Monday, March 7, 2011

Spend Away!

I had a client in the office the other day who was here to sign his estate plan documents. As per routine, we reviewed the documents I prepared and made a few edits. When we arrived at the portion of his trust that set aside a specific amount for each child, he had an internal debate as to how much he should leave each. Rather then give specific amounts, I advised him to set aside a percentage of the residue (the leftover cash) instead. This lead to a discussion of how conservative he should be with his spending so that he can leave as much behind as possible.

In my opinion, and this is what I told him, spend away! In my experience, I've noticed that, the eldest generation feels an obligation to leave behind as much as possible for the generations after them. I could only speculate as to the reasons why, but I think its important to emphasize to my clients that the money they earned is theirs. They should feel no pressure to leave a more generous amount to their heirs to the detriment of their own lifestyle. After working a lifetime to build their wealth, if they have the means then go ahead and get that balcony room on an Alaskan cruise rather than an interior room on a 3-day boat to Ensenada.

This article in Financial Times points out another reason to feel free to spend down the estate: the fear of leaving mounds of cash to spendthrifts who will only fritter it away. Of course, if that is a concern, then I'd advise use of a discretionary spendthift trust to prevent heirs from wasting trust assets and require some self-sufficiency.

The point, however, remains: if you've toiled away to earn it, don't feel guilty enjoying it, too.

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