year. We had a real summer. It was hot and humid this year. Kids all back to school, everyone?

Josh Robb:

Yep. Back in the swing of things.

Tony Hixon:

Yep. My oldest is back to college, so dropped her off last weekend and, yep, starting her second year. It's going well for her. So-

Josh Robb:

Nice.

Tony Hixon:

Yeah, I feel old. I still got two at home, but, so it's okay.

Josh Robb:

I got one in high school, one in middle school, one in upper elementary, one in lower elementary, so -

Austin Wilson:

Oh yeah, you're all over the place.

Josh Robb:

But the plus side is my oldest is driving, so he's taken three of the-

Austin Wilson:

Carpooling. Yeah.

Josh Robb:

... three of the four riding together in the morning to school, which is a new concept.

Austin Wilson:

Nice.

Josh Robb:

Yeah, just a different stress level you have when a kid takes a car and leaves.

Austin Wilson:

Your kid's not there yet?

Jessica Hinks:

No. But Allie did get into a new pre-kindergarten class with a brand new teacher and I can tell she's going to be a teacher-pleaser. Some people call that a brown-noser-

Austin Wilson:

Teacher's pet.

Jessica Hinks:

... I think. She just so eager to please her teacher and bring her homework home and show her teacher. It's pretty cute.

Josh Robb:

Well, I know first day of school, my oldest daughter came home and was complaining because she had homework to do. Come to find out, she volunteered to be the first presenter in this project, so that's why she had homework, was her own volunteering to first- She wanted to be first. So yeah, self-inflicted, I think.

Austin Wilson:

Our oldest just turned eight, which I don't know how that's possible because I'm still 24.

Josh Robb:

I know.

Austin Wilson:

And so she turned eight and so my wife has started Wilson Academy at the house again already for the year. And there she sends me pictures of all the new fun things they're doing. I'm like, that's what -

Jessica Hinks:

Is that what it'll say on the transcripts one day?

Austin Wilson:

Wilson Academy. Oh, I'll tell you, my mom coined that because she's homeschooling my little brother too. So it's just the Wilson Academy. It could be a thing. We're going to get t-shirts.

Josh Robb:

Our listeners might think that Wilson Academy is a real place.

Austin Wilson:

I know. They're going to Google it.

Josh Robb:

Start enrolling.

[3:00] - Why Passing Down Wealth Is Tricky & Some Shocking Stats

Austin Wilson:

It's a real place in Hancock or Logan County. We'll have to see.

So as we mentioned, speaking of kids, should they have money at the end of your life? Should they not? How's this going to work? How to pass it down without spoiling them? We're going to talk about a lot of things. An interesting statistic that came up when we're doing some research for this episode is that 70% of the time, family assets, so think about assets that your family has accumulated for a long period of time, big chunk of assets, 70% of the time, they're gone by the second generation and 90% of the time they're gone by the third generation. And that was a 20-year project based on 32 families' worth of data. And that is just an astounding-

Josh Robb:

3,200.

Austin Wilson:

3,200. Sorry.

Josh Robb:

32 families.

Austin Wilson:

3,200 families with a data. That is an astounding statistic about how something isn't clicking. And why would that be?

Josh Robb:

Yeah. Now that stat is believable, having been in this industry for a while and seeing how decisions are made. I also know this didn't give any dollar framework. So-

Austin Wilson:

True.

Josh Robb:

You could have inherited $50 and then that's gone by the second generation, rightfully so. They went out and bought lunch. But I see this trend and I know Tony and Jess, as advisors, we see this in that, and we're going to talk about this, there's a different mindset of earning the money and receiving the money in how you treat it. And that'll be what we talk about a lot.

Jessica Hinks:

And as far as why it happens, I think the biggest reason why it happens is just poor communication. People don't say what they want to be done with the money. And believe it or not, I think humans like being told what to do, we like directions, and most people I encounter spend the money the way they're told to if they're actually told to. Just lack of clarity and assumed intentions just lead to not great outcomes.

Tony Hixon:

For sure.

Austin Wilson:

So I think as a starting point, we could say communication is key.

Tony Hixon:

Communication.

Austin Wilson:

So make a plan, prepare, because maybe it's a good time to have discussions with your kids before you die, right?

Jessica Hinks:

Yeah.

Josh Robb:

It doesn't have to be dollar-related. Setting the values in your intentions can happen at any age when they can start understanding those concepts. And you don't have to say, "I'm going to be giving you X amount of dollars." You can just say, "If and when we pass and you receive some money, here's some of the things I think would be best utilized for." And you can start the conversation without dollars involved until they're at an age where you think that would be beneficial for them to start knowing where that dollar amount might land.

[5:30] - First-Generation Vs. Second-Generation Experiences

Austin Wilson:

I think what's interesting is that I think the people earning the money assume that how they view the money, because it's their money, and we're going to talk about that in a second, but I think they assume that that's how the next generation is going to view money, but they're going to view it completely different. So it's like the first generation, maybe they came from modest beginnings. They earned all this money themselves. They worked hard for 30, 40 years, then they persevered and grew through that. They learned a lot of discipline, they learned a lot of resourcefulness, resilience through all this. But then they probably provided really well for their kids and their kids probably didn't have to work for it as much, and they were given a little bit more help and all this other stuff. So they didn't have the same respect for the money that their parents did, and that only gets worse the next generation because their parents didn't even earn the money, so what do they think of that money? Well, it's just fluff, right?

Josh Robb:

Yep. And you see that, well, for instance, as my oldest son was learning to drive, I assumed he observed and absorbed certain driving skills and habits just from watching.

Austin Wilson:

How'd that work out?

Josh Robb:

And that was not true.

Jessica Hinks:

Yeah. We learn what assuming makes you, right? No assume.

Josh Robb:

You're playing games.

Austin Wilson:

This is a family-friendly episode, so we're not going to say that.

Josh Robb:

But that's the point is like you said, and they may say, "Oh, they're going to see my hard work values." Well, maybe by the time the kid actually starts paying attention, you're on the later phase and they see you spending and enjoying that hard work, and so they see mom and dad taking these good vacations and doing these things, all a result of their hard work. But by the time they start paying attention, they're being taught a different value. And it's just, again, the assumption is the problem.

[7:05] - How to Prepare Heirs & Kids for Inheritance

Austin Wilson:

Right. So I guess question for my three colleagues here, because this is more your wheelhouse than mine, in what ways can we prepare those heirs or those people that could be receiving this money in order that they would do well with it, do what the people would intend for them to do with it?

Josh Robb:

Jess?

Jessica Hinks:

Well, I'm just in young kid mode because that's just the phase of life I'm living now. So you might have, I'd love to hear, Tony, your thoughts on, like, young adults, but for little kids, when I was a kid, I had this little yellow combination safe and I actually knew how to turn it without the combination.

Josh Robb:

Watch out.

Jessica Hinks:

You can hear the click. My sisters had them in different colors that I could open, too. But I was in charge of my own dollar bills. I did a little jobs, babysat, various things, and I had my own bills in there I was responsible of, and I was solely responsible for how I spent it. No one checked up on me asking me how I was spending it. It was my job. And inevitably I just worked really hard. Maybe throughout the year as a young kid, I'd save like a hundred bucks, and every birthday and Christmas I would use my money to go get gifts for my siblings. So, yeah, just give kids responsibility. Let them have their own tangible money to be in charge of.

Tony Hixon:

Yeah, and the jury's still out on whether I got it right. But I do have a 19-year-old, a sophomore in college, and we implemented, Carrie and I, my wife, implemented at a very early age, I want to say four, maybe five years old, where they were able to earn a commission, not an allowance where we just gave them money. They earned their money by doing chores. And a four-year-old chore is not much, but nonetheless, once they got this commission, once they earned it, we encouraged them and basically made them split it into four envelopes.

And the first one was a tithe. So I'm a person of faith and we believe that tithing to the local church is important. So we wanted to instill that value into our children. The second one was give. So give to what? We'll give to others. So if you're invited to a birthday party or if I tried to model being generous to the person behind us in a drive-through, so I would pay for their meal. So, "Hey, do you want to pay for their meal today out of your give envelope?" And things like that. And then next was save, right? So it was others first, and finally the third envelope got to them where they're saving. For what? For something, a bigger purchase. In a four-year-old term, it'd be like the doll or something like that. As they got older, it was more for a car and ultimately college education. And then lastly was spend. And so we had to define percentages that all that would get broken into. And I think hopefully, the jury's still out, that may have instilled just the concept of others first, future self next, and then spending on today for currently. So I don't know if it's going to work or not, but we're still utilizing that envelope method even to this day with the two that are still at home.

Josh Robb:

And I think that's a great example of just starting a conversation at whatever level they're at, is don't wait until they're an adult to start a conversation about money. You should be talking at wherever ... I have a 16, 13, 10 and seven-year-old. They each have a different concept of money right now. The seven-year-old and the sixteen-year-old have different understandings of it. So how I talk and how I show it are different ways, because my seven-year-old, if we're going to the grocery store and they want this versus that, the conversation is, well, this is extra and here's why it costs more. My six-year-old, he gets that already. But now it's a conversation of being a good steward, why you want to give and save and those different things. Whereas my seven-year-old, none of it's hers so they'll give it all away. And it doesn't hurt them at all because it's just extra money that they -

Tony Hixon:

They'll mature into that eventually.

Josh Robb:

Yes.

Austin Wilson:

I think something that's important to instill is just the goodness of work. If you come from a family where you never have to think about working for everything because everything's given to you, then your work ethic's probably going to suffer for your entire life and you're going to feel very entitled. It's going to cause a lot of problems, especially if you inherit a big chunk of money. But to always have some sort of a need for money, your kids should probably have some way of earning 20, $30 here and there to help chip in on gas or whatever that may be. If they want to go to the movies with their friends, that's on their money, so they have to have some ... it doesn't have to be, they don't have make a living, but they've got to have some ... go bale hay for every weekend during the summer and that's how you make gas money, that's how I made gas money. And that's how you kind of just learn a little bit about having money, but where it comes from.

If you don't have that work ethic, I think it's very detrimental to the long-term thing there. So yeah, just encouraging work all the time. I went to college with a lot of kids who didn't have jobs during college and I'm like, how do you buy things? They're like, "Oh, I have a credit card, it's my parents' credit card. I buy whatever I want. I go out to eat, I go to the movies, I buy clothes." I'm like, what? You don't have a job? What do you do with all your time? And I just feel like they probably nowadays are having to learn the hard way, what it actually takes to buy things. So I think that-

Jessica Hinks:

That credit card bill, it doesn't just get magically paid every month.

Austin Wilson:

- just goes away. It goes back to zero. It goes back to zero.

Tony Hixon:

I think, too, trying to manufacture scarcity in your children's lives instead of they ask for something and it magically appears, because we want to be good parents, we want to provide all the things that they need and give them a lot of their wants, too, but to restrain that, that desire, and manufacturing that scarcity for them. Dumb example, but for instance, my kids would love to have Netflix and we could have subscribed to all the streaming platforms without skipping a beat. That's easy to do. But we've said no. Right? You can have the one and you'll be thankful and happy for what you have. And it's a very dumb example. But nonetheless, it just gives you an idea of how manufacturing scarcity-

Jessica Hinks:

It's not dumb at all because it helps them get the concept of choice. Right now, my kids probably think that we're broke and they think that shopping at garage sales is a luxury, but that's just how my family grew up. It's how my husband's family grew up. But yeah, that's definitely a good perspective for the young kids side of things.

Austin Wilson:

I think another thing that's important is communication. So just even at a young age is the more you talk about money, the more it's not taboo. And I think for a lot of families it is taboo. And if it is taboo, you're never going to have a really good relationship with it, especially with your parents or whatever if you were to inherit money. So it's obviously going to look very, very different when your kids are seven than it is when they're 16 than it is when they're 19 or when they're young adults and in their 20s and 30s and 40s having families. You can get pretty honest with your kids as parents, "Hey, here's what our money situation looks like." We want to be on the same page with this going forward. Maybe it looks a little bit different before that, but just the more normalized money becomes within a family, I think the better it is.

Jessica Hinks:

Yeah, just talking openly. If you're an older adult of adult children, tell your kids how you would like to see your money used, and if you are the adult child, ask your parents what they want their legacy to be, because odds are you're probably part of that legacy. They just haven't told you it. They probably have unspoken expectations of you, which, shocker, parents with unspoken expectations, right? But just ask them, "How can I make your legacy happen?"

Josh Robb:

The parent to the kid are also freeing them up to do some of those things without guilt. Because you may say, "I would love some of this money to help you be debt-free," but they're afraid to spend money to do something because they're not sure if that's exactly what you wanted. If you can be clear, they could actually do that and feel an excitement of, "I'm fulfilling what that intention was," instead of this, "I hope this is right. I'm not sure. Maybe I won't do anything or spend it on the wrong thing because I'm just not sure what to do."

Tony Hixon:

That does assume though that the parent knows the answer to that.

Josh Robb:

Yes.

Tony Hixon:

So you have to think about if my child does that, if Eliana were to ask that question to me, I'd be like-

Jessica Hinks:

Yeah, "Hey dad, how can I make your legacy a reality?"

Austin Wilson:

You're like, that's a bit morbid.

Tony Hixon:

That's a hard question to answer and one that I'm challenged to -

Josh Robb:

So I think that's the first step is, as the parents, what is our legacy that we would love to see? What are our core values, our principles that we can pass on both financially and non-financial that we would love our kids to carry forward? Once that's defined, then you say, "Of that, how can they utilize wealth to continue that?" And it takes some effort. It's not something that comes easy or naturally, I think, but it has to be intentional.

Jessica Hinks:

Have like a family mission statement, right? Always use a coupon, never buy a warranty. That'd be the Hinks'-

Austin Wilson:

That's a good one. Should get that tattooed, right there.

There was a Warren Buffett quote that I thought was really good. He said, so obviously billionaire, right? He's worth 90 billion, I think, something like that. He's in the top 10 richest people in the world. He doesn't really care about that at all. He lives in the same house he bought in the sixties or the fifties or something like that. He drives a five-year-old Cadillac and eats a three-dollar McDonald's breakfast every day, which by the way, it's amazing he's 90-some years old.

Jessica Hinks:

It's got to be more than $3 now.

Austin Wilson:

I think it's five.

Josh Robb:

Drinks Coke.

Austin Wilson:

Drinks Coke all the time.

Josh Robb:

And eats McDonald's. He's still kicking.

Austin Wilson:

He's still ninety-some years old. He is retiring, 1/1/26.

Tony Hixon:

Send him a book, by the way.

Austin Wilson:

Yeah, that's right.

Tony Hixon:

The book I wrote, I signed it, "Dear Warren."

Jessica Hinks:

Are you listening, Warren?

Austin Wilson:

His second half might be a little shorter.

Tony Hixon:

A little bit, but, you know?

Austin Wilson:

You never know.

Tony Hixon:

It was worth it.

Austin Wilson:

But yeah, he said obviously he could leave his $90 billion to his kids and they could do whatever they want and they... by the way. And his quote was, "Leave enough money to do anything, but not so much that they can do nothing." So I think he has very aggressive goals on giving that money away and leaving them, of course, a lot of money in non-profits to have some reason to find work and to find fulfillment in what you do, but not leave them enough money that they can just go be playboys for their entire life and live on a yacht. So I think that that's a-

Jessica Hinks:

Are we allowed to say that word?

Austin Wilson:

Playboys? Yeah, we did. We did.

Josh Robb:

Have you ever felt overwhelmed by the complexities of managing your wealth? You're not alone. At Hixon Zuercher Capital Management, we specialize in helping affluent families and individuals navigate the complex challenges of managing their finances. Wealth management is all about combining thoughtful financial planning with active investment management to help you reach your goals. Our process is designed to guide you toward what truly matters because we believe wealth isn't the destination. It's a vehicle for something much more meaningful in your life. Achieving your dreams requires careful planning, smart decision-making, and access to high quality investments.

That's where we come in. We understand that complex financial situations call for deep expertise in investing, tax strategies, and retirement planning, but our approach goes beyond that. We integrate your financial goals with your core values, helping you visualize the possibilities your wealth can create for a secure future. If you're ready to take the next step, visit hzcapital.com/start to see if we'd fit in to your needs and to schedule call with us. Again, that's hzcapital.com/start. Now let's get back to today's episode.

[18:30] - Practical Trusts & Estate Planning Tools for Passing Down Wealth

Austin Wilson:

So next comes the discussion that my financial planning peers, we're all here for, and that is how do you this? Because there are ways that you can structure this to incentivize your money being put to good use. So let's talk about maybe some trust or estate planning tools that are practical.

Josh Robb:

So that is the first one. So one is the communication so everybody's on the same page. Then the second is how do I structure it to make sure that's most likely to play out? And from an inheritance standpoint or just a wealth transfer, trust give you the most flexibility and also the longest control on those assets. And so trusts are great in that you can do just about anything within them based on the wordage you put in that trust. You can limit their ability to access the funds through certain criteria. They have to hit certain ages or accomplish certain things. You can have trustees over top that have to verify those withdrawals match the needs. So there's a lot to do with trust, but that's a great way of solidifying those desires and putting it in a spot that someone will have to be mindful of following.

Tony Hixon:

Right, right.

Jessica Hinks:

And people always have those staggered ages, like you can get money when you're 25 or 30, 35, etc. And I do think though that people spend too much time focusing on their own kids. I don't want my kid to do anything with the money until they're 20 or 30. The vast majority of the time, those trust rules will never come into play because you're going to live a long life and your kids will have far surpassed those ages by the time the trust comes into use. So I think people should put a lot more thought and direction actually towards the next generation, the grandkids, because that's actually when the trust will be really used. For your own kids, you're still alive for those ages.

Tony Hixon:

For sure. There's also the concept of incentive trusts, so they have to meet a certain criteria in order to release the money. Have y'all seen that in action? I don't think I have.

Josh Robb:

I've seen a couple, but not as often as the age. I think the age is the easy-

Tony Hixon:

Age is very common.

Josh Robb:

Let's just wait until they're older and they'll be more mature with money. But I've seen some where you have to have done this to get it.

Austin Wilson:

Well, a example just saw-

Josh Robb:

Education.

Austin Wilson:

Shaquille O'Neal, very wealthy guy.

Tony Hixon:

Very tall.

Austin Wilson:

Very tall, very wealthy.

Josh Robb:

He likes pizza.

Austin Wilson:

Yeah, he likes pizza. Yeah, he is Papa John, right?

Tony Hixon:

Papa John.

Austin Wilson:

But he's almost a billionaire, if not billionaire status by now. He's pretty darn close. He's doing well. He has a lot of businesses. He's got kids. I think he's got four, five kids. His rule for them, incentive trust thinking, is that they don't get access to the Shaquille O'Neal money, which is a lot of money, until they have a master's degree.

Tony Hixon:

There you go.

Austin Wilson:

So he wants his kids to have worked and done a lot of good work and earned something before they have access to obviously some serious resources. So I think that's really cool.

Josh Robb:

And I think outside of a trust or maybe you look and say, "I don't know if my assets are enough to justify a trust," well then, again, going back to that mission statement or kind of the values, writing that down and put it with your estate documents, it's not legally binding, but at least gives them that starting direction point to say, "Here's what I think where things should go."

Jessica Hinks:

It's the ultimate clear communication, which is what it all comes back to. I mean, what is more clear than a one-sentence mission statement that you see in your documents, right?

Josh Robb:

Always use coupons, right?

Austin Wilson:

I think another thing a trust can be used for is the negative side of things where you could disincentivize bad behavior. You could write things in there so that people who are doing things that are against your will don't get certain funds instead of, "You have to do this to get it," "If you are doing this, you don't get it." And I think that that can also be probably positively and negatively used, but I think it's a powerful tool that if you have a kid who's just terrible with money or a gambling addict as a child, you could restrict that. And I think that that's a healthy thing. So something else to consider there. Anything else from you guys?

Josh Robb:

I will say because of this whole conversation, that next generation or even two generations out, having an independent trustee removes the pressure of siblings have to make decisions for each other or for kids. If you have an independent trustee that can just follow the language of the trust, it separates that emotional of, "Oh, I'm playing off of mom, you were mom's favorite and that's why you're doing this or whatever." Having somebody come in that's just going to follow the rules and doesn't have that association sometimes alleviates the pressure from some of the other siblings that they're not playing this back and forth game.

Tony Hixon:

Sure.

Austin Wilson:

All right. Well, thank you for listening to our episode on leaving or not leaving your kids some money, but hopefully how to do it well, if you do.

Jessica Hinks:

Was the answer leave your kids money?

Austin Wilson:

The answer was, it depends.

Josh Robb:

It's always my answer.

Austin Wilson:

It's always Josh's answer.

Tony Hixon:

There you go.

Josh Robb:

The key is leave a legacy, not just-

Austin Wilson:

That's right.

Josh Robb:

I think that's a good one.

Austin Wilson:

That's right. Yes, absolutely.

Tony Hixon:

That's a good summary statement.

Austin Wilson:

So hashtag write that down. If you found value in our conversation, don't forget to visit our website at thewealthmindsetshow.com. You'll be able to see all of our resources that we have on the website there, you can see show notes and links and all kinds of stuff that's really cool. But don't forget to subscribe because we publish frequently and that way you don't miss them when they come out. And always feel free to check out hzcapital.com if you have any questions about Hixon Zuercher Capital Management, where we all get the joy of calling our employment home. And follow us on social media because we post there frequently and we'd love to stay connected. Otherwise, thanks for listening and we will talk next episode. Thanks. See you later.

Thank you for joining us at the Wealth Mindset Show where we tackle the complexities of finance and life planning to help you align your wealth with your values. We hope today's conversation provided value and clarity as you navigate your financial journey.

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