Plan to leave a big inheritance to family? Why not offer ‘seeds’ while you’re alive?

Dan Danford |

Recently, I was enjoying a chat with one of my best buddies. As they often do, the conversation wormed its way around to retirement and finance. One of the sincere things he said perked my attention: “I guess what I’d really like is to finance my retirement and then, when I’m done, pass along a bit of seed money for my son.”

Earlier, he mentioned that he has forecast retirement out to age 98 for himself as a sort of insurance that he won’t run out of money. We use similar figures in our professional financial projections for clients. Although not everyone lives that long, a significant number of retirees do.

Back when my grandfather retired, life expectancies were far different. People retired at 62 expecting to live another 10-12 years. Today, life expectancies have increased due to better lifestyles, better medicines and better overall health. Simply put, people tend to live far longer today than at any other time in history. One recent tally showed over 70,000 100-year-olds among our population. Yesterday’s financial lessons need an update.

“You do realize,” I prompted him, “that he could be an old man before he inherits that seed money.” We both chuckled but it wasn’t all that funny. It was a moment of insight with dramatic consequences. Adult children today face a different financial path than ever before. Which will have more impact: seed money today or mad money after they retire?

Seed money is a great idea. The notion rises out of our agricultural past. It’s the little bit today that grows into eventual prosperity. It is applicable to almost anything: crops, inventory, education, investments or even relationships. If we put value into them today, they grow into something much more valuable over time.

However, time is the key variable. Crops won’t grow in a week. Seed money for college is better spent early when lessons will be planted into a career that might blossom throughout adulthood. Inventory for a brand-new retail store takes a thousand turnovers to become a successful chain. Modest annual contributions can grow into a sizable retirement fund, but only if they compound over several decades. Meaningful growth takes time.

So, this is my blinding insight: significant contributions may require a different approach than you initially thought. It’s not bad to leave a nice bequest (everyone loves extra mad money), but similar amounts at age 35 can be far more impactful than at age 70. Will it be seed money or mad money?

Here are some terrific ideas I’ve used with my own family or seen among my successful clients:

▪ Buy education for grandchildren so adult children can focus on retirement compounding.

▪ Buy inspiring vacations for the entire family. Everybody wins when grandparents create powerful memories. Without help, vacations are a luxury that many families miss.

▪ Loan money to children for sensible purposes. Your portfolio probably contains bonds (loans) to government entities and corporations. You can add a loan or two to your family without hurting investment performance. (Treat it like a genuine loan, though, with documentation and payment schedules.)

▪ Invest in family businesses. Every business needs capital. Your loan or investment in a family business helps both you and your family. Again, treat this like any other investment. Consult with your lawyer.

▪ Invest in continuing education. A college education today gets stale faster than any other time in history. People need to update skills and knowledge, both for work and personal satisfaction. You can help them grow and prosper throughout their lives.

▪ Invest in financial education for yourself and your family. This is a new world where yesterday’s financial lessons need updating. There are wonderful professionals and tools to help analyze your situation and make plans for the future. The lessons you learned from dad or grandpa are likely outdated.

This brave new world offers both challenges and opportunities. Most people tend to see the challenges instead of the opportunities. However, the rewards for some adjusted thinking can be rich.

Leaving something after you are gone will be welcome, no doubt. Helping before you are gone, though, might be more inspiring and productive. Further, watching your family prosper — through education or some other helpful resources — can be a priceless experience. Why wait until you are dead to help?

As published in the Kansas City Star on 1/20/2024 - 


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