Determining how much to gift in assets to family members, either during one’s lifetime or at death, is a challenging problem for many. A survey conducted by Merrill Lynch’s Private Banking & Investment Group found disagreement among high-net-worth investors about how much is too much. One-quarter of survey respondents said they were concerned about leaving too much, while 34% said they were not at all concerned.

Part of the reason for the disparate numbers was that there was no majority agreement on what dollar amount was too high or too low. Responses ranged from an inheritance being too large if it provides a disincentive for the recipients to achieve their full potential (46%) to it depends on the value of the person gifting the assets (20%).

While the report’s authors refrained from giving monetary guidelines, they did suggest five factors for structuring gift decisions and helping recipients understand the reasoning behind the decision.

• Make Values Explicit: Heirs who spend money carelessly may lack a clear idea of the underlying values and responsibilities that wealth represents. When heirs see themselves as part of legacy rich in meaning, the threshold of what amount is too much is increased.
• Determine a Recipient’s Respect for Wealth: Consider whether an heir regards wealth as a privilege or an entitlement. Heirs who believe they are entitled to family wealth may spend any gifted amounts less wisely.
• Assess Emotional Maturity: Gifting can entrench bad behavior in an heir who has a track record of irresponsible spending, whereas a responsible recipient is more likely to see it as a means to pursue purpose and independence.
• Define Fairness for Your Family: Fairness may not mean distributing equal amounts to everyone. The study’s authors say it is more important for heirs to understand the distribution process than to receive balanced inheritances.
• Account for Passion and Purpose: The threshold of what is and isn’t too much often depends on an individual’s mind-set and motivations. Asking each recipient what they plan to do with the gift can shed insight to what the right amount should be.

Source: “How Much Should I Give to My Family? On the Risks and Rewards of Giving,” Stacy Allred and Michael Liersch, Merrill Lynch Private Banking & Investment Group.

Related

Financial Planning

18 Recommendations for Minimizing Inheritance Conflict

Financial Planning

Family and Finances: Start the Dialogue

Financial Planning

A Guide to Dealing With an Estate Planning Attorney